In recent years, significant measures have been taken by both the Irish legislature and judiciary to promote Ireland as an attractive location for the conduct of international arbitration. As a member state of the European Union with an English speaking populace and a common law jurisdiction, Ireland enjoys certain inherent advantages in terms of an ability to attract international arbitration.

Pivotal to the promotion of Ireland as a hub of international arbitration was the enactment by the Oireachtas (the Irish houses of parliament) of the Arbitration Act 2010 (the “2010 Act”). The 2010 Act adopted the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) in its entirety into Irish law.

Prior to the enactment of the 2010 Act, domestic and international commercial arbitrations were governed by separate legislation. The 2010 Act has repealed the earlier legislation and rendered any distinction as between domestic and international arbitrations obsolete insofar as it applies the Model Law to all arbitrations in Ireland commenced on or after 8 June 2010.

The High Court is the relevant court for applications under the 2010 Act. It should be noted that there is no right of appeal from the High Court in respect of applications under the 2010 Act (i.e those permitted by the Model Law). This limitation on court intervention means that the High Court is in essence both the court of first instance and court of final jurisdiction in relation to arbitration applications.

Notwithstanding the limitation of the courts’ powers of intervention under the 2010 Act, a considerable volume of jurisprudence continues to be generated in this area. The purpose of this article is to provide an overview of three of the more significant and recent of those judicial decisions. The importance of these decisions is linked to the growing trend for countries to adopt the Model Law in its entirety into domestic law. As a common approach to the Model Law should inevitably evolve, these judicial decisions have the potential to impact upon the international arbitration stage.

I A STEP

At what point does a party to an arbitration clause lose its contractual right to arbitrate by participating in court proceedings?

A recent unanimous decision of the Supreme Courti has provided arbitrators, legal practitioners and observers alike with a degree of clarity on this nebulous issue.

As the relevant contract pre-dated the 2010 Act, the Supreme Court was concerned with the Arbitration Act 1980 (the “1980 Act”), which governed domestic arbitration until the 2010 Act. It is likely that cases under the 2010 Act will be treated by the High Court in a similar fashion.

Section 5 of the 1980 Act, pursuant to which the applicant sought to stay the proceedings pending arbitration, contained similar wording to Article 8 of the Model Law which obliges the court to stay proceeding “if a party so requests not later than when submitting his first statement on the substance of the dispute … unless it finds that the agreement is null and void, inoperative or incapable of being performed”.

Background

This case arose from a contractual dispute between a construction company (“Lurgan-ville”), two other parties and the two clients, Mr and Mrs Furey (collectively the “Fureys”).

A construction contract (the “Contract”) was entered into in October 2002. The Fureys were ultimately dissatisfied with aspects of the construction and issued High Court proceedings against Lurgan-ville and the two other parties to the Contract.

The Contract contained an arbitration clause and Lurgan-ville asserted a right to rely on that clause so as to have the proceedings stayed pending arbitration under section 5 of the 1980 Act. This section provided that the time at which an application to stay proceedings must be made is before “delivering any pleadings or taking any other steps in the proceedings”.

In order to determine the issue of compliance with this time limit, it was necessary for the court to review the procedural history of the case.

At the time proceedings first issued (June 2005), Memoranda of Appearance were filed on behalf of Lurgan-ville and the two other defendants. Further pleadings were exchanged between the Fureys and the two other defendants but not, crucially, Lurgan-ville.

With a view to compelling Lurgan-ville’s participation in the proceedings, an application for judgment in default of defence was brought against Lurgan-ville. When the application came before the court, an order was made, with the consent of both sides, directing Lurgan-ville to deliver a defence to the substantive proceedings within a fixed period and directing that Lurgan-ville meet the costs of the application. A short time later, Lurgan-ville asserted, for the first time, a right to rely on the arbitration clause and sought a stay of the proceedings pending arbitration.

The High Court granted the stay application, a decision the Fureys then appealed to the Supreme Court. In arguing that the High Court had been incorrect in granting the stay, the Fureys based their appeal on three separate contentions:

  1. The defendant had taken a “step” in the proceedings such as to prevent it from relying on the arbitration clause.

What was relied on as ‘step’ in the proceedings was the agreement reached between the solicitors for Lurgan-ville and the Fureys consenting to the court order for the delivery of the defence within the fixed period.

The decision of the Supreme Court was delivered on 21 June 2012 in a judgment by Mr Justice Clarke and it contains extensive reference to Irish and English case law.

In the opinion of Mr Justice Clarke, delivering the unanimous judgment of the Court, the facts of the case positioned it between two ends of a spectrum. At one end of the spectrum is the decision of the English Court of Appeal in Ford’s Hotel Company Ltd v Bartlettii which held that an application to the court for an extension of time for delivering a defence amounts to a step in the proceedings. At the opposing end, is the English High Court decision in Brighton Marine Palace and Pier Ltd v Woodhouseiii which is authority for the proposition that a request in correspondence for an extension of time for delivering a defence does not to amount to taking a step in the proceedings.

However, the most persuasive authority for the purposes of the Supreme Court decision (and incidentally the decision of the High Court at first instance) was an Irish judgment, handed down by the President of the High Court, Mr Justice Finlay in O’Flynn v Bord Gáis Eireanniv, the facts of which were extremely similar to the present case.

Mr Justice Clarke cited with approval the statement of Mr Justice Finlay in that case that:

“the court should lean in favour of staying the proceedings and should only refuse … if satisfied that the parties seeking such an order has instituted some process or procedure in the action which involves costs no matter by whom they may be payable which are lost when the matter is referred to arbitration”

Mr Justice Clarke similarly endorsed the observation of his judicial colleague that “the underlying policy of the 1980 Act was to keep parties to their bargain of having matters agreed to be referred to arbitration ultimately determined by an arbitrator rather than the courts”. v

Finally, Mr Justice Clarke observed that “the court should only excuse parties from their bargain where the action taken which is said to amount to a step involves either an engagement with the merits of the case … or involves an action taken by the defendant in invoking the jurisdiction of the court which leads to costs”.

Applying this to the facts of the case, Mr Justice Clarke was satisfied that Lurgan-ville had not engaged with the merits of the case i.e. the Fureys’ application for judgment. Neither did the actions of Lurgan-ville, which the Fureys had sought to rely on as a step in this case, lead to the incurring of costs.

As the application was already before the court prior to the agreement to deliver the Defence (relied upon as the step in proceedings), any costs attributable to that application had already been incurred. Therefore the agreement between the parties to consent to an order to deliver the Defence did not of itself incur additional costs.

The Supreme Court was satisfied that no step had been taken by Lurgan-ville in the sense in which that term is used in section 5 of the 1980 Act and therefore section 5 did not provide a justification for declining to stay the proceedings pending arbitration on that basis.

  1. The conduct of the defendant was such as to reasonably convey an intention on the part of the defendant to defend the court proceedings.

The second strand of the Fureys’ related to the conduct of Lurgan-ville in advance of its reliance on the arbitration clause and specifically, whether that conduct had been of such a character as to have created an estoppel.

Mr Justice Clarke accepted the possibility that a party, otherwise entitled to rely on an arbitration clause, may, by conduct, create an estoppel which thereafter prevents that party from being able to continue to rely on an entitlement to have the matter referred to arbitration.

He also identified the possibility that, “in theory”, there may be cases where although no step has been taken in the proceedings by a defendant, that defendant has, by conduct, become estopped from relying on an arbitration clause.

It is therefore likely that the estoppel argument may in theory, at least, be a complete defence to an application under section 5 of the 1980 Act or Article 8 of the Model Law.

As to the conduct which could estop a defendant from relying on an arbitration clause, Mr Justice Clarke stated it would be necessary to show “a clear unequivocal promise or representation to the effect that the arbitration clause would not be relied on and that the plaintiff had acted on the basis of that representation”.

Unfortunately, for the Fureys, Mr Justice Clarke could not identify anything in the conduct of Lurgan-ville that could be characterised as amounting to a clear and unequivocal representation or promise that the arbitration clause was not to be relied upon. In fact, the arbitration clause had not arisen for comment between the parties prior to the referral of the dispute to arbitration. On this basis, the estoppel argument could not succeed.

  1. Multiplicity of actions

The third and final strand of the appeal was that the consequence of the proceedings against Lurgan-ville being stayed pending arbitration where the proceedings against the other defendants were not so stayed would give rise to a multiplicity of separate legal processes which would, in all the circumstances, be unjust to a sufficient extent to justify the proceedings against Lurgan-ville not being stayed.

This argument, while outlined in the pre-trial written submissions to the Supreme Court, was not pursued in oral argument as the English decision upon which it reliedvi was not deemed to be good authority in this jurisdiction.

Accordingly, the Supreme Court dismissed the appeal.

With the benefit of hindsight, it would have been prudent had counsel for the Fureys sought to include wording in the consent order that Lurgan-ville irrevocably acknowledged the jurisdiction of the courts to determine the dispute.

II ESTOPPEL

Estoppel and the circumstances in which a party to an arbitration clause is precluded by reason of its conduct from relying on the terms of that clause was the principal issue to be determined by the High Court in the case of Mitchell & Anor v Mulvey Developments Limited & Othersvii. The facts of this case were similar to those in the Lurgan-ville proceedings but the outcome was markedly different.

Background

The plaintiffs in these proceedings had purchased a property in the west of Ireland, which was, they contended seriously defective. On this basis, the plaintiffs sued a number of parties, one of which was the National House Building Guarantee Co Ltd (“Homebond”)viii, pursuant to a guarantee provided under the Home Bond Agreement (the “Agreement”), whereby Homebond agreed to repair defectively constructed private dwellings in the event that one of its members defaulted on its obligations to effect such a repair.

The Agreement contained an arbitration clause which Homebond subsequently relied upon to have the proceedings stayed. The plaintiffs opposed this application on the grounds that:

  1. the arbitration clause had been rendered inoperative by virtue of the change of name and title of the relevant Minister from that of the Minister for Environment and Local Government to that of Minister for the Environment, Community and Local Government; and
  2. HomeBond should be estopped by its own conduct from relying on the terms of the arbitration clause.

The validity of the arbitration clause was upheld by the High Court and the only issue to be determined was whether the conduct of Homebond, in advance of its stay application, was such as to estop it from exercising its right under the clause.

Proceedings first issued against Homebond in March 2010. Some thirteen months later, in April 2011, an appearance was filed on its behalf with no explanation for the delay. In June 2011, Homebond requested that the plaintiffs furnish a copy of the Statement of Claim, a pleading which had previously been furnished by the plaintiffs.

In September 2011, the plaintiffs called upon Homebond to deliver its defence to the proceedings. Solicitors for Homebond responded and expressly requested that no steps be taken “for now in relation to bringing a motion for judgment in default of defence” and further confirmed that Homebond “does not intend to delay in these matters”.

By November 2011, no defence had been delivered and the plaintiffs threatened proceedings to compel Homebond to comply with the request. Finally, by letter dated 23 December 2011 (twenty three months after the writ had first been served), Homebond sought to invoke the arbitration clause for the first time.

On the facts, Mr Justice Hogan in the High Court concluded that Homebond had represented to the plaintiffs an intention to engage in the proceedings and to defend the case on its merits. The plaintiffs had relied on this representation and altered their position to their detriment. Consequently, Homebond had forfeited its right to invoke and rely upon the arbitration clause.

Given the striking factual similarities between this case and those in Furey v Lurgan-ville Construction Ltd Mr Justice Hogan justified his divergence from the Supreme Court decision in that case as follows:

“it is the additional factors which were not present in Furey which I find tip the scales in the opposite direction”.

The additional factors, identified in this judgment were:

  1. the correspondence requesting a statement of claim;
  2. further requests for forbearance following the delivery of the statement of claim; and
  3. the fact that the delay was several months longer (albeit only by four months)

The presence of these factors caused the plaintiffs to believe, and to act accordingly to their detriment, that it was Homebond’s intention to contest the matter on its merits.

Taken with the dicta of Mr Justice Clarke on the issue of estoppel, there is no doubt as to the willingness of the Irish courts to entertain estoppel based arguments.

III A STEP TOO FAR

In a world of complex corporate structures and byzantine contractual frameworks, an increasingly common question challenging both arbitrators and members of the judiciary is the extent to which a non-signatory may rely upon or be bound by an arbitration agreement.

The general rule of thumb, at least in the context of international arbitration, has been that only those party to the agreement, determined by reference to the applicable rules, may be bound by that agreement.

While this issue has received considerable judicial attention in certain jurisdictions, most notably in the UKix, there has been little or no Irish jurisprudence on this area. The High Court in Ireland however recently considered this imbalance in the case of P Elliot & Company Limited v FCC Elliot Construction Limitedx.

The applicant in this case sought to stay proceedings pursuant to Article 8 of the Model Law, in which the plaintiff sought judgment in the sum of £1.2 million on foot of a consultancy agreement.

Background

Somewhat unsurprisingly, a complicated history of commercial and legal relationships existed between the entities connected to the parties involved in the stay proceedings.

FCC Construction SA (“FCC”)(a Spanish company) and P. Elliot & Co. Limited (“Elliot”)(an Irish company and the plaintiff in these proceedings) entered into a joint venture agreement (the “JVA”) which established the framework for a joint bid for the construction of a new hospital in Enniskillen, Northern Ireland. A new entity, NIHG, owned by both FCC and Elliott was established in advance of the bid and pre-qualified in the bid process.

The JVA contained an arbitration clause referring any dispute arising under the JVA or the building construction to ICC arbitration in Geneva. The JVA was governed by the laws of Northern Ireland.

In order to avail of the more advantageous corporate tax regime in the Republic of Ireland, Elliot and FCC were advised not to enter into the primary building contract for the hospital, as had originally been envisaged by the JVA. Instead, a new special purpose vehicle, FCC Elliot Construction Limited (“FCC Elliot”)(an Irish company and the defendant in these proceedings) was formed. FCC Elliot entered into the building contract with NIHG.

The governing law of the building contract entered into between FCC Elliot and NIHG was Northern Ireland and exclusive jurisdiction for disputes arising from the contract was conferred on the courts of Northern Ireland.

Shortly after the execution of the building contract, a consultancy contract, the subject of these proceedings was entered into between FCC Elliot and Elliot. Significantly, there was no arbitration clause in this agreement; instead, there was a choice of law and a jurisdiction clause nominating Irish law and Ireland, respectively.

As a final piece of the contractual jigsaw, the construction contract was sub-contracted to a partnership between two Northern Irish registered companies. The sub-contracted construction agreement contained an ICC arbitration clause, and was subject to the laws of Northern Ireland.

High Court Proceedings

The position of Elliot, as outlined in correspondence exchanged prior to the commencement of proceedings, was that the sum of £1.2 million was due to it under the consultancy contract which contained an Irish governing law clause, an Irish jurisdiction clause and no arbitration clause. FCC Elliot insisted that any dispute between the parties was connected intimately with the original JVA which did contain an arbitration clause.

Elliot applied to stay the proceedings on the following grounds:

  1. pursuant to Article 8 of the UNCITRAL Model Law, as incorporated into Irish law by the 2010 Act; and
  2. pursuant to the inherent jurisdiction of the High Court to stay proceedings.

As a reminder, Article 8 provides:

“8(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests, not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed”

In support of its contention that the dispute in these proceedings fell within the scope of the arbitration clause in the JVA, the FCC Elliot cited a body of case law, supportive of a generous interpretation of arbitration clauses that embraced commercial arrangements above and beyond the precise commercial relationship where the arbitration clause was located. As Mr Justice MacEochaidh, the presiding High Court judge in this instance, stated, the cases put forward in support of FCC Elliot’s argument “favour a commonsense approach to relations between enterprises”.

FCC Elliot referred to authorities addressing sequential agreements where earlier agreements contained arbitration clauses but later agreements did notxi. In those authorities, the courts imputed the earlier arbitration agreements into the later agreements.

FCC Elliot also argued that there was support for the proposition that in multiple contracts containing contradictory dispute resolution and/or jurisdiction clauses, the courts seek to find the “commercial centre of the overall relationship between the parties and apply the relevant jurisdiction and/or arbitration clause”xii.

In response, Elliot argued that FCC Elliot was not a party to the arbitration agreement within the JVA and as such lacked the privity to seek to invoke the terms of the arbitration clause. Elliot argued that the fact that FCC Elliot was not a party to the arbitration agreement was a “complete answer to the application and an insurmountable barrier insofar as Article 8 of the Model Law is concerned”.

Decision of Mr Justice MacEochaidh

In circumstances whereby no previous Irish decision had sought to interpret Article 8, Mr Justice MacEochaidh took guidance from foreign decisions, and in particular, endorsed the test formulated by Mr Justice Hinkson in Gulf Canada Resources Ltd v Arochen International Ltdxiii:

“The test formulated is that a stay of proceedings should be ordered where: it was arguable that the subject dispute falls within the terms of the arbitration agreement; and where it is arguable that a party to the legal proceedings is a party to the arbitration agreement”.

What is of interest in this case is that the judge rejected the argument put forward by Elliot that the fact that FCC Elliot was not party to the arbitration agreement was a “complete answer” to the application. In doing so, Mr Justice MacEochaidh acknowledged that circumstances can exist in which a defendant seeking a stay in favour of an arbitration clause might not itself be a party to that arbitration clause.

The question to be asked, in the opinion of Mr Justice MacEochaidh, was not whether the party relying upon the arbitration clause itself agreed the clause, but rather, whether it had a “sufficient connection, whether factually or by operation of law, with the party who agreed to the arbitration clause to invoke the clause and stay the proceedings in which it is a defendant

As to what will be considered to be a “sufficient connection”, Mr Justice MacEochaidh applied the test laid down in the case of City of London v Sanchetixiv; that the court must look “for more than a bare commercial or legal connection between two entities”.

Referring to Sancheti, Mr Justice MacEochaidh commented that none of the presumptions deriving from the closeness of the relationship between FCC Elliot and the parties to the original JVA could be said to be more important or effective than the actual consultancy agreement entered into by Elliot and FCC Elliot. By extension, the fact that the parties had seen fit to include an ICC arbitration clause in one agreement and then inserted contradictory clauses in other related agreements was evidence of the true intentions of the parties.

On this basis, the High Court refused the application for a stay and opted not to exercise its inherent jurisdiction.

In obiter comments, the trial judge provided an interesting synopsis of Article 8, stating that, at its core, the article was more concerned with ensuring that parties’ actions meet their promises;

“Article 8 … directs courts to respect the arbitral process and stay court proceedings not out of deference to arbitration per se, but rather as an expression of the most basic concept in the law of contract -i.e. that parties who have mutually exchanged promises for value may, at the suit of each other, be kept to their promises. Where parties promise to arbitrate their disputes, courts should stay their proceedings in favour of arbitration if that promise is proved”.

Conclusion

A common thread linking each of the judgments in this article is the importance for parties, at the contract drafting stage, to clearly address and record the agreed forum for dispute resolution, particularly where multiple contracts are concerned. With regard to the latter, if there is inconsistency, a party seeking to rely on a particular clause could find itself in a position akin to having no clause at all.

From a commercial perspective, these decisions also emphasise the need for speed on the part of a party seeking to rely on an arbitration clause. The emergence of the estoppel argument as a bar to arbitration, notwithstanding the existence of a mutually agreed arbitration clause, means legal practitioners must recognise that a delay can invalidate an arbitration clause.

A delay in seeking a stay and conflicting dispute resolution clauses can often lead to costly challenges, some multi-jurisdictional, for which clients will not thank their legal advisors and to whom they might ultimately turn to look for recompense.