Section 9(3) of the English Arbitration Act 1996 provides that an application to stay legal proceedings may not be made by the defendant after it “has taken any step in those proceedings to answer the substantive claim”. The recent judgment of Fairpark Estates Ltd and others v. Heals Property Developments Ltd [2022] EWHC 496 (Ch) provided observations on determining whether a party has barred itself from challenging jurisdiction by “answering the substantive claim”. Following the defendant’s breach of the joint venture agreement (entered into between the parties to develop land in Derbyshire), the claimants brought proceedings against the defendant seeking damages and an interim injunction to recover the land.

The defendant applied to stay the proceedings under Section 9(3) where issues in dispute were being referred to arbitration. Deputy District Judge Caun dismissed the application, finding that the defendant had taken steps to answer the substantive claim. The defendant appealed the decision and HHJ Williams, sitting as a Judge of the High Court, recently dismissed the defendant’s appeal.

It is apparent from the commentary made by HHJ Williams that agreeing to undertakings in a consent order and agreeing a further extension for filing any defence and counterclaim were requisite steps depriving the defendant of its right to a stay for proceedings. The points listed below should be taken into consideration when considering an application under Section 9(3).

Parties agreeing to comply with the Pre-Action Protocol do not constitute a submission to the court jurisdiction. The purpose of the Protocol is to enable parties to make informed decisions on how to proceed with the dispute, including potentially by Alternative Dispute Resolution (ADR).

Election to accept the jurisdiction of the court is not a binary ‘all or nothing’ decision. The parties may agree that some elements of their dispute can be resolved through court proceedings and others by arbitration.

In the Fairpark case, the court concluded that the defendants accepted jurisdiction of the court with regards to the proprietary part of the claim when they agreed to a consent order (which included undertakings disposing of the claim for injunctive relief). However, that did not apply to the monetary claim, especially since the claimants agreed in the correspondence that they would be willing to deal with the damages through arbitration.

The court “objectively assessed” the conduct of the parties “in the context of correspondence” to determine whether at any point there was a submission of the full claim to the court jurisdiction. The original extension in the consent order did not qualify as such, as the order was to dispose of the urgent proprietary claims and give parties time to make an informed decision on how best to progress the matter. However, the further extension came after the defendant had “more than sufficient information” to decide how to proceed and amounted to abandoning the defendant’s right to a stay.

In situations where court and arbitral jurisdiction may clash, it is crucial to take steps such as:

• expressly reserving the right to apply for a stay in pre-action correspondence;
• highlighting that any pre-action protocol steps or requests with regards to the proceedings are only to enable the information exchange and consideration of the most appropriate future routes; and
• considering with utmost care the context and implication of any action in response to the court proceedings that may be taken as a “step to answer a substantive claim”.

This article was first published by Construction Law on 4 May 2022. You can subscribe to the Construction Law newsletter here.