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High Court in Dublin refuses third party's application to enforce an arbitration agreement
Practical Law UK Legal Update 9-522-3492 (Approx. 5 pages)
High Court in Dublin refuses third party's application to enforce an arbitration agreement
by Andrew Walsh (Partner) and Elaine Punch (Solicitor), A&L Goodbody
| Published on 13 Nov 2012 • Ireland |
The High Court in Dublin has refused an application by a third party for a stay of proceedings under the UNCITRAL Model Law, as incorporated into Irish law by the Arbitration Act 2010, and under the court’s inherent jurisdiction. However, Mac Eochaidh J accepted that there may be circumstances in which a defendant may seek a stay in favour of arbitration where it is not itself a party to the arbitration clause it seeks to rely on.
Background
Article 8 of the UNCITRAL Model Law provides as follows:
"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.
8(2) Where an action referred to in paragraph (1) of this Article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court."
Facts
The applicant, FCC Elliot Construction Ltd (FCC Elliot) applied to the Irish court for a stay of proceedings pursuant to Article 8 of the UNCITRAL Model Law, as incorporated into Irish law by the Arbitration Act 2010 (see Practice note, The Irish Arbitration Act 2010). In the proceedings, the plaintiff, P. Elliot & Co Ltd (in Receivership and Liquidation) (Elliot), sought judgment of approximately STG£1.2m against FCC Elliot in connection with a consultancy contract.
FCC Elliot argued that Elliot's claim was subject to an arbitration agreement contained in another agreement to which FCC Elliot was not a party. The underlying transaction involved multiple commercial and legal relationships between entities connected to Elliot and FCC Elliot.
The contracts
Joint venture agreement
Elliot and FCC Construction SA (FCC SA) entered into a joint venture agreement (JVA) in February 2008, the purpose of which was to prepare a tender for the design and construction works of a new hospital and, if selected, to carry out the works under a building contract. The JVA contained an arbitration clause that applied to disputes under both the JVA and the building contract, and which required any arbitration to be conducted pursuant to the Arbitration Rules of the International Chamber of Commerce (ICC Rules).
However, Elliot and FCC SA did not conclude the building contract for the hospital.
Building contract
The building contract was entered into between Northern Ireland Health Group (NIHG) and FCC Elliot, a newly formed Irish company and the defendant in the proceedings. This was a departure from the terms of the JVA, which provided that the parties to the building contract would be Elliot, FCC SA and NIHG.
The building contract did not contain an arbitration clause. Instead it provided for a process of complaint making, dispute resolution and the appointment of an adjudicator. The governing law of the building contract was Northern Ireland, and exclusive jurisdiction over any disputes was conferred on the courts of Northern Ireland.
After the execution of the building contract, Elliot and FCC Elliot entered into a consultancy contract.
Consultancy contract
The consultancy contract governed the services to be provided by Elliot to FCC Elliot. The consultancy contract did not contain an arbitration clause. Instead, there was a choice of law and jurisdiction clause providing for Irish law and Ireland as the law and jurisdiction applicable to any disputes. The consultancy contract was the subject of these proceedings. Elliot's court proceedings against FCC Elliott were commenced pursuant to the consultancy contract.
Sub-contracted building contract
The building contract was sub-contracted to a partnership between two Northern Irish companies. The sub-contracted building contract contained an arbitration clause which provided for any arbitration be conducted pursuant to the ICC Rules, and provided that the contract to be governed and construed in accordance with the law of Northern Ireland.
The proceedings
Elliot issued proceedings in the High Court in Dublin seeking judgment of approximately STG£1.2m against FCC Elliot in connection with the consultancy contract.
FCC Elliot applied to stay the proceedings pursuant to Article 8 of the UNCITRAL Model Law, as incorporated into Irish law by the Arbitration Act 2010 and the inherent jurisdiction of the High Court to stay the proceedings. In prior communications between the parties, FCC Elliot had contended that the dispute between the parties was connected intimately with the original JVA, which had an arbitration clause. FCC Elliot sought to bring disputes under the consultancy contract within the ambit of the JVA arbitration clause.
In this regard, FCC Elliot referred to a body of case law in which arbitration clauses have been interpreted broadly so as to embrace commercial arrangements somewhat outside the precise commercial relationship where the arbitration clause is to be found. The cases cited by FCC Elliot support a commonsense approach to the interpretation of legal relationships between enterprises, and dispute resolution clauses in particular.
FCC Elliot argued that there is support for the proposition that, in multiple contracts containing contradictory or inconsistent dispute resolution or jurisdiction clauses, the courts should seek to find "the commercial centre of the overall relationship between the parties and apply the relevant jurisdiction and/or arbitration clause".
Elliot argued that FCC Elliot was not a party to the arbitration agreement contained in the JVA, and could not invoke it, as the JVA was between Elliot and FCC SA.
Elliot relied on English case law on stays of proceedings in favour of arbitration. Mac Eochaidh J stated that English case law mainly concerns section 9 of the English Arbitration Act 1996, which is similar, but not identical, to Article 8 of the UNCITRAL Model Law. The case law relied upon by Elliot suggests that if a stay is to be granted, the court must be satisfied that there is an arbitration agreement in existence, and that the parties applying to stay the court proceedings should be parties to the arbitration agreement.
Elliot argued that "the fact that the applicant for a stay is not a party to the arbitration agreement with the respondent is a complete answer to the application and an insurmountable barrier insofar as Article 8 of the Model Law is concerned".
Decision
The court refused FCC Elliot's application for a stay and did not exercise its inherent jurisdiction
Refusal of application to stay proceedings
Mac Eochaidh J did not agree with Elliot's argument and stated that there are circumstances in which a defendant seeking a stay in favour of arbitration is not itself a party to the arbitration clause on which it seeks to rely. The question is whether the party seeking to rely on the arbitration clause has "a sufficient connection" with the party who agreed to the arbitration clause.
Despite this, Mac Eochaidh J refused FCC Elliot's application for a stay of the proceedings under Article 8 of the UNCITRAL Model Law.
Mac Eochaidh J held that if the joint venturers, Elliot and FCC Elliot, wished to include an international arbitration clause in the consultancy contract, this was entirely within their power. Not only did they decide not to do so, but they adopted an entirely different approach by including an Irish choice of law and jurisdiction clause.
Mac Eochaidh J ruled that the dispute in these proceedings was not within the scope of the arbitration agreement in the JVA, and as FCC Elliot was not a party to the arbitration agreement, it could not invoke it.
Mac Eochaidh J also indicated that English case-law is of persuasive value, and suggests that something more than a bare commercial or legal connection between the two entities is required.
Inherent jurisdiction to stay proceedings
The court also declined to exercise its inherent jurisdiction to grant a stay. In this respect, Mac Eochaidh J referred to the case of Ahmad Al Naimi v Islamic Press Agency [2000] EWCA Civ 17, where it was held that a stay may be sensible where a court cannot be sure whether or not there is an arbitration clause and whether or not the subject of the action is within the clause.
Mac Eochaidh J concluded, on the basis of the evidence, that the consultancy contract under which Elliot was suing FCC Elliot, was not governed by an arbitration clause. By conferring exclusive jurisdiction on the Irish courts the parties to the contract had agreed a clause which had the very opposite effect of an arbitration clause. The parties had agreed which law would govern any dispute and the courts of the country where the dispute could be litigated. In such circumstances it would not be appropriate for the court to exercise its inherent jurisdiction.
Comment
This case demonstrates that a third party to an arbitration agreement can rely upon the arbitration agreement to stay proceedings where it is established that the third party has "a sufficient connection" with the party who agreed to the arbitration clause.
From a commercial perspective, this decision highlights the importance of parties ensuring that multiple contracts contain consistent dispute resolution provisions, to avoid conflicting interests and multiple actions being pursued simultaneously.
This judgment also provides a very useful analysis of Article 8 of the UNCITRAL Model Law, as incorporated into Irish law pursuant to the Arbitration Act 2010.