In a decision issued on 21 June 2012, the Irish Supreme Court considered the issue of what constitutes taking a "step" in proceedings, such as to prevent a party from relying on an arbitration clause. The case centred on the ability of one contracting party to rely on an arbitration clause to stay court proceedings pending arbitration, in circumstances where the court proceedings between the parties had progressed to some extent. The decision in this case highlights the importance of ensuring at a very early stage in negotiations that all disputes are resolved using the same forum. 

Background

These proceedings pre-date the repeal of the Irish Arbitration Acts 1954 to 1998 by the Arbitration Act 2010. As such, this case concerns the law as it stood under the Arbitration Act 1980.

Section 5 of the Arbitration Act 1980 provides that:

"If any party to an arbitration agreement, or any person claiming through or under him, commences any proceedings in any court against any other party to such agreement, or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time after an appearance has been entered, and before delivering any pleadings or taking any other steps in the proceedings, apply to the Court to stay the proceedings, and the Court, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred shall make an order staying the proceedings".

Facts

On 16 October 2002, the Fureys entered into a building contract in relation to the construction of a building in Co. Cavan with Lurganville Construction Company Limited, Mr Duff (the owner of the land) and Mr Daly (the architect of the building).

A dispute arose between the parties and on 9 June 2005, the Fureys commenced High Court proceedings against Lurganville, Mr Duff and Mr Daly. As the building contract contained an arbitration clause, Lurganville brought an application in the High Court asking it to stay the proceedings pursuant to section 5 of the Arbitration Act 1980. However, the Fureys claimed that Lurganville was not entitled to rely on the arbitration clause because it had taken a "step" in the proceedings, within the meaning of section 5 of the Arbitration Act 1980. The Fureys had issued a motion for judgment in default of defence against Lurganville which was returnable before the High Court on 17 July 2006. On 11 July 2006, the Furey's solicitors received correspondence from the solicitors for Lurganville seeking an extension of time to deliver a defence. The solicitors for the Fureys agreed on the basis that Lurganvile agreed to discharge the costs of the application. The Fureys relied on that agreement as a step in the proceedings.

The High Court granted Lurganville's application and stayed the proceedings under section 5 of the 1980 Act.

The Fureys appealed that decision to the Supreme Court. They sought to rely on three separate issues in support of their position that the trial judge was wrong in imposing a stay:

  • Lurganville had taken a "step" in the High Court proceedings such as to prevent it from being able to rely on the arbitration clause.

  • The Fureys were reasonably entitled to assume that the conduct of Lurganville in the proceedings up to the point of the application for a stay was such as to reasonably convey an intention on the part of Lurganville to defend the High Court proceedings.

  • If the proceedings against Lurganville were stayed pending arbitration in circumstances where the proceedings against the other defendants were not stayed, this would result in a multiplicity of separate legal proceedings, which could lead to inconsistent findings.

Decision

The Supreme Court dismissed the appeal and affirmed the order of the trial judge staying the proceedings pending arbitration.

Was a "step" taken in the proceedings?

Section 5 of the Arbitration Act 1980 provides that the time at which the application to stay proceedings must be made is before "delivering any pleadings or taking any other step in the proceedings".

Clarke J noted that, according to the case law, it is clear that an application to the court for an extension of time for serving a defence is taken to be a step in the proceedings (Ford's Hotel Company Ltd v Bartlett [1896] AC1). However, a request in correspondence for an extension of time for serving a defence has been taken not to amount to taking a step in proceedings (Brighton Marine Palace and Pier Ltd v Woodhouse [1893] 2 Ch. 486). Clarke J felt that this case fell between those two ends of the spectrum, the parties having reached an agreement in advance of the motion coming before the court.

Clarke J referred with approval to the judgment of Finlay P in O'Flynn v Bord Gais Eireann [1983] 1 ILRM 324, stating that he agreed with the observation 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 by the courts".  He reasoned, therefore, that Finlay P was correct to take the view 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 (such as by filing an affidavit on the merits in opposition to a motion for judgment in summary summons proceedings) or involves an action taken by the defendant in invoking the jurisdiction of the court which leads to costs."

Clarke J found that the actions taken by Lurganville did not amount to an engagement with the merits of the case, nor did they lead to the incurring of costs. The motion for judgment was already before the court, and whatever costs might be attributable to that motion had already been incurred before an agreement as to the extension of time was reached and before the consent order was made.

The Supreme Court found that an agreement between the parties, of the type which occurred in this case, did not amount to Lurganville taking a "step" in the proceedings, in the sense in which that term is used in section 5 of the 1980 Act.

Estoppel

Clarke J held that it is possible that a party may, by conduct, create an estoppel which prevents that party from relying on an entitlement to have a matter referred to arbitration. It was therefore possible, in theory, that there may be cases where, although no step, within the meaning of section 5 of the 1980 Act, has been taken in the proceedings by a defendant, the defendant has, by conduct, become estopped from relying on an arbitration clause.

However, Clarke J's view was that it is necessary that there be a clear unequivocal promise or representation to the effect that the arbitration clause would not be relied on, as well as reliance by the plaintiff on that representation.

Clarke J concluded that there was no factual basis for treating Lurganville as being estopped from relying on the relevant arbitration clause.  There was nothing in the conduct of Lurganville that could be characterised as amounting to a clear and unequivocal representation or promise that Lurganville did not intend relying on the arbitration clause.

Multiplicity of actions

Clarke J noted that the point regarding inconvenience of multiple actions was, quite correctly, not pursued in oral argument, the Fureys having accepted that the UK case of Taunton-Collins v Cromie and others [1964] 1 WLR 633, which they had relied upon before the trial judge, was not good authority in Ireland.

In that case, Lord Denning MR upheld the decision of the official referee not to stay the claim against the builders, pending arbitration, on the grounds that it would be "... most undesirable that there should be two proceedings in two separate tribunals, one before the official referee and the other before an arbitrator, to decide the same questions of fact ...", as such might lead to inconsistent findings.  The decision in that case had to be viewed in light of the terms of section 4 of the UK Arbitration Act 1950 which, unlike section 5 of the Irish Arbitration Act 1980, allowed the court discretion to stay proceedings where there was sufficient reason.

By contrast, section 5 of the 1980 Act provides that the court must stay proceedings "unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred".

Comment

While this case was decided pursuant to section 5 of the Arbitration Act 1980, it should be noted that the Arbitration Act 2010, which implements the UNCITRAL Model Law, contains a similar mandatory provision in Article 8 requiring court proceedings to be stayed pending arbitration "if a party so requests not later than when submitting his first statement on the substance of the dispute", unless the court finds that the agreement is "null and void, inoperative or incapable of being performed". Therefore, it is likely that cases under the Arbitration Act 2010 will be decided along the same lines as this case.

It is also worth noting that, pursuant to the UK Arbitration Act 1996, the UK courts no longer have discretion to refuse to stay proceedings, unless satisfied that "the arbitration agreement is null and void, inoperative or incapable of being performed".

From a commercial perspective, this decision highlights the importance for parties of ensuring, at the contract drafting stage, that all disputes will go to the same forum, to avoid conflicting interests and multiple actions being pursued simultaneously.

Please click here to view the judgment.

This article first appeared in PLC