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Burnley Hall LLP v Domicilium Limited (Chancery Division, 14 November 2017)

Burnley Hall brought a claim for specific performance of a put option agreement. The agreement was part of a broader transaction by which the claimant, a limited liability partnership, entered into a joint venture for the development of student accommodation. The venture was entered into on condition that Business Premises Renovation Allowances (under Part 3A of the Capital Allowances Act 2001) would be available and in the event that they were not, Burnley Hall secured the right to extricate itself from the transaction by exercising a put option to require the defendants to take back the leases they had granted and to repay the sums invested by the individuals behind the LLP.

HMRC confirmed that the allowances would not be available and Burnley Hall therefore exercised the option, but the defendants have disputed that the option was validly exercised and that they are liable to repay the monies paid over by Burnley Hall. The put option agreement contained an arbitration agreement, but Burnley Hall made clear, in correspondence, that it was reluctant to go to arbitration because the arbitrator would not have power to make an order for specific performance for the disposition of an interest in land (because of s.48(5)(b) of the 1996 Act).

Burnley Hall, through its solicitors, made clear to the defendants its intention to bring its claim in the Chancery Division of the High Court, and although the defendants’ solicitors had, at an early stage, cited the arbitration clause, they did not refer to it again, but rather complained about alleged non-compliance with CPR pre-action protocols. After proceedings had been issued, the defendants sought a 28-day extension of time for their defence, to which Burnley Hall agreed. The defendants then, as required, by CPR r.15.5(2), sent a letter to the Court notifying the Court of the agreed extension.

The day before the expiry of the extended period, the defendants applied for the claim to be stayed under s.9(1) of the Arbitration Act 1996. The District Judge (in the Birmingham District Registry of the Chancery Division) accepted the argument that in giving notice to the Court of an agreed extension of time for the Defence, the Defendants were "taking a step in the proceedings to answer the substantive claim", thereby losing the right to apply for a stay under s.9(1).

The defendants appealed and on 14 November 2017, Birss J. dismissed their appeal. Whilst noting that the case is a borderline one, he accepted that notifying the court of the extension was capable of being a "step in the proceedings", by reference to authorities on s.9(3) and its predecessors in the earlier Arbitration Acts. It was then necessary to consider, objectively, whether the act relied upon was sufficient to amount to a "step in the proceedings to answer the substantive claim" under s.9(3) and in light of the continued insistence by Burnley Hall's solicitors on compliance with CPR pre-action protocols and their efforts to seek an extension of time without at any time reserving the right to apply for a stay of the proceedings to refer the dispute to arbitration, it was held that the defendant's actions precluded them from applying for a stay.

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