Arbitration agreement still enforceable notwithstanding summary judgment proceedings

In Ocean Point Development Company Ltd. (in receivership) v. Patterson Bannon Architects Ltd & ors  [2019] IEHC 311 the High Court held that a dispute between property development company and a construction company was a matter for arbitration and not for the High Court where both parties had agreed to be bound by an arbitration clause in their contract. This was despite a previous summary judgment having been made against the developer.

Background

In 2007, Ocean Point entered into a contract with Clancy Construction Company for a development in Courtown Harbour, Co. Wexford. The contract was a standard RIAI form (2002 version). There were various disputes between the parties in 2008 including a claim that the works by Clancy Construction were "sub-standard" and it was agreed they would be so referred to conciliation under the contract. The conciliation process ended without resolution.

In 2008, Clancy commenced summary proceedings against Ocean Point seeking payment in respect of an architect. Ocean Point entered an Appearance but did not contend at that point that the summary proceedings ought to have been referred to arbitration pursuant to the contract. In 2009, a Receiver was appointed over the assets of Ocean Point. The Receiver did not oppose the application for Summary Summons which was made on consent before the Master of the High Court in the amount of €768,379.45 with interest.

Meanwhile, Clancy sought to invoke the arbitration provisions of the contract in respect of the issues which has been the subject of the unsuccessful conciliation. The issue of the summary proceedings was not included as a matter of dispute between the parties.

In 2014, despite failing to discharge the judgment arising from the summary proceedings, Ocean Point commenced plenary proceedings claiming that the quality of the works by Clancy was "wholly inadequate". Clancy sought a Court Order directing that the dispute should be dealt with by way of arbitration pursuant to their contract and as set out under Article 8 (1) of the Model Law (in operation by virtue of Section 6 of the Arbitration Act 2010).

Ocean Point in resisting the application sought to argue three main points. Firstly, that the commencement of the plenary proceedings by Ocean Point in September 2014 resulted in the arbitration agreement in the contract being repudiated and therefore unenforceable. Secondly, they claimed that the arbitration agreement was “incapable of being performed” because not all the defendants sued in the plenary proceedings would be involved in the arbitration. Thirdly, it was claimed that the failure to have an all risks insurance policy in place voided the contractual provision relating to arbitration.

Article 8 of Model Law

Article 8 (1) of the Model Law states:

“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.”

Barniville J. held that where the requirements of Article 8 are met, the Court must refer the matter to arbitration and has no discretion to refuse to do so. In this case, the Court was satisfied it was required to make the order sought by Clancy referring Ocean Point and Clancy to arbitration under clause 38(b) of the contract in respect of the dispute the subject of the plenary proceedings.

Contract 

The contract was in the standard RIAI (2002 version) form and clause 38(b) of the contract comprised the arbitration agreement for the purposes of Article 8 of the Model Law. 

The Court rejected the argument that the agreement was inoperable because it was repudiated by Clancy (by reason of the Summary Summons proceedings) and capable of being performed by reasons of the absence of the other Defendants. Barniville J. held the commencement of the summary proceedings did not amount to a repudiation by Clancy of the arbitration agreement. 

The Court drew the parties' attention to the case of Franmer (Franmer Developments Ltd. v. L&M Keating Limited and Others [2014] IEHC 295) which dealt squarely with the objection that multiple defendants were required to be included in the arbitration. As such the objection by Ocean Point was held to be misconceived. The Court agreed with the ratio in Franmer that an arbitrator who decides that the builder is liable and makes an award is a separate matter from whether any of the other defendants has a liability to the plaintiff.

Ocean Point also argued that since the contract provided that an all risks insurance policy be in the joint names of Clancy and Ocean Point and if that was not in place, the contract could not be relied on to refer the matter to arbitration. Barniville J. considered this irrelevant to the issues in the case, but held that there was adequate insurance in place in any event.

Comment

This case encapsulates the well established preference of the Irish Courts to enforce arbitration agreements where the necessary requirements are in existence. Barniville J. (who is the designated arbitration judge in the High Court) has in a number of decisions reaffirmed that where there is a valid arbitration agreement courts will be slow to allow litigation through the courts and will support the arbitral process and its integrity.

For more information on this topic conatact Ciaran Joyce, Knowledge Lawyer or any member of A&L Goodbody's Litigation and Dispute Resolution team.

Date published: 24 May 2019