Lombard (the claimant respondent) and GATX (the defendant applicant) were parties to a train financing arrangement.

Under an agreement dated 14 July 2000, GATX was able to force a sale of the trains in certain circumstances in order to ascertain their value and thereby realise any profit share (the 2000 agreement).

On 6 April 2004, the parties entered into a further agreement, which amended parts of the 2000 agreement, including clause 9.4 which contained provisions relating to the leasing and sale of the vehicles, and a reference to arbitration (the 2004 agreement). The essence of the leasing and sale arrangement was that, if no arrangements were put in place with the Strategic Rail Authority by 30 March 2004 to extend the leasing of the trains, then the parties would establish a joint venture by 30 June 2011, which would achieve the commercial and legal objectives set out in the 2004 agreement. If the parties agreed that a joint venture could not be established which achieved those objectives, they agreed to "negotiate in good faith to achieve [those] objectives through other means at the earliest opportunity".

GATX claimed that under these arrangements it was entitled to a share in the profits from the sales or leases of trains.

Clause 9.4(x) of the 2004 agreement provided:

The parties disagreed about the scope of the arbitration agreement in clause 9.4(x) of the 2004 agreement.

Lombard argued that it was intended only to resolve disputes about how the joint venture should be constituted, rather than disputes about the 2004 agreement itself.

GATX submitted (among other things) that the arbitration agreement covered disputes about whether the parties had been unable to establish a joint venture by the relevant date, and any disputes not only about the terms of a joint venture, but also about the terms of any alternative arrangement or structure constituting "other means".

Lombard commenced proceedings under CPR 8 seeking the following declarations:

GATX, relying on clause 9.4(x) of the 2004 agreement, sought a stay of the proceedings under section 9 or under the court's inherent jurisdiction.

Andrew Smith J commented that, in general terms, the purpose of section 9 of the Act is to uphold the parties' agreement to arbitrate and to prevent a claimant pursuing proceedings in contravention of it. It is apparent from the section that:

Andrew Smith J was not aware of any authority that directly considered the meaning of "in respect of" in section 9(1), or how the court determines whether proceedings are "in respect of a [referred] matter". In his view, the question depends on the nature of the claim (or claims) made in the legal proceedings, but not on the formulation of the claim (or claims) in the claim form and in any pleadings. That would allow a claimant to circumvent an arbitration agreement by formulating proceedings in terms that might perhaps artificially avoid any reference to a referred matter, knowing that any application to stay the proceedings must be made before a defence is pleaded. Andrew Smith J commented that the court should consider what questions will foreseeably arise for determination in the proceedings and whether they include referred matters.

In his view, if the parties have agreed to refer a matter to arbitration, a party should be entitled to have the agreement upheld and to have the court stay the proceedings for that purpose. This principle underlies the Act (in particular, section 1(b)). Andrew Smith J did not consider that proceedings are "in respect of" a referred matter only when they are mainly or principally to resolve a dispute about a referred matter. This approach was consistent with the decision of the Court of Appeal in Fulham Football Club (1987). Although Patten LJ said in that case that "section 9(1) is concerned only to identify the existence of an arbitration agreement which in terms covers the matters in dispute as the preconditions (sic) for the making of the stay application" (paragraph 36). However, the section refers to "a matter" in dispute, not to "the matters" in dispute. Andrew Smith J considered that whatever Patten LJ's reason for departing from the statutory language, he did not understand him to mean that it is a precondition to a stay application that all the matters in dispute be referred matters.

The effect of this interpretation might be that the court will grant a stay of legal proceedings in which a referred matter is in issue, while that matter (or issue) is referred to an arbitral tribunal. The legal proceedings would then resume when the referred matter has been resolved in accordance with the parties' agreement. This might cause inconvenience and additional costs and delay, but that is the price of respecting the parties' agreement and is a risk which they have chosen to take.

It might be a reason for interpreting arbitration agreements expansively rather than restrictively, so as to avoid a conclusion that the parties intended that disputes should be determined in more than one forum. But where (as in this case) the parties have agreed to refer to arbitration only certain disputes that might arise from their relationship (here, only disputes relating to the creation of the joint venture under clause 9.4 of the 2004 agreement), the risk of proceedings before both the courts and an arbitral tribunal is inherent in the agreement.

It does not follow that, wherever legal proceedings involve a dispute about a referred matter, the defendant will necessarily be able to have them stayed, however peripheral the referred matter might be to the proceedings as a whole. It might be that, while the referred matter is stayed for determination by arbitration, the proceedings could otherwise proceed. (On the facts of this case, Lombard accepted that, if GATX was entitled under section 9 to a stay of the claim for the first declaration, then the claim for the second declaration should also be stayed under the court's inherent jurisdiction, if not under section 9.)

It would be inconsistent with the principles governing the Act for the court to assess whether the applicant has an arguable case on any referred matter. The court is only concerned with whether there is a referred matter, and not with the merits or arguability of the parties' contentions on the referred matter.

Citing Downing v Al Tameer, Andrew Smith J rejected Lombard's argument that, where no joint venture had been agreed by 30 June 2011, the arbitration agreement was spent and inoperative (except with regard to any reference already made by then). In Downing v Al Tameer, Potter LJ had cited Hulme v AA Mutual International Insurance [1996] LRLR 19 as authority for the proposition that, where a respondent to an application to stay proceedings contends that an arbitration agreement is null and void, inoperative or incapable of being performed, nevertheless a stay should be granted if the applicant "can raise an arguable case in favour of validity". Smith LJ commented that it has been questioned whether Hulme justifies this proposition (see Albon (t/a N A Carriage Co) v Naza Motor Trading SDN BHD and another [2007] EWHC 665 (Ch)). However, Andrew Smith J stated that he had to respect the authority of the Court of Appeal and apply the test stipulated by Potter LJ in Downing v Al Tameer.

Moreover, even if Lombard's interpretation was correct, Andrew Smith J did not consider that the arbitration agreement would be inoperative within the meaning of section 9(4) of the Act: it simply would not cover the dispute that had arisen. No authority had been cited before Andrew Smith J on the meaning of "inoperative". However, section 9(4) is in similar terms to the New York Convention (on the recognition and enforcement of foreign arbitration awards), and is based on the UNCITRAL Model Law. It covers circumstances in which the party seeking to invoke the arbitration agreement is not entitled to do so or has otherwise lost the right to make a reference. Other circumstances in which an arbitration agreement is inoperative are described by Professor Merkin and include cases where:

(Arbitration Law, 2011, Informa, at paragraph 8.33.2.)

Andrew Smith J knew of no academic support for Lombard's wide interpretation and accordingly he rejected it. The scope of an arbitration agreement is covered by the requirements of section 9(1), and the question should not be re-visited under section 9(4), especially since the court would then be applying a different burden and a different standard of proof.

If Andrew Smith J was wrong to grant a stay under section 9(1) of the Act, he would conclude that the proceedings should be stayed under the court's inherent jurisdiction in order to uphold the parties' agreement that the jurisdiction of an arbitral tribunal should be decided only by the tribunal. Andrew Smith J relied on Professor Merkin who states that the inherent jurisdiction might be exercised in just such circumstances (paragraph 8.68). If necessary, Andrew Smith J would categorise the circumstances of this case as "exceptional" or even "very exceptional".

Moreover, the dispute was about the scope of the arbitration agreement and it was recognised that such cases are more likely to be stayed than cases in which there is a dispute as to whether the parties made an arbitration agreement at all.

Andrew Smith J would not have exercised the inherent jurisdiction to stay the proceedings if he had been satisfied that the arbitration agreement was "inoperative" within the meaning of section 9(4). To do so would go against the statutory scheme.