Arbitration Law in Ireland

There has been a large degree of uncertainty as to what exactly constitutes a “step”. This uncertainty has been reflected in the substantial caseload incorporating varying notions on the issue. In O’Flynn v. An Bord Gáis Éireann the question of what amounted to a step in the proceedings was assessed. The crucial condition was taken to be whether the step taken involved costs that would be lost were the stay to be granted and the matter referred to arbitration. In that instance, the defendant’s solicitor wrote to the plaintiff’s representatives requesting an extension of time to file a defence. Finlay P., in his judgment, held that this request was not equivalent to a step in the litigation process:

“It seems clear that the step which should be fatal to a party seeking to refer a matter to arbitration is a step which involves costs, in other words a step which invokes the jurisdiction of the court at his instance or which institutes some matter whether by way of motion or otherwise in the court.”

In his judgment in the recent Supreme Court decision of O’Dwyer v. Boyd (a decision that ultimately rebuffed the suggestion that an application to a court for the adjournment of a motion for judgment could be considered as a step in legal proceedings and that the request made by the defendant was in fact noncommittal to either mode of resolution), Geoghegan J. categorized those actions that could be regarded as ‘steps’ as “the filing of an affidavit in opposition to a summons for summary judgment, service of defence, and an application to the court for leave to serve interrogatories, or for a stay pending the giving of security for costs, or for an extension of time for serving a defence, or for an order for discovery, or for an order for further and better particulars.”  

Owing to these judgments, and to the simplified criteria set out by Finlay Geoghegan J. in the case of Gleeson v. Grimes, the Irish courts’ position on what constitutes a step in legal proceedings has become quite clear: an action must not invoke the jurisdiction of the courts (insofar as to incur costs) and an effort must be made to ensure litigation and arbitration are not sought concurrently.

By adhering to the above and therefore restraining yourself from partaking in any preliminary stages of litigation, your application to the court for a stay on litigation may then only be refused on minimal grounds provided for under section 5 of the Arbitration Act 1980. The burden of proof will be on Northside Builders to satisfy the court that the arbitration clause present in the contract should be rendered “null and void”, “inoperative, and incapable of being performed”, that no dispute exists, or that in fact the clause does not cover the dispute in question.

To ascertain the applicability of this particular arbitration clause to your dispute we must consider if the clause was drafted in wide enough terms to cover such a dispute. The clause in this contract bears striking similarities to that used in Carroll (A Minor) v. Budget Travel Ltd. and Counihan Travel International. In granting a stay here, Morris J. remarked that arbitration clauses covering disputes or differences “arising out of” or “in connection with” the substantive contract should be given a liberal interpretation, in that the court should refer all disagreements involving not only the arbitration clause but the validity of the contract itself to arbitration:

“It would appear to be beyond dispute that the parties have agreed not only to refer matters which arise directly out of the contract to arbitration, thereby ousting the jurisdiction of the Courts, but they have also agreed to refer matters ‘in connection with’ the contract to arbitration.”

The Supreme Court in Gulliver v. Brady & Ors approved such broad-minded interpretation of the language encompassing an arbitration clause. 

Northside Builders may attempt to convince the court that your non-payment was tantamount to a repudiation of the contract, thus serving to banish the arbitration provision. Both domestic and international law seems to dismiss this perception. The English cases of Maschinenfabrik v. South Indian Shipping Corporation and more recently Harbour Assurance Co. (UK) v. Kansa General International Insurance Co. Ltd support the idea of separability of the arbitration clause from the substantive contract. In Ireland, the High Court has employed such a stance in the repudiation cases of Parkarran v. M & P Construction (repudiation of contract for alleged fundamental breach did not extend to the arbitration clause) and Doyle v. Irish National Insurance Company (misrepresentation did not invalidate arbitration agreement). All the above have relied on the judgment of Lord Macmillan in Heyman v. Darwins Ltd., where a distinction was made between an arbitration clause and the remainder of the contract:

“… arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other … if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. And there is this very material difference, that whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts.”  

Given the above endorsement for a wide interpretation of the arbitration clause and its propensity to withstand irreparable damage to the contract itself, it is unlikely that Northside Builders would succeed in demonstrating to the court the unsuitability of the clause to your current dispute. 

Given the likelihood of the agreement surviving any probable declaration of repudiation, the party instituting the legal proceedings (Northside Builders) may in some instances attempt to prove that the arbitration agreement itself is null and void or that the contract has never been in existence, leaving the court with little option but to proceed with judgment. Such a situation arose in the case of McKinnistry v. IMPACT Ltd. and Link Engineering Ltd., where a stay on legal proceedings was rejected by the High Court due to the defendant’s denial of “the existence of the contract” and as a result the Court could “not rely on an arbitration agreement in the contract”. As in Liston v. O’Malley, an oral agreement may be deemed to have displaced a prior written contract rendering the arbitration clause contained within it invalid. Thankfully for you however, such a scenario as experienced by these defendants is unlikely in this case as there was evidently a valid and legal RIAI contract (with its enclosed arbitration clause) signed by both parties, and the oral settlement between the parties to the dispute took place prior to the written agreement.

Section 5 of the 1980 Arbitration Act also gives the courts discretion to decline an application to stay legal proceedings if an incident arises where an arbitration agreement is considered “inoperative or incapable of being performed”. Herbert J. in his judgment of McCarthy & Others v. J.W.T. (Joe Walsh Tours) Ltd., held that the failure of a party to a dispute to bring the specific details concerning limits of monetary compensation contained within the arbitration clause adequately to the attention of the other party leaves the clause inoperative. Northside Builders are unlikely to submit such a complaint to the court due to the uncomplicated format and professionally approved arbitration clause negotiated with the assistance of legal advice in the present contract. You should also be forewarned that any attempt by either party to frustrate the arbitration process by delaying excessively may leave the court little option but to regard the clause as inoperative and incapable of being performed, which may include significant legal costs consequences for you.

There is also the slight possibility of the court refusing to grant you a stay on the basis that you have no legitimate defence to Northside Builders’ claims and that no dispute has in fact arisen. This argument however is unlikely to be accepted by the courts given the large sum of money involved and the fact that you are expected to attempt to put forward defensible and justifiable reasons for your non-payment.

Given the nature of this dispute as a customary one of unobtained payment in relation to a contractual agreement, I can see no reason why the arbitration clause in the standard RIAI contract would not be sufficient to warrant the staying of legal proceedings under section 5 of the 1980 Act. In fact these contracts are the foremost contracts governing construction work in Ireland and are well identified with within the industry. Both parties would have availed of independent legal advice, or at the very least have had such opportunity prior to executing the contract and accordingly the courts will deem that you did so in the full knowledge that any future dispute would be resolved by way of an arbitration process.

 It is an accepted practice that if no conformity can be reached between the parties to a dispute as to how such a contract should proceed, compulsory arbitration procedures shall be pursued. In fact in Sweeney v. Mulcahy, it is interesting to note that O’Hanlon J. in granting a stay on litigation remarked on the universality of the RIAI contract and that there is common understanding of all parties to such a contract of the presence of an arbitration clause within it, so much so that there was no requirement for the parties to sign the agreement:

“…if an agreement otherwise valid and binding is made between two parties which gas been reduced to writing and which contains a clause providing for reference or disputes to arbitration, then an ‘arbitration agreement’ within the meaning of the Arbitration Act, 1980, section 2, has been brought into existence.” 

This would leave Northside Builders in a weak position were they to claim unawareness of the arbitration clause’s existence.

If Northside Builders however were to support their claim of non-payment with contentions of fraud against you, litigation will become the most likely outcome. Disputes involving allegations of fraud are normally considered unarbitrable under section 39(2) of the Arbitration Act 1954. In such a scenario, the High Court will consider the intricacies of the case and whether or not a bona fide claim of fraud with a deliberate intention of prosecuting you has been made. The rationale behind this legislation is to two fold: there would have been no consideration of fraud when both yourself and Northside Builders were drafting the contract containing the arbitration clause and if any such accusations of fraud are held against your name, you should be permitted to exonerate yourself of any such accusations of wrongdoing in a court of law. In the High Court decision in Administratia Asigurarilor de Stat, Winterthur Swiss Insurance Company and Others v. The Insurance Corporation of Ireland plc, O’Hanlon J, in refusing the defendant’s application to stay the legal proceedings, concluded:

“… complexity of the present claim, proceedings by way of arbitration can present many problems, which would not arise if the matter were being processed by way of ordinary litigation before the court.”

Presuming no such allegations of fraud or illegal behaviour are intimated by the plaintiff, I believe, given the orthodox nature of the contractual agreement between both parties and the wide-ranging arbitration clause enclosed within the contract together with the supporting legislation and case-law, you should be confident that an application to the court for a stay on the legal proceedings pending arbitration under section 5(1) of the Arbitration Act, 1980, (which provides for a mandatory stay on court proceedings where a dispute arising between parties comes within the scope of a valid arbitration agreement) will be granted. This application may be made to any court before which Northside Builders’ action has been initiated.

Yours sincerely,

Ciarán Jennings

BIBLIOGRAPHY

Textbooks

Arbitration Law & Practice Reader BBS/IBL, Dublin: Adam McAuley, 2002

Stewart E., Arbitration: Commentary and Sources, Dublin: Firstlaw Limited, 2003.

Sutton D. St. J., Kendall J. & Gill J., Russell on Arbitration, Twenty-First Edition, London: Sweet & Maxwell Limited, 1997.

Journal Articles

Dowling Hussey A., ‘The Irish Law of Arbitration: An Overview-Part 2’, (2007) 25 ILT 155. Available at:  

< Last accessed 14/11/08

Dowling Hussey A., ‘The Irish Law of Arbitration: An Overview-Part 3’, (2007) 25 ILT 168. Available at:

<> Last accessed 14/11/08

Fiss O., ‘Against Settlement’, (1983) 93 YLJ 1073. Available at:   Last accessed 11/11/08

Hutchinson B., ‘New Directions in the Law on Arbitration Agreements: Fiona Trust v. Yuri Privalov’. Available at:  <http://www.arbitration.ie/Arbitration/ibranch/newsletterjuly07.pdf>

Hutchinson B., ‘Staying Litigation Pending Arbitration’, (1994) 1(5) CLP 133. Available at:  Last accessed 28/11/08

Other Sources

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LIST OF STATUTES

Irish Statutes

Arbitration Act 1954 (Act No. 26 of 1954)

Arbitration Act 1980 (Act No. 7 of 1980)

Companies Act 1963 (Act No. 33 of 1963)

Irish Statutory Instruments

Arbitration Act, 1980 (New York Convention Order), 1983 (S.I. No. 350 of 1983) Arbitration Act, 1980 (New York Convention Order), 2000 (S.I. No. 41 of 2000)

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LIST OF CASES

Cases before National Courts

Ireland

Administratia Asigurarilor de Stat, Winterthur Swiss Insurance Company and Others v. The Insurance Corporation of Ireland plc [1990] I.L.R.M. 159

Campus and Stadium Ireland Development Ltd. v. Dublin Waterworld Ltd. [2005] I.E.H.C. 201

Carroll (A Minor) v. Budget Travel Ltd. and Counihan Travel International, unreported, High Court, December 7, 1995

Doyle v. Irish National Insurance Company [1998] 1 I.R. 89

Dun Laoghaire Rathdown County Council v. Shackelton [2002] I.E.H.C. 2

Gleeson v. Grimes [2002] 4 I.R. 417

Gulliver v. Brady & Ors [2003] I.E.S.C. 68 

In the matter of the Companies Acts, 1963 to 1999, and in the matter of Via Net Works (Ireland) Limited, formerly Medianet (Ireland) Limited [2002] 2 I.R. 172

Liston v. O’Malley, unreported, High Court, November 2, 1992

MacCormac Products Ltd. v. Town of Monaghan Co-operative Agricultural and Dairy Society Ltd. [1988] I.R. 304

McCarthy & Others v. J.W.T. (Joe Walsh Tours) Ltd [1991] I.L.R.M. 813

McCormack Fuels Ltd. v. Maxol Ltd. [2008] I.E.H.C. 197 

McKinnistry v. IMPACT Ltd. and Link Engineering Ltd., unreported, High Court, May 14, 1992

Mitchell v. Budget Travel Ltd. [1990] I.L.R.M. 739

O’Dwyer v. Boyd [2002] 1 I.L.R.M. 112

O’Flynn v. An Bord Gáis Éireann [1982] I.L.R.M. 324

O’Mahony v. Lysaght [1988] I.R. 29 

Parkarran v. M & P Construction [1996] 1 I.R. 83

Sweeney v. Mulcahy [1993] I.L.R.M. 289

Telenor Invest AS v. IIU Nominees Ltd. and Esat Telecom Holdings Ltd. [1999] I.E.H.C. 188

Williams v. Artane Service Station Ltd [1991] I.L.R.M. 893

United Kingdom

Fillite (Runcorn) Ltd. v. Aqua Lift (1989) 45 B.L.R. 27

Fiona Trust & Holding Corporation & Ors. v. Yuri Privalov & Ors. [2007] E.W.C.A. Civ 20 

Harbour Assurance Co. (UK) v. Kansa General International Insurance Co. Ltd [1993] Q.B. 701

Heyman v. Darwins Ltd. [1982] A.C. 356

Maschinenfabrik v. South Indian Shipping Corporation [1981] A.C. 909

Nova (Jersey) Knit Ltd. v. Kammgarn Spinnerei [1977] W.L.R. 713

Pitcher’s Ltd. v. Plaza (Queensbury) Ltd. [1940] 1 All E.R. 151

Russell v. Russell [1874] R 82

Turner & Goudy v. McConnell and Anor. [1985] 1 W.L.R. 898

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