Arbitration clauses – stay of legal proceedings – set off – proof of debt – Insolvency Rules 1986 r.4.90 – section 9(3) Arbitration Act 1996
WGL Realisations 2010 Ltd, in creditors’ voluntary liquidation, was engaged in a construction dispute with the Lycee Francais Charles de Gaulle school. Both sides contended that sums were due to them. The school had submitted a proof of debt which had yet to be accepted or rejected and contended that an arbitration clause contained in the construction contract was binding and continued to apply despite the company being in liquidation. The liquidators of the company applied for directions, contending that, in connection with the proof of debt, the court had power under r.4.90 of the Insolvency Rules 1986 to give directions as to the taking of an account of the balance due between the company and the school.
The application for directions under r.4.90 was refused. The judge held that the arbitration clause had not become inoperative following the company’s liquidation, nor had submitting a proof compromised the school’s position. Section 9(3) of the Arbitration Act 1996 did not apply since neither the submission of a proof nor any appeal from rejection of a proof amounted to taking a step in “those proceedings”, there being none, “to answer the substantive claim”. Further, the mere fact that there was a claim on both sides should not be determinative of whether or not the arbitration clause should be enforced. The court held that the arbitration trumped the taking of an account under the court’s directions.
The Court’s focus was on the ultimate disposal of the underlying dispute, which could only be resolved by some form of proceedings. Legal proceedings, if brought, would be subject to the mandatory requirement of a stay under section 9 of the Arbitration Act 1996 and the conclusion could not be avoided by presenting the claim as a claim for an account in the context of r.4.90.
The case illustrates the impact of arbitration clauses in liquidations involving disputed contracts.
