The Facts

The plaintiffs purchased a property situated in Co. Sligo in 2005 which they alleged was seriously defective. They issued High Court proceedings against the developer, the original owners of the lands (who were also directors of the development company), and their architect. They also sued Homebond in the same High Court proceedings, pursuant to the guarantee which it gave under the "Home Bond Agreement" whereby it agreed to repair defectively constructed private dwellings in the event that one of its members defaulted on its obligation to effect such a repair.

Homebond brought an application to stay the proceedings, pursuant to section 6 of the Arbitration Act 2010 on the basis that the "Home Bond Agreement" contained an arbitration clause. The plaintiffs opposed the stay application on the basis that the arbitration clause had been rendered inoperative by reason of the change of name of a government Minister, who was also a party to the agreement and on the grounds that Homebond should be estopped by its own conduct from relying on the arbitration clause, as Homebond had delayed in seeking to invoke the arbitration clause.

The Decision

Hogan J. held that the arbitration clause was effective. The change of name of a government Minister, who was a party to the agreement, had no bearing on the validity of the clause. The same legal entity remained as a party to the contract and all that had happened was that the Minister had undergone a name change.

However, notwithstanding the Court's finding that the clause was valid, the Court refused to stay the proceedings pursuant to section 6 of the Arbitration Act 2010. The Court held that the delay by Homebond in seeking to invoke the arbitration clause (21 months after the service of the proceedings) was unsatisfactory. The Court held that Homebond, by its conduct, had represented that it intended to engage in the proceedings and to defend the case on its merits, because it had been represented in Court and it had entered an Appearance to the proceedings. In the circumstances, Hogan J. held that Homebond had forfeited its right to invoke the arbitration clause.

The judge noted that a similar claim did not prevail in the Supreme Court case of Furey v Lurganville Construction Co. Ltd. [2012] IESC 38, a case with facts not dissimilar to this case. But the judge stated that it was the "additional factors which were not present in Furey", which tipped the scales in the opposite direction in this case. Such factors included: Homebond's request for a statement of claim (which was made without any express reservation of the right to invoke the arbitration clause); further requests for forbearance in relation to an application seeking judgment in default of defence, following delivery of the statement of claim; and the fact that the delay in invoking the arbitration clause was longer than in Furey (albeit only by 4 months). Hogan J. concluded that all of these factors led the plaintiffs to believe that Homebond intended to contest the matter on its merits and led the plaintiffs to act upon that assumption.

Comment

This decision serves as a reminder that a party may, by its conduct, be estopped or precluded from relying on a contractual right to arbitration. It is worth noting that Article 8 of the UNCITRAL Model Law (implemented by the Arbitration Act 2010), requires a Court to stay proceedings pending arbitration "if a party so requests not later than when submitting his first statement on the substance of the dispute". Accordingly, it is vital for a party who intends to rely on an arbitration clause to invoke the clause and/or request the Court to stay litigation as early as possible, in order to ensure that the right to rely on an arbitration clause is not forfeited.

For corporate parties, it shows the importance of ensuring, at the contract drafting stage, that all disputes go to the same forum, to avoid the danger of multiplicity of actions, which might lead to conflicting decisions.

Further Information

Judgment: Mitchell v Mulvey Developments Ltd & Ors [2012] IEHC 561

Case analysis: Furey v Lurganville Construction Co. Ltd [2012] IESC 38