Corus UK Ltd v Terex-Demag Ltd

Where a defendant successfully applies under section 9 of the Arbitration Act for a stay, the normal order is for the defendant to receive the costs of the action and the application. That expectation ordinarily depends on a prompt application before substantial costs are incurred. A defendant who fails to investigate a reasonably apparent arbitration clause and continues incurring avoidable costs may receive no costs. The costs jurisdiction remains discretionary and fact-sensitive. An appellate court should not interfere where the decision falls within the generous ambit of reasonable disagreement. Pre-action protocols inform that discretion but do not create rigid rules applicable in every case.

Corus issued a contractual claim against Terex but initially did not serve it. Terex’s solicitors raised limitation and compromise issues, requested the contract and agreed that no further action should be taken pending responses. They did not investigate whether the contract contained an arbitration clause. After service of the proceedings, Terex discovered the clause and applied under section 9 of the Arbitration Act for a stay without first seeking Corus’s consent. Corus immediately accepted that the proceedings should be stayed. His Honour Judge Gilliard made no order as to the costs of the action or the stay application, but ordered costs relating to the hearing. Terex sought permission to appeal, alleging an error in the exercise of discretion and raising the pre-action protocol and section 9 costs issues.

Permission to appeal refused. Waller LJ, giving the judgment of the court, held that the costs order was within the judge’s discretion and that no issue of general importance arose.

1. Under section 9 of the Arbitration Act, a successful defendant’s normal entitlement is to the costs of both the action and the stay application. The normal case is one in which the application is made promptly, before substantial costs are incurred in the action.
2. The judge was entitled to treat Terex’s failure to investigate the arbitration clause as significant. Engineering contracts commonly contain arbitration clauses, and Terex had requested a copy of the contract while considering the dispute. Actual knowledge was not essential. The circumstances should have prompted an early investigation and, if appropriate, an early application for a stay.
3. The judge was also entitled to conclude that costs incurred during the delay were brought upon Terex itself. Terex continued incurring costs after the solicitors’ agreement that no further action would be taken pending responses. The failure to comply with the pre-action protocol, including its 28-day provision concerning objections to jurisdiction or arbitration, supported the no-order decision.
4. The stay application was issued without first asking Corus whether it would consent, although Corus immediately accepted that a stay should be granted. The judge could therefore refuse the costs of that application, having regard to its lateness, apparent unnecessary nature and the parties’ conduct.
5. Costs concerned with the merits of the contractual dispute might be recoverable in the arbitration if Terex succeeded and could establish their connection with the merits. That possibility did not require those costs to be awarded as costs of the court action. Small procedural costs could likewise be refused where a proportionate exercise of discretion justified that result.
6. The judgment did not establish any general rule governing all section 9 costs applications or the application of pre-action protocols. The proposed appeal concerned an exercise of discretion in particular circumstances and fell within the generous ambit where reasonable judges might differ.

Order: permission to appeal the costs order refused.

1. High Court, Queen’s Bench Division: His Honour Judge Gilliard made no order as to the costs of the action or the section 9 stay application, but ordered costs relating to the hearing.
2. Court of Appeal (Civil Division): Terex sought permission to appeal the costs order. The application was refused. [2005] EWCA Civ 781