Can parties to an arbitration agreement effect diligence through the courts?

It is common for the pursuer (claimant) in disputes to seek an interim protective order, such as the arrestment of funds, at the very start of a dispute to prevent the defender (defendant) from disposing of assets. It is well understood that such applications can be made at the same time as court proceedings are raised. But what about instances where the parties have, in their contract, agreed to arbitration (rather than the courts) for the determination of any disputes? Is diligence on the dependence still available in these circumstances? And, if so, does a pursuer have to wait until an arbitrator has been appointed before making an application to the court (with the result that valuable time could be lost)?

Fortunately, the short answer appears to be "yes", a pursuer can still make an application to the court for diligence on the dependence and "no" it does not have to wait until an arbitrator is appointed before doing so.

1. Do the courts have jurisdiction?

In the well-known words of Lord Watson in Hamlyn & Co v Talisker Distillery Co (1894) 21 R (HL) 21, "[the] jurisdiction of the Court is not wholly ousted by such a contract". There is a line of cases which suggests that the courts have jurisdiction so as to enable a party to carry out diligence upon the dependence of an action, even if the parties' contract contains an arbitration agreement.

In Motodrift A/S v Trachem Co Ltd 1982 SLT 127, the parties had agreed that disputes under their contract were to be referred to arbitration in England. A dispute arose and the pursuer arrested the defender's funds in Scotland. The defenders argued that the action was not one in which decree could ever be pronounced, accordingly, the pursuers were not entitled to arrest on the dependence. Lord Ross was not satisfied that the arrestment on the dependence should be recalled, and the defender's application for recall was accordingly refused.

As further alluded by Lord Watson in Hamlyn, the court's jurisdiction is however limited to entertaining the suit and pronouncing decree in conformity with the award of the arbiter. The court can't make a decision on the merits of the case.

2. Can the defender request to refer the dispute to arbitration?

If the arbitration agreement is covered by the UNCITRAL Model Law or the New York Convention, the court is obliged to sist (stay) the proceedings in favour of arbitration if one of the parties so requests. The court is also likely (but not obliged) to do so even where the agreement is outside of the scope of the Model Law and Convention. In the vast majority of instances, court proceedings will be sisted pending the outcome of arbitration.

3. What if the pursuer subsequently wishes to arbitrate the dispute?

The pursuer can, of course, raise a court action simply to effect diligence and then immediately apply for the action be sisted pending the outcome of arbitration.

4. What does this mean in practice if you are pursuing a claim in circumstances where your contract contains an arbitration clause?

If a dispute arises, the presence of an arbitration agreement should not prevent you from going to court to seek diligence on the dependence (e.g. an order allowing you to freeze assets in the hands of a third party to prevent the defender from disposing of them) pending a final determination of the dispute (usually by an arbitrator). The court should be willing to grant the order(s) sought where the facts of the case justify the need for such an urgent protective order.