The High Court in a recent judgment, Kellys of Fantane Ltd v Bowen Construction Ltd and another, refused to grant a stay on an application for summary judgment pending arbitration in circumstances where the parties were found to have agreed that a discreet aspect of the dispute could be determined by the courts.

Background

The parties entered into an agreement in 2009 whereby the plaintiff (sub-contractor) agreed to carry out construction works for the defendant (contractor). A dispute resolution process was expressly set out in the agreement and it provided that:

  • A dispute may be referred to arbitration by the service of a notice to refer thus signalling the commencement of arbitral proceedings.
  • No step would be taken in the arbitral proceedings unless the dispute had first been referred to conciliation.
  • The recommendation of the conciliator would be conclusive and binding on the parties if neither party gave notice of dissatisfaction within 48 days of receipt of the recommendation.
  • Even if a notice of dissatisfaction were given, the party against whom the recommendation was made would be required to pay the sum recommended by the conciliator, provided the other party provided a bond executed by a surety approved by the paying party. Thereafter, the matter would proceed to arbitration.

When a dispute arose in relation to the construction agreement, the plaintiff duly served a notice to refer to arbitration and a conciliator was engaged who made recommendations. The defendants served a notice of dissatisfaction and the plaintiff furnished a suitable bond as required under the agreement. The defendant failed to pay the sum recommended by the conciliator and the plaintiff sought summary judgment before McGovern J in the High Court against the defendants in the sum of €6,364,978, this being the amount of the conciliator's recommendation.

Jurisdiction to hear the dispute

The defendants made an application under Article 8(1) of the UNCITRAL Model Law (the "Model Law") as adopted by the Arbitration Act 2010, to stay the Court proceedings on grounds that the dispute was the subject of an arbitration agreement and thus not justiciable before the Court. The plaintiff submitted that the dispute was a matter for the Court in circumstances where the dispute resolution clause expressly provided that the Court would have jurisdiction to hear an ancillary dispute concerning compliance with the conciliator's recommendation.

The Court held that it had jurisdiction to hear the dispute at issue. The dispute resolution clause effectively "ring-fenced" the conciliator's recommendations as it expressly provided that the courts had jurisdiction to deal with compliance with such recommendations. The Court found that it was solely concerned with that discreet aspect of dispute resolution procedure and the clause did not limit the power of the arbitrator to continue arbitrating the substantive dispute between the parties. The learned High Court judge observed that while the courts in this jurisdiction are fully supportive of the arbitral process, if the parties agree to a first step conciliation process, the obligations of which can be enforced by the courts, then the Court will give effect to that agreement. McGovern J further emphasised that while the Court was given jurisdiction to deal with this discrete dispute, it did not in any way interfere with the continuing arbitral process, which would ultimately decide what money was due to the plaintiff and whether the defendant was entitled to any refund on the sums paid on foot of the conciliator's recommendation

Whether the dispute fell within the scope of the arbitration agreement.

McGovern J noted that the issue before him was not whether an arbitration agreement existed but rather whether the matter sought to be referred to arbitration by the defendants was within the scope of the arbitration agreement. As regards the standard of proof required, he noted that the standard required in applications under Article 8 of the Model Law was "a full judicial consideration" and he approached the issue on that basis.

In his examination of whether or not one could have part of a dispute dealt with by arbitration and part in another forum, McGovern J quoted with approval the dicta of Hoffman LJ in Fiona Trust and Holding Corporation & Ors v. Privalov & Ors where he stated that "[The construction of an arbitration agreement] must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts". McGovern J was satisfied that the parties did intend to divide the issues which might be decided by an arbitrator and those that might be decided by a court. He noted that the dispute resolution clause was clear in it terms, the rational purpose of which was to avoid a double layer of dispute resolution. As such the clause met the test of rationality and business common sense.

Conclusion

McGovern J confirmed the mandatory nature of Article 8 and noted that a court must refer a dispute to arbitration if the dispute is within the scope of the arbitration agreement and there is no finding that the arbitration agreement is null and void. The learned High Court judge found that the particular dispute before him was a discreet issue which the parties agreed should be determined by the courts and was divisible from the arbitration agreement. In these circumstances there was no obligation to refer under Article 8 and the application to stay the proceedings was refused.

Comment

It is clear from the judgment that parties are free to agree a dispute resolution procedure between themselves and the courts will endeavour to give effect to this agreement. In particular, where parties intend for discreet issue of a dispute pending arbitration to be determined by a court, the courts will uphold this intention.

To read the judgment click here.