Dr Zeyn Bharucha v Dr Riyaz Patel & Anor

Under Arbitration Act 1996, s.9(3), a party loses the right to a stay only by conduct which objectively and unequivocally accepts that the dispute should be determined by the court rather than by arbitration. Defensive steps taken in response to injunctions do not ordinarily answer the substantive claim. A reservation of rights is relevant but is not an independent requirement.

An arbitration clause requiring an award as a condition precedent to any right of action may exclude the court’s power under s.44 where, properly construed, it requires arbitration to precede all court proceedings. Serious, culpable non-disclosure on a without-notice injunction application may require discharge and non-renewal of the relief, even where the underlying claim remains arguable.

The claimant brought proceedings against a former dental-partnership colleague and his corporate vehicle, alleging misappropriation of partnership assets and related breaches of the partnership deed. Without-notice proprietary, freezing and prohibitory injunctions had been granted and continued.

The defendants sought a stay. The first defendant relied on the arbitration clause in the partnership deed and the second defendant accepted that it would be bound by the arbitration’s result. The claimant opposed the stay and sought further relief under s.44 of the Arbitration Act 1996.

The issues were whether the first defendant had taken a step answering the substantive claim, whether material non-disclosure required discharge of the injunctions, and whether the arbitration clause excluded s.44 jurisdiction.

1. The claim against the first defendant was stayed under s.9 of the Arbitration Act 1996. The claim against the second defendant was also stayed under the court’s case-management powers because it agreed to be bound by the arbitration and the claims against it were substantially parasitic on the claims against the first defendant.

2. The test under s.9(3) is whether the defendant has taken a step which, viewed objectively and in the whole context known to both parties, is unequivocal or unambiguous as to acceptance that the dispute should be resolved by court proceedings. The expressions election, waiver, representation and invocation of jurisdiction describe the relevant quality of conduct but are not separate mandatory requirements.

3. Applications for additional time, attendance at a return hearing and evidence opposing injunctions were defensive steps. Even detailed evidence on the merits remained defensive where its purpose was to resist interim relief. The later extension of time for the defence did not waive arbitration because it formed part of a pragmatic arrangement focused on the injunctions and followed recent references to the arbitration clause.

4. There had been serious and culpable, though not deliberate, non-disclosure at the without-notice hearing. The claimant failed particularly to draw attention to the arbitration clause and to the authorities raising difficulties with a partner’s direct damages claim against another partner. The case was also overstated concerning overseas assets and COVID funding.

5. The freezing and proprietary injunctions against both defendants were discharged and not regranted. The non-disclosure materially affected the jurisdictional and merits framework and the interests of justice did not justify renewal. Independently, there was no real risk of dissipation and the wider package of relief was not just and convenient.

6. The final sentence of the arbitration clause, making an award a condition precedent to any right of action, excluded the court’s jurisdiction under s.44. The s.44 application therefore failed. But for that exclusion, a prohibitory injunction preventing further interim drawings would have been appropriate.

7. The court considered it sufficiently arguable that claims for damages and an account could be brought without dissolution of the partnership. The limits of the older authorities remained uncertain and were unsuitable for final determination at an interim stage.