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In DGFI v Bank Frick & Co AG [2021] EWHC 3226 (Ch), the English High Court revisited issues concerning whether a party, whose primary case is for a stay of proceedings in favour of arbitration, can nonetheless ask, in the alternative, for summary judgment.
Background
Under s.9 Arbitration Act 1996 (“AA”), when substantive proceedings, which are subject to an arbitration agreement, are brought before the English court, a party to that agreement can apply for a stay of them. However, under s.9(3) AA, that right is lost if a party submits to the court’s jurisdiction by taking “any step” in those proceedings to answer the substantive claim.
For a defendant, in cases where the substantive claim is weak, this could lead to something of a quandry; if a stay is not granted then the obvious thing to do is then ask for summary judgment, but does doing this together (in the interests of efficiency) risk prejudicing the stay application itself? In Capital Trust [2002] EWCA Civ 135 the Court of Appeal had found that a party had not taken such a “step” where it made an application for a stay, or, alternatively, summary judgment in circumstances where the latter was clearly expressed as conditional on any failure of the former.
Issues before the court in Bank Frick
The instant case concerned a variation on this theme. The facts concerned pledge agreements (containing arbitration clauses) and an attempt by the liquidator of one of the parties to obtain redress, under insolvency legislation, against the Defendant, Bank Frick & Co.
In response, the Defendant issued an application seeking, under s.9, a stay in favour of arbitration pursuant to the arbitration clauses in the pledge agreements (the Stay Application). Alternatively, the Defendant sought an order for strike-out (CPR 3.4(2)(a)) or for summary judgment, only in the event that the Stay Application was unsuccessful (the SJ Application). Where the case then differed from Capital Trust was that, in arranging the order of these applications, the Defendant was keen to have the SJ Application determined first.
The two issues which arose for determination by the court were therefore:
A “Step” in the proceedings?
As to the first issue, the Court relied on Capital Trust to conclude that the present application was not a “step” in the proceedings to answer the substantive claim because it was an application which was expressly conditional in the same way as the application in that case. The determination of the SJ Application would not therefore result in an order of strike out or summary judgment. Whether that order was to be made would only be determined after the determination of the Stay Application. [33,35].
Chicken or egg: should the court hear the stay application or summary judgment first?
Next, the court had to decide whether the SJ Application should be heard before the Stay Application. It conceded that, because of the contingent outcomes, whatever the order, there was a risk of unnecessarily incurred costs (see [37] for illustrations)
Accordingly, the Court heard the parties’ submissions on the complexity of each of the applications [38-56] and considered any common issues favouring the applications being heard together as in Capital Trust [25, 57]. It held that since the SJ Application is “expressly predicated on the outcome of the [s]tay [a]pplication, as a matter of logic, that should be heard first, unless there are clear countervailing case management considerations to the contrary” [58]. Having found no such common issues or case management considerations, the Court held in favour of hearing the Stay Application first [59].
Comment
This judgment provides a useful indication that the English court will take a pragmatic approach in relation to such matters. In the context of stay applications, parties should take care they don’t take a “step” in the proceedings to answer the substantive claim. But the apparent tolerance of conditional summary judgment applications is certainly a boon for the interests of efficiency where it is possible for the applications to be heard together (as the alternative would be to require the entirely separate filing and hearing of applications which, to a degree are contingent upon one another).
The decision also indicates that in such cases, the more natural ordering, all other things being equal, will be for the stay application to be heard first.
Click here for the judgment.