Delta Reclamation Ltd v Premier Waste Management Ltd

The commencement of court proceedings does not, by itself, prevent a party from later relying on an arbitration agreement. The critical question is whether the agreement has become inoperable, including by acceptance of a repudiatory breach under ordinary contractual principles. Where the statutory conditions in section 9 of the Arbitration Act 1996 are met, the court must stay proceedings concerning matters within the arbitration agreement. A related claim may also be stayed under CPR 3.2(f) to avoid parallel court and arbitration proceedings. The court may interfere with the parties’ agreed mechanism for appointing an arbitrator only when the contractual procedure has failed or the circumstances otherwise justify intervention.

The parties entered into an agreement containing a wide arbitration clause. Disputes later arose concerning the storage, processing and removal of UTDAR. Delta initially issued ordinary Part 7 proceedings and sought an interim injunction. The injunction application was dismissed, but Premier did not take further procedural steps in the action and later filed a Defence and Counterclaim after Delta served a notice to arbitrate.

Delta applied under section 9 of the Arbitration Act 1996 to stay the Counterclaim and under CPR 3.2(f) to stay its own claim. Premier argued that Delta had elected litigation and could no longer invoke arbitration. Premier also sought the appointment of an arbitrator or substitution of the agreed appointing body. The issues were whether the arbitration agreement had become inoperable, whether the Counterclaim should be stayed, and whether the court should intervene in the agreed appointment process.

The court allowed Delta’s applications in substance and refused Premier’s informal application concerning appointment of an arbitrator.

1. Effect of commencing proceedings. The fact that Delta had initially chosen court proceedings was not determinative. If Premier had applied for a stay under section 9, the proceedings would have been stayed and arbitration could have proceeded. Delta’s pre-action correspondence recognised the arbitration agreement, and there was no acceptance of any repudiatory breach sufficient to bring that agreement to an end.
2. Inoperability. The reasoning in Downing v Al Tameer Establishment [2002] EWCA Civ 721 was of assistance. Ordinary contractual principles applied to the agreement to arbitrate. Although issuing the Part 7 claim was arguably a breach, Premier had defended the injunction application on the basis that it preserved its right to seek a stay and had taken no subsequent step in the action. The arbitration agreement therefore remained operative when Delta served its notice to arbitrate.
3. Statutory stay. Premier’s Counterclaim was not wholly parasitic on Delta’s claim. Its claim for the costs of removing and disposing of UTDAR was a separate claim falling within the arbitration clause. Under section 9(4) of the Arbitration Act 1996, the court was bound to stay it because the agreement was not shown to be null and void, inoperative or incapable of being performed.
4. Stay of Delta’s claim. Although section 9 did not provide a stay of Delta’s own claim, CPR 3.2(f) supplied ample power to stay it to avoid parallel proceedings. The stay was granted on terms that Delta pay Premier’s costs of the claim up to and including service of the notice to arbitrate.
5. Appointment. The agreed appointing body had not refused to act, and the parties’ conflicting instructions did not justify intervention. The time had not arrived for the court to substitute an appointing body or appoint the arbitrator itself.