Having Your Cake and Eating It: Deposit Guarantee Fund v Bank Frick

13 December, 2021

This is an interesting tactical play for a defendant to seek summary judgment in the High Court even where there is a potentially applicable arbitration clause.

In Deposit Guarantee Fund for Individuals v Bank Frick [2021] EWHC 3226 (Ch), the defendant applied for (i) a stay of English court proceedings under s.9 of the Arbitration Act 1996 on the basis that there was an arbitration clause which applied to the dispute; and (ii) if the stay application was unsuccessful, summary judgment on the claim.

So far, so uncontroversial. There is no impediment to applying for summary judgment at the same time as seeking a s.9 stay, so long as it is clear that the summary judgment is conditional, in the sense that it only arises if the stay application fails. That was made clear by the Court of Appeal in Capital Trust Investments Ltd v Radio Design TJ AB [2002] EWCA Civ 135. A defendant will not have taken a ‘step in the proceedings’ (for the purposes of s.9(3) of the 1996 Act) so as to waive their right to arbitration where the defendant’s application for summary judgment is made on an expressly conditional basis.

That is sensible, and means that a court, if it refuses to stay the proceedings in favour of arbitration, can go on to consider whether to grant summary judgment.

The defendant in Bank Frick, however, went one step further. It sought a case management direction that the summary judgment application be determined before the stay application. That might be because the defendant considered its arguments on the former to be stronger. But the wider benefit (and I suspect what lay behind this strategy) is that instead of the action being sent off to arbitration, the defendant obtains a (albeit conditional) decision from the court that the claim has no reasonable prospect of success and that summary judgment should be given.

That is to be contrasted with the position if the stay application succeeded and the matter went to arbitration. In that event, there would be no equivalent summary procedure available and the defendant would have to go to trial in the arbitration. That is because there is no power in English arbitration to summarily dismiss unmeritorious claims (though this is something which it seems likely that the Law Commission will reconsider in its recently announced review of the Arbitration Act 1996). The arbitration route would therefore take much longer and be far more expensive for the defendant.

However, the argument that the summary judgment application ought to go first required a slightly tortuous train of thought, because logically the stay application comes first (if the court has no jurisdiction because there is valid arbitration clause applicable to the claim, then it could not determine the claim on the merits). The defendant argued that if the summary judgment application succeeded, the resultant order would have to be expressed as taking effect only if the stay application was unsuccessful. But, it said, if the defendant obtained summary judgment, in all likelihood the defendant would have no interest in pursuing the stay application (and the claimant no interest in resisting it). The only reason that the stay application would still be of effective relevance is if the claimant wished to appeal the result of the summary judgment application, in which case the claimant might seek the determination of the stay application.

The court accepted that logic and dismissed the claimant’s objection that determining the summary judgment application first (even on a conditional basis) would necessitate the defendant waiving its objection to the court’s jurisdiction. The judge said that if it were otherwise, the court could hear the summary judgment application, with submissions made on a conditional basis (in accordance with Capital Trust v Radio Design) but the court’s determination of the application by delivering judgment (on the same conditional basis) would result in submission to the jurisdiction. That, the Court said “is a distinction with a theological flavour, which in my judgment cannot be justified in principle.”

As a result, the defendant can apply for (and, if successful, effectively obtain) summary judgment, when that would not be available in arbitration, but still preserve its right to stay the proceedings if the summary judgment application fails.

This is a neat and clever tactical play by the defendant. A similar strategy will be useful for other defendants in court proceedings where there is an arbitration clause. If there is an arguable case for summary judgment, it may well be worth asking for this to be determined first (based on the logic set out above) because that could bring the action to a speedy close, when otherwise it might take months or years to resolve in arbitration.

Written by Iain Quirk QC.