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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Bilta (UK) Ltd (In Liquidation) v Nazir & Ors [2010] EWHC 1086 (Ch) (17 May 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1086.html Cite as: [2010] 2 Lloyd's Rep 29, [2010] Bus LR 1634, [2010] EWHC 1086 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/05/2010

Mr Justice Sales :

1. This is the hearing of an application by the Sixth Defendant ("Jetivia") for an order to stay these proceedings on the grounds that the Claimant ("Bilta"), which is a company in liquidation, is party to an agreement with Jetivia ("the Framework Agreement") which contained at clause 8.7 an arbitration clause which (so Jetivia contends) covers the claim now made against it by Bilta.
2. Bilta resists the application on three grounds: (i) it disputes that it ever entered into the Framework Agreement; (ii) it submits that, even if the Framework Agreement is applicable, clause 8.7 does not cover its claim against Jetivia, alternatively that it does not cover part of its claim against Jetivia; and (iii) it contends that Jetivia has lost any right it had to seek a stay of the proceedings (a) because CPR Part 11 governs the making of such an application and therefore, since Jetivia failed to make its present application within 14 days after filing its acknowledgement of service on 26 November 2009, by virtue of CPR Part 11(5), Jetivia "is to be treated as having accepted that the court has jurisdiction to try the claim", alternatively (b) by reason that, in making an application to court dated 20 January 2010 for an extension of time to serve its defence, Jetivia took a "step in [the] proceedings to answer the substantive claim" and is now debarred by section 9(3) of the Arbitration Act 1996 ("the 1996 Act") from making an application to stay the proceedings.

The legal framework

3. Section 9 of the Arbitration Act 1996 provides in relevant part as follows:

"9. Stay of legal proceedings

(1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

(2) An application may be made notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures.

(3) An application may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.

(4) On application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed. …"

4. CPR Part 11 is entitled "Disputing the Court's Jurisdiction". It provides in relevant part as follows:

"11-(1) A defendant who wishes to –

(a) dispute the court's jurisdiction to try the claim; or

(b) argue that the court should not exercise its jurisdiction,

may apply to the court for an order declaring that it has no such jurisdiction or should not exercise any jurisdiction which it may have.

(2) A defendant who wishes to make such an application must first file an acknowledgement of service in accordance with Part 10.

(3) A defendant who files an acknowledgement of service does not, by doing so, lose any right that he may have to dispute the court's jurisdiction.

(4) An application under this rule must –

(a) be made within 14 days after filing an acknowledgement of service; and

(b) be supported by evidence.

(5) If the defendant –

(a) files an acknowledgement of service; and

(b) does not make such an application within the period for specified in paragraph (4),

he is to be treated as having accepted that the court has jurisdiction to try the claim. …"

5. CPR Part 62 is entitled "Arbitration Claims". As its title suggests, it contains rules about arbitration claims. CPR Part 62.2(1)(a) defines "arbitration claim" to include "any application to the court under the 1996 Act". Part 62 thus covers applications to court for a stay of proceedings before the court. Part 62.8 provides:

"62.8 – (1) An application notice seeking a stay of legal proceedings under section 9 of the 1996 Act must be served on all parties to those proceedings who have given an address for service.

(2) A copy of an application notice under paragraph (1) must be served on any other party to the legal proceedings (whether or not he is within the jurisdiction) who has not given an address for service, at –

(a) his last known address; or

(b) a place where it is likely to come to his attention.

(3) Where a question arises as to whether –

(a) an arbitration agreement has been concluded; or

(b) the dispute which is the subject-matter of the proceedings falls within the terms of such an agreement,

the court may decide that question or give directions to enable it to be decided and may order the proceedings to be stayed pending its decision."

6. There is nothing in CPR Part 62 which states that CPR Part 11 applies in relation to an application for a stay of legal proceedings made under section 9 of the 1996 Act and CPR Part 62.8.

The nature of Bilta's claims against Jetivia

7. The liquidator of Bilta claims that the First and Second Defendants (Mr Nazir and Mr Chopra), who were previously its directors, caused Bilta to enter into trading transactions with various counterparties in relation to European Emissions Trading Scheme Allowances (known as "EUAs"). The transactions and ownership of the EUAs in question were recorded by the relevant registry in Denmark. Bilta would purchase EUAs from various counterparties, including Jetivia, and would sell them on to its own customer, the Third Defendant ("Pan 1"). Bilta was liable to account for value added tax ("VAT") in relation to its own supplies of EUAs to Pan 1. The allegation by the liquidator of Bilta is that Mr Nazir and Mr Chopra, in breach of their fiduciary duties to Bilta, arranged for Pan 1 to make payments of the sums it owed to Bilta, including the VAT element which was due, to various other parties. It is alleged that this was part of a so-called MTIC or VAT carousel fraud scheme and that by their actions Mr Nazir and Mr Chopra caused Bilta to be deprived of funds which rightfully should have been paid to it and to become massively insolvent so as to be unable to account for VAT which was payable by it.
8. Various of the transactions in relation to which Mr Nazir and Mr Chopra are alleged to have arranged for Pan 1 to pay away monies due to Bilta involved sales by Jetivia of EUAs to Bilta ("the Jetivia sales") where, it is alleged, Pan 1 paid the sums due to Bilta (including the VAT element thereon which should have been paid to Bilta and then accounted for by Bilta to the tax authorities) to Jetivia.
9. In addition, Bilta alleges that in relation to one transaction, the sale of a parcel of 67,000 EUAs by Bilta, the transferor of the EUAs to Bilta was recorded at the registry as a person other than Jetivia, but Mr Nazir and Mr Chopra arranged for Pan 1 to pay the sum due in respect of the sale of those EUAs (amounting to €993,174.50) to Jetivia. In relation to that transaction ("the non-Jetivia sale"), it is alleged that Jetivia received the sum in question even though it had not sold the relevant EUAs to Bilta and even though Bilta owed Jetivia no contractual obligation to make any payment.
10. The principal claims now brought by the liquidator of Bilta against Jetivia and its director, the Seventh Defendant ("Mr Brunschweiler"), are claims that Jetivia and Mr Brunschweiler are liable to account to Bilta in equity for knowing receipt of the proceeds of diverted book debts due to Bilta and for dishonestly assisting Mr Nazir and Mr Chopra in perpetrating their breaches of fiduciary duty to the detriment of Bilta. These claims are not directly based on any contracts for sale between Bilta and Jetivia, although in relation to the Jetivia sales they are linked to such contracts. The claim in relation to the non-Jetivia sale is not, as formulated, a claim which has any apparent connection with any contract of sale between Bilta and Jetivia.

Ground 1 - The Framework Agreement

11. Jetivia's case is that its trading with Bilta was governed by the Framework Agreement, which set out terms applicable to all the sales transactions between them. Clause 8.7 of the Framework Agreement provides:

"8.7 This Agreement and sale and buy transactions shall be governed by Swiss law without regard to conflict of law provisions. Any dispute arising under, out of or in connection with this Agreement or under, out of or in connection with sale and buy transactions shall be resolved by arbitration. The language of arbitration shall be English. The appointing authority shall be the Secretary General of the Permanent Court of Arbitration. The number of arbitrators shall be three. The place of arbitration shall be Hague, The Netherlands, and the applicable rules of arbitration shall be the Optional Rules for Arbitration of Disputes Relating to Natural Resources and/or the Environment, as in effect at the time of commencement of arbitration."

12. The liquidator of Bilta denies that Bilta ever entered into the Framework Agreement with Jetivia and hence denies that there is any binding arbitration agreement between them. The copy of the Framework Agreement which Jetivia has made available has a space for signature by Mr Chopra, but his signature is not on the document. The liquidator has interviewed Mr Chopra, who denies that he ever agreed to the Framework Agreement. In view of the allegations against him, Mr Shaw for Bilta realistically accepts that his account cannot be treated as definitive.
13. The evidence for Jetivia on this point is given in the witness statement of Mr Vito Cardinale, who is employed by Jetivia in its Emissions Trading and Advice Department. According to him, Jetivia sent Bilta a copy of the Framework Agreement by e-mail in March 2009, since it contained Jetivia's standard terms and conditions for carbon trading (i.e. trading in EUAs) and was sent to all its customers. The copy available bears the date of 4 March 2009 next to the spaces for signature by Mr Brunschweiler and Mr Chopra. However, confusingly, on the same page the Framework Agreement also gives 11 May 2009 as the date of execution of the agreement. To explain this, Mr Cardinale gives evidence in his witness statement that his assistant subsequently sent another copy of the Framework Agreement (this time signed by Mr Brunschweiler in the appropriate space for his signature) to Bilta by e-mail on 11 May 2009.
14. According to Mr Cardinale, Jetivia did not receive a response from Bilta to either of these e-mails. However, Bilta did commence trading with Jetivia from 5 May 2009, so Mr Cardinale says that he understood that Bilta had accepted the terms of the Framework Agreement.
15. The liquidator has made it clear that he is very suspicious about this account. It was pointed out in evidence filed for the liquidator that Mr Cardinale had not exhibited copies of the e-mails which he says Jetivia sent to Bilta, and there was no further evidence filed by Jetivia to make good that deficiency. The first point taken by the liquidator of Bilta in opposition to the present application, therefore, is that the Framework Agreement was never entered into by Bilta and Jetivia and accordingly that there never was an arbitration agreement made between them. Mr Shaw submits that the evidence in support of there being such an agreement between Bilta and Jetivia is so weak that the court can be satisfied on the written material, to the standard required for summary judgment on the point, that no such agreement was ever made.
16. I do not accept that submission. In my view, on the evidence of Mr Cardinale, Jetivia has raised a triable issue on the question whether the Framework Agreement did or did not become a binding contract between Bilta and Jetivia. If the Framework Agreement was sent to Bilta, as Mr Cardinale says it was, and Bilta traded with Jetivia with notice that the Framework Agreement contained Jetivia's standard terms and conditions, it is arguable that the Framework Agreement (including clause 8.7) became part of the contractual terms binding on Bilta. The question therefore arises whether the court should give directions for there to be a trial of the preliminary issue whether the Framework Agreement did form part of such contractual terms, or whether that question should be left for determination by arbitrators appointed under clause 8.7. I consider the proper course to adopt after reviewing the other grounds in opposition to Jetivia's application.

Ground 2 – The scope of clause 8.7

17. Mr Shaw submitted that even if clause 8.7 is a term of the contractual arrangements between Bilta and Jetivia, it does not, on its proper construction, cover the claims now made against Jetivia. As regards the Jetivia sales, I reject that submission. As Mr Charkham submitted for Jetivia, the language of clause 8.7 is very wide. The words "any dispute arising… under, out of or in connection with sale and buy transactions shall be resolved by arbitration" refer to sale and buy transactions between Jetivia's customer (Bilta) and Jetivia and are not confined to contract claims in relation to such transactions: compare The Playa Larga [1983] 2 Lloyd's Rep 171, 182; The Angelic Grace [1995] 1 Lloyd's Rep 87.
18. In accordance with the guidance given by the Court of Appeal and House of Lords in Fiona Trust & Holding Corporation v Privalov [2007] 2 Lloyd's Rep 267, CA, at paras. [11]-[21] per Longmore LJ and [2008] 1 Lloyd's Rep 254, HL, at paras. [5]-[13] per Lord Hoffmann, there is no proper basis for giving the wide words of clause 8.7 anything other than their full extensive meaning. Accordingly, I consider that clause 8.7 is drafted in terms sufficiently wide to cover Bilta's claims against Jetivia in respect of the Jetivia sales.
19. The position is less clear in relation to the non-Jetivia sale. The allegation here is of diversion of funds to Jetivia without any basis in a sale and buy transaction between Jetivia and Bilta. In my view, therefore, it is not a "dispute arising… under, out of or in connection with" any such transaction. But it may be arguable that it is a dispute arising "in connection with" the Framework Agreement, in that it seems Mr Nazir and Mr Chopra may have used Bilta's trading relationship with Jetivia (which was arguably governed by the Framework Agreement) as cover for diversion of the monies relating to the non-Jetivia sale to Jetivia. On the materials before me and having regard to the very limited submissions I heard on this point, it is not possible to make a final assessment on this issue. I consider that directions should be given to require each party to explain more fully its case in respect of this transaction with a view to the point being determined at a further hearing alongside determination of the issue whether the Framework Agreement was part of the contractual relationship between Bilta and Jetivia: see below.

Ground 3 - Has Jetivia lost the right to seek a stay of the court proceedings?

20. Under this heading the most far-reaching submission by Mr Shaw was that CPR Part 11 governs in relation to applications seeking a stay of court proceedings on grounds that a dispute is covered by an arbitration agreement, and that Jetivia has failed to make an application for a stay under CPR Part 11 within 14 days after filing its acknowledgement of service, as required by Part 11. Mr Shaw submits, therefore, that by virtue of CPR Part 11(5), Jetivia "is to be treated as having accepted that the court has jurisdiction to try the claim" and is no longer entitled to apply for an order for a stay of the proceedings. Such an order, he says, is an order to declare that the court "should not exercise any jurisdiction which it may have" falling within the terms of CPR Part 11(1). In support of this argument Mr Shaw pointed to a stray comment in the notes on CPR Part 11 at paragraph 11.1.1 which suggests that Part 11 does apply in relation to applications for a stay in respect of a dispute covered by an arbitration agreement. He also relied on Hoddinott v Persimmon Homes (Wessex) Limited [2008] 1 WLR 806, in which the Court of Appeal held that in CPR Part 11 the word "jurisdiction" does not connote territorial jurisdiction but refers to the court's power or authority to try a claim (see paras. [21]-[24]). Mr Shaw submits that, on this reading of CPR Part 11, Part 11(1) covers an application for a stay in relation to a dispute covered by an arbitration agreement, since such a stay constitutes an order that the court should not exercise its jurisdiction (see Hoddinott, para. [23]). He says that the operation of CPR Part 11 in this way is consistent with section 9(3) of the 1996 Act. According to his submission, section 9(3) sets out the period within which a party may apply for a stay but does not preclude the operation of the procedural rules contained in CPR Part 11 within that period.
21. I was not persuaded by this argument. In my judgment, it involves misreading section 9 of the 1996 Act, and in particular fails to give proper weight to section 9(1).
22. Section 9 is part of a code contained in primary legislation regulating proceedings concerning disputes covered by arbitration agreements. One of the major purposes of the 1996 Act was to set out most of the important principles of the law of arbitration in a language sufficiently clear and free from technicalities as to be readily comprehensible to the layman and international users of London arbitration: see Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 at para. [19].
23. Section 9(1) provides that a party to an arbitration agreement "may… apply to the court… to stay the proceedings as far as they concern [a matter covered by the arbitration agreement]" and, by defining the points in time before which and after which such an application may not be made, section 9(3) implicitly defines the period within which such an application under section 9(1) may be made. Any layman reading section 9 would understand that it creates a right in section 9(1) to seek a stay (a party "may… apply to the court…") within the time parameters laid down in section 9(3). There is no indication that the right in section 9(1) is to be further limited by the additional procedural rules in CPR Part 11 and no layman or international user of London arbitration reading the statute would understand that such additional limits might be imposed. Accordingly, on its true construction, section 9(1), read with section 9(3), displaces any possible application of CPR Part 11 which might otherwise arguably be relevant.
24. This interpretation of section 9 of the 1996 Act is supported by a number of additional points:

i) The ethos of the 1996 Act is to support and encourage arbitration as a free-standing system which is not to be regarded as a poor relation to court proceedings: see Lesotho Highlands Development, paras. [17]-[18]. This general objective supports the view that Parliament did not intend that rights to seek to refer disputes to arbitration should be lost with undue ease and hence supports the view that the procedural code in section 9 should be taken at face value and not read subject to other technical procedural limits not spelled out in it;

ii) The 1996 Act was drafted with the terms of the UNCITRAL Model Law on International Commercial Arbitration (1985) in mind: see Patel v Patel [2000] QB 551, 556C-F (Lord Woolf MR). So far as is relevant to the interpretation of section 9, Article 8 of the Model Law provides:

"(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed…"

That provision frames a right for a party to require a court to refer the parties to arbitration ("a court… shall, if a party so requests… refer the parties to arbitration…") provided the application is made before the party submits his first statement on the substance of the dispute. Section 9(4) of the 1996 Act, taken with section 9(1), indicates that section 9 was intended to create such a right in domestic law. Since section 9 was intended to give effect to the right in the Model Law, which would be incompatible with the operation of CPR Part 11 being overlaid on top of the regime in section 9, this also indicates that Parliament intended that the regime in section 9 should displace any possible application of that in CPR Part 11;

iii) The part of the CPR which is expressed to apply in relation to arbitration proceedings and which covers applications under section 9 of the 1996 Act is CPR Part 62. There is no indication in CPR Part 62 that CPR Part 11 applies in relation to applications for a stay made under section 9 of the 1996 Act. On the contrary, CPR Part 62.8(1) refers to the application for a stay as being made under section 9 of the 1996 Act, which reinforces the impression that section 9 is to be taken to create the legal code which governs such applications;

iv) There is nothing in the commentary on CPR Part 62 in the White Book to suggest that CPR Part 11 applies to applications for a stay under section 9 of the 1996 Act. The stray reference in para. 11.1.1 of the notes in the White Book which suggests that CPR Part 11 may apply in relation to such an application is unsupported by citation of authority. None of the leading commentaries on commercial arbitration to which I was taken (Ambrose & Maxwell, London Maritime Arbitration, 3^rd ed. 2009; Merkin, Law of Arbitration; Mustill & Boyd, Commercial Arbitration) contain any suggestion that CPR Part 11 applies in relation to an application for a stay under section 9 of the 1996 Act. Moreover, according to counsel's researches, in all the years of case law on section 9 of the 1996 Act there is no authority which suggests that the procedural regime set out in the primary legislation concerning arbitrations is also subject to CPR Part 11. The Court of Appeal in Hoddinott did not address this point. I agree with Mr Charkham for Jetivia that this absence of any reference to CPR Part 11 in the arbitration authorities would be an extraordinary lacuna, if Parliament had really intended that applications under section 9 should be subject to CPR Part 11.

25. For these reasons, I reject Mr Shaw's submission that CPR Part 11 applies in relation to the application for a stay of proceedings which Jetivia now makes. In my view, Jetivia's right to make that application is governed by section 9(3) of the 1996 Act, to which I now turn.
26. Mr Shaw's alternative submission under this heading is that Jetivia has taken a step in the proceedings to answer the substantive claim by making an application to the court dated 20 January 2010 seeking an extension of time in which to put in its defence and, therefore, by virtue of section 9(3) is now disabled from making the present application for a stay.
27. In the absence of authority on the operation of section 9(3), I would have been inclined to reject this submission on the simple ground that asking the court for an extension of time in which to serve a defence does not constitute a step in the proceedings "to answer the substantive claim". Reading section 9(3) in light of Article 8(1) of the Model Law, to which it was intended to give effect, I would have been inclined to say that the relevant step in the proceedings to answer the substantive claim would usually be the service of a defence or some equivalent step. This would give value to the new words added in section 9(3) ("to answer the substantive claim"). Such a construction of section 9(3) would also arguably give proper effect to the ethos of the 1996 Act by ensuring that parties to court proceedings could have a clear idea of when the cut-off point for making an application for a stay in favour of arbitration proceedings arises, so avoiding the technical arguments and distinctions which had to be addressed in relation to the relevant provisions set out in earlier Arbitration Acts. It would also – to labour the point – accord with an important policy objective, namely that a party to an arbitration agreement should have a full opportunity to investigate a claim against him, to ask for further details from the claimant and to consider his position in light of full information about the claim as to whether he wishes to have it referred to arbitration or not. Adopting a clear rule that the right to seek a stay of court proceedings in favour of arbitration of the dispute is only lost when a substantive defence on the merits is served would allow such a process of investigation and consideration to take place, and would mean that the contractual right to have the dispute referred to arbitration would not be treated as having been waived for technical procedural reasons, possibly without proper information being available to and a proper opportunity for consideration being enjoyed by the party whose right to have an arbitration is to be treated as having been waived.
28. However, I consider that authority binding upon me precludes this approach to the interpretation of section 9(3). In Capital Trust Investments Limited v Radio Design TJ AB [2002] EWCA Civ 135, at paras. [54]ff, the Court of Appeal held that, on a proper reading of the judgment in Patel v Patel, the Court of Appeal in that case had decided that what counted as a step in the proceedings to answer the substantive claim continued to be governed by the old case law in relation to section 1(1) of the Arbitration Act 1975 and section 4 of the Arbitration Act 1950 regarding what counted as a "step in the proceedings" (both these provisions stated that an application for a stay should be made by a party "before delivering any pleadings or taking any other steps in the proceedings"). The Court of Appeal in Capital Trust Investments, at paras. [56], [58] and [60], adopted as the relevant principle for the purposes of applying section 9(3) the guidance given by Lord Denning MR regarding the earlier legislation in Eagle Star Insurance Co. Ltd. v Yuval Insurance Co. Ltd. [1978] 1 Lloyd's Rep 357 at 361:

"On those authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a "step in the proceedings" must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the Courts of law instead of arbitration."

29. In Patel v Patel Lord Woolf MR held that an application seeking to set aside a judgment entered in default of a defence and for an order that the defendant be given leave to defend the action and for consequential directions was ambivalent and did not serve as sufficient indication of an election to submit the dispute to the jurisdiction of the court, so as to disable the defendant from applying under section 9(3) of the 1996 Act for a stay in favour of arbitration proceedings: [2000] QB at 556G-557D. Otton LJ agreed with Lord Woolf and added remarks of his own. He referred to commentary in Merkin, Arbitration Law to the effect that:

"… (e) An act which would otherwise be regarded as a step in the proceedings will not be treated as such if the applicant has specifically stated that he intends to seek a stay."

He also referred to the further principle set out in the commentary in Merkin as follows:

"The right to apply for a stay will also be lost if the defendant in the judicial proceedings has expressly or impliedly represented that he does not intend to refer the issues in dispute to arbitration. The matter is determined by the usual rules applicable to estoppel, i.e. has the defendant unequivocally represented that there will be no reference to arbitration, and has the plaintiff conducted his affairs on the basis that the matter will be determined by the court, in reliance on that representation?"

In that case, in an affidavit served shortly after the application to set aside the judgment was issued, the defendant stated that he intended to seek a stay of the proceedings. Otton LJ held that this also had the effect that no relevant step in the proceedings falling within section 9(3) had been taken. Ward LJ agreed with both judgments.

30. In the argument before me an issue arose whether any reservation of the right to apply for a stay under section 9 of the 1996 Act of the kind contemplated by Otton LJ had to be expressed to the court, or whether it would be sufficient for it to be expressed in correspondence or other communications between the parties. In my judgment, if a party to legal proceedings gives a clear indication to the other party in such correspondence or communications that he is reserving his right to apply for a stay of proceedings, that will be sufficient to prevent his action in taking some procedural step such as asking the court for more time to put in a defence from qualifying as a step in the proceedings to answer the substantive claim such as to disbar him, by virtue of section 9(3), from making an application under section 9(1) for a stay. It is not necessary that the court itself should be informed about that reservation.
31. The code in section 9 is primarily directed to regulating relations between parties to litigation who are also parties to an arbitration agreement, rather than relations between one party and the court. If both parties are aware that a procedural step such as seeking an extension of time to put in a defence is being taken in a context where the party taking that step is still considering whether or not to apply for a stay under section 9 of the 1996 Act, there can be no good grounds for the other party to think that the party taking the procedural step has made an outright election in favour of allowing the court proceedings to proceed such as to waive his rights under the arbitration agreement between them and section 9 to seek a stay. Nor in such a case can there be any grounds for the other party to construe what is done as an implied representation that the party taking the procedural step did not intend to refer the issues in dispute to arbitration. In my view, where some procedural step is taken in the proceedings, the quality of that step for the purposes of application of section 9(3) has to be judged objectively in the light of the whole context known to both parties. I consider that the position in that regard is similar to that in respect of CPR Part 11, in relation to which it is established that the court will have regard to communications between the parties when considering whether, apart from the operation of CPR Part 11(5), a party has taken a step involving a waiver of his right to contest the jurisdiction of the court: see Global Multimedia International Ltd v Ara Media Services [2006] EWHC 3107 (Ch); [2007] 1 All ER (Comm) 1160, esp. at paras. [28(iii)] and [31] per Sir Andrew Morritt C.
32. The procedural chronology in this case may be summarised as follows. The solicitors for the liquidator of Bilta, HBJ Gateley Wareing ("GW"), sent a letter dated 13 November 2009 to Jetivia and Mr Brunschweiler intimating the claim against them. The Particulars of Claim were sent some time after that. MacFarlanes came on the record as solicitors for Mr Brunschweiler and Jetivia and filed an acknowledgement of service for Mr Brunschweiler on 23 November 2009 and for Jetivia on 26 November 2009. In each case MacFarlanes ticked the box labelled "I intend to defend all of this claim" and did not tick the box "I intend to contest jurisdiction".
33. By letter dated 26 November 2009, MacFarlanes asked GW to supply documentation relevant to the claim. That request was repeated in MacFarlanes' letter of 2 December 2009. By letter dated 15 December 2009 MacFarlanes stated that the Particulars of Claim had only been served on them on 25 November 2009 and went on:

"The Contract

Jetivia's relationship with your client is governed by a Framework Agreement dated 4 March 2009 ("the Framework Agreement"). A copy is enclosed. It is unclear why you have made no reference to this at all in the Particulars of Claim.

We refer you to clause 8.7 of the Framework Agreement. Please explain on what basis you contend that your client is entitled to bring proceedings against Jetivia in the English courts, given those provisions. We expressly reserve Jetivia's position in respect of the jurisdiction of the English court. The remainder of this letter is without prejudice to Jetivia's right to contend that this matter must be dealt with by arbitration in accordance with the contract."

MacFarlanes then proceeded to set out Jetivia's position on the facts to explain why it did not consider it had any liability to Bilta and asking for explanations about Bilta's and the liquidator's conduct. The letter concluded:

"In the light of the above, we invite you to provide a full and proper explanation of the matters raised in this letter as a matter of urgency.

Furthermore, we propose extending the time for service of our clients' defence by 21 days to 13 January 2010. The extension of time would give your client an opportunity to address the matters raised in this letter and give our clients the further information necessary to better understand the basis of your client's claim against it. We should be grateful if you would confirm your agreement to the proposed extension of time for service of the defence."

34. By letter dated 21 December 2009, MacFarlanes chased GW to agree an extension of time for service of the defence to 13 January 2010 and GW responded the same day to agree. By letter dated 7 January 2010 to GW, MacFarlanes wrote further to the letter of 15 December, chasing for a substantive response to the points raised in it. Also on that date, MacFarlanes requested a further 7-day extension of time for service of the defence. GW responded by letter dated 12 January 2010 to agree that extension, to say that it would take some time to prepare a written response to the letter of 15 December 2009 and to indicate that they would be prepared to consent to an application for any reasonable further extension of time.
35. By letter dated 14 January 2010, MacFarlanes proposed an extension of time for filing the defence to 17 February 2010. GW responded on 15 January to say that their clients consented to that request and asking for an appropriate consent order for signature. A consent order was provided and was signed by both sets of solicitors.
36. On 20 January 2010 MacFarlanes issued an application notice for the consent order to be made by the court. The Statement of Truth explained that the parties had agreed two extensions of time "pending further particularisation of the Claimant's case against the Sixth and Seventh Defendants" and that the information had not yet been provided, hence necessitating the application for a further extension of time. The court made the order.
37. It is this application which Mr Shaw fastens upon and submits amounted to a step in the proceedings to answer the substantive claim falling within section 9(3) of the 1996 Act. He relies, in particular, on the old case of Ford's Hotel Co Ltd v Bartlett [1896] AC 1, which concerned the phrase "step in the proceedings" in section 4 of the Arbitration Act 1889 (which was in similar terms to section 4 of the Arbitration Act 1950). The House of Lords in that case held that where a defendant took out a summons and obtained an order for an extension of time to deliver his defence, that constituted a "step in the proceedings" within the meaning of section 4 of the 1889 Act so that the party was not thereafter entitled to apply under that section for a stay of the court proceedings in favour of arbitration.
38. In my judgment, this submission of Mr Shaw should also be rejected. It was entirely legitimate for Jetivia to ask for more information about the claim before deciding whether to submit to the court proceedings or to seek to rely upon the arbitration agreement it maintained was in place. It was sensible to seek an extension of time for service of the defence in order to allow time for Jetivia to receive and consider such further information. In the light of MacFarlanes' letter of 15 December 2009 and the following correspondence, the issuing of the application on 20 January 2010 seeking an extension of time for service of the defence could not objectively be construed as indicating an election by Jetivia to waive any right it might have to seek a stay for the dispute to be referred to arbitration; nor could it be construed as an unequivocal representation that Jetivia did not intend to contest the jurisdiction of the court. The making of the application was equally consistent with a desire to postpone any obligation to serve a defence until after Jetivia had had a reasonable opportunity to decide whether or not to waive its rights to rely upon what it maintained was a binding arbitration agreement (compare the similar point made by Patten J in the context of CPR Part 11 in SMAY Investments Ltd v Sachdev [2003] EWHC 474 (Ch); [2003] 1 WLR 1973, at para. [43]). It was clear as between the parties that the application was made to enable Jetivia to have more time to consider the case to be put against it and to decide what position to adopt as regards court proceedings or arbitration. This was not a feature of the case in Ford's Hotel Company, which is therefore to be distinguished on the facts.
39. I therefore dismiss Bilta's objection to the present application based on section 9(3) of the 1996 Act.

Future conduct of the proceedings

40. As I have found above, there is a triable issue whether clause 8.7 of the Framework Agreement forms part of a contract between Bilta and Jetivia. In that situation the court has a discretion whether to give directions for such an issue to be determined by the court as a preliminary issue or whether to grant a stay and refer the issue to be decided in the arbitration: see Ahmad Al-Naimi v Islamic Press Agency Inc. [2000] 1 Lloyd's Rep 522. Mr Shaw submitted that the court should adopt the former course. Mr Charkham said Jetivia was agnostic on this question. As appears from Al-Naimi at page 525 col. 1 (with reference to Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd's Rep 68), usually the court ought to decide questions relating to the existence or the terms of the arbitration agreement as a preliminary issue. In my view, that is the appropriate course to adopt here. Therefore the parties should seek to agree directions for the question whether clause 8.7 of the Framework Agreement is part of a binding contract between Bilta and Jetivia to be decided as a preliminary issue by the court.
41. I also consider that the outstanding issue regarding the applicability of clause 8.7 of the Framework Agreement - if it is part of any agreement between the parties - to the non-Jetivia sale (see para. [19] above) should be determined by the court at the same time. To that end, the directions to be made should include a direction for the Claimant to serve a document setting out its case in relation to the non-Jetivia sale and the applicability of clause 8.7 upon its true construction to that transaction, and a direction for the Sixth Defendant to serve a document within 7 days thereafter setting out its case in relation to those same matters. With the benefit of these materials the court should be well placed at the further hearing to decide the question of the applicability of clause 8.7 in relation to that transaction.