In Delta Reclamation Ltd v Premier Waste Management Ltd – Lawtel 13.11.08 the parties had entered into a waste management agreement. Disputes arose between them, and the respondent purported to withdraw from the agreement. It was common ground that the parties' disputes fell within the agreement's arbitration clause. The applicant applied for an interim injunction in ordinary court proceedings. The injunction was refused, and no further action was taken by either party until six months later, when the applicant served the respondent with a notice to arbitrate the disputes. The respondent responded by serving a defence and counterclaim to the proceedings, seeking a declaration that it had been entitled to terminate the agreement and seeking the cost of removal operations that the applicant was allegedly obliged to undertake.  

The applicant therefore applied under s.9 Arbitration Act 1996 for a stay of the respondent's counterclaim and under CPR r.3.1 (2) (f) for a stay of its own claim to allow the issues to be determined by arbitration.

The Queen’s Bench court held that it was too simplistic to assert that the existence of the proceedings meant that it was too late for the applicant to rely on the arbitration clause. If the respondent had applied for a stay of the proceedings under s.9 of the Act, the applicant would have had to commence arbitration proceedings. If the respondent had taken significant steps in the litigation, it might be arguable that there had been an abuse of the court or arbitration process, but in this case the respondent had not been prejudiced by the course taken by the applicant other than in incurring costs prior to the service of the arbitration notice.

The correct approach was therefore to apply ordinary contractual principles to the agreement to arbitrate. There was nothing in the pre-action correspondence amounting to a repudiatory breach of the arbitration agreement by the applicant and although it was highly arguable that its issue of the claim form amounted to such a breach, the respondent had done nothing amounting to an acceptance of that breach so as to bring the arbitration agreement to an end. In particular, the respondent had defended the application for the interim injunction on the basis that it was preserving its right to apply for a stay under s.9 of the Act and had taken no steps in the action after that. In the circumstances, the arbitration agreement had not become inoperable on the date when the notice to arbitrate was served.  

The court therefore stayed the counterclaim under s.9 (4) of the Act on condition that the applicant pay the respondent's costs of the claim up to and including service of the notice to arbitrate.