Philpott & Anor v Lycee Francais Charles De Gaulle School

Where a contract contains an arbitration agreement, the mandatory stay under section 9 of the Arbitration Act 1996 applies to legal proceedings brought to determine a dispute within its scope. Insolvency and statutory set-off do not, without more, render the arbitration agreement inoperative or displace that requirement.

A claim for directions or an account under the insolvency rules cannot avoid a stay where determining the account requires the court to resolve the underlying contractual dispute. Adjudication may remain contractually available, but a temporary adjudication decision will not ordinarily determine the final net balance required by statutory set-off.

The joint liquidators of a company in voluntary liquidation sought directions concerning a dispute arising from a construction contract with the respondent school. Each party claimed that a substantial sum was due under the final account. The contract contained arbitration and adjudication provisions.

The liquidators argued that the dispute could be resolved through the proof-of-debt and statutory set-off procedures under the Insolvency Rules 1986. The school maintained that any legal proceedings to determine the dispute had to be stayed under section 9 of the Arbitration Act 1996. The central issue was whether the insolvency account procedure displaced or avoided the arbitration agreement.

1. The arbitration agreement governed the dispute. The dispute concerned matters falling within the contractual arbitration clause. Section 9(4) of the Arbitration Act 1996 made a stay mandatory unless the agreement was null and void, inoperative, or incapable of being performed. None of those exceptions applied.
2. The liquidation and the statutory set-off under rule 4.90 of the Insolvency Rules 1986 did not make the arbitration agreement inoperative. Rule 4.90 required an account of the mutual dealings and set-off of the sums due, but it did not prescribe a procedure for resolving the underlying contractual dispute. Presenting the matter as an account under the insolvency rules could not avoid section 9 where the court would first have to determine the arbitrable dispute.
3. The court applied the reasoning in Stein v Blake [1996] AC 243: statutory set-off ultimately leaves only a claim to the net balance, but the underlying claims may require adjudication before that balance can be calculated. The arbitration process therefore supplied the appropriate means of resolving the underlying dispute.
4. The school’s proof of debt did not amount to a step to answer substantive legal proceedings under section 9(3). A proof, and an appeal from its rejection, would constitute the school’s own claim rather than participation in proceedings brought by the company. Arbitration could therefore be invoked without forfeiting the right to a stay.
5. Adjudication remained contractually available. However, an adjudication would ordinarily have only temporary effect and would not, without further steps, ascertain the final net balance under rule 4.90. Its practical use was a matter of commercial judgment.