Construction dispute must go to arbitration despite arguments that requirement of Art 8 of the UNCITRAL model law not adhered to

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In XPL Engineering ltd. V. K & J Townmore Construction ltd. [2019] IEHC 665,​ the High Court held that a construction dispute was within the remit of the Arbitration Act and should be referred to arbitration having regard to Article 8 (1) of the UNCITRAL Model Law on International Commercial Arbitration and the relevant arbitration agreements between the parties. Barniville J. found that there was a conflict between the parties which was subject to an arbitration agreement and that he was under a mandatory obligation to order that the dispute should be dealt with by way of arbitration.

Background

The defendant, a construction company, engaged the plaintiff engineering company to carry out some work in 2014. They entered subcontracts in respect of some work in Stanhope Green in Smithfield, Dublin and one in respect of St. Etchen's National School in Kinnegad, County Westmeath. Both subcontracts contained an arbitration clause.  Differences arose between the plaintiff and the defendant in the course of both of the subcontracts shortly after they commenced.  The plaintiff claims that monies were due to it under both subcontracts which the defendant had not paid. The plaintiff issued plenary proceedings against the defendant in 2014 seeking payment of the sums.

The defendant asserted that the plenary proceedings arose out of a dispute or disputes between the parties in relation to the two subcontracts and that those subcontracts required such disputes to be dealt with by way of conciliation or arbitration. The plaintiff did not pursue the plenary proceedings.  Rather, the plaintiff issued a summary summons almost four years later in 2018, seeking to recover from the defendant the sum of €187,194.91 allegedly due and owing to the plaintiff. In the grounding affidavit to the summary proceedings, the director of the plaintiff company contended that the defendant's managing director had confirmed the percentage of work completed on the site by the plaintiff in a site meeting in 2014. It was extrapolated from the site minutes that there was an acknowledgement by the defendant that, of the required works, 72% had been completed by the plaintiff (for which it had only been paid 17% of the total value due to it).

The plaintiff's motion for liberty to enter final judgment was adjourned on consent to January 2019 to enable the defendant to provide its replying affidavit. That replying affidavit argued a preliminary objection to the proceedings by reference to the arbitration clauses contained in the two subcontracts. An application for an order under Article 8(1) of the Model Law was made by the defendant seeking to have the court order the dispute to be resolved by arbitration. The plaintiff submitted that no dispute had arisen between the parties in relation to the sum which the plaintiff was seeking by way of summary judgment.  In the absence of a dispute, it was contended, the arbitration clauses contained in the two subcontracts were not engaged. In support of his contention that no dispute existed between the parties, in relation to the sum claimed by the plaintiff, the plaintiff referred again to and exhibited the site minutes.   

Article 8 compliance

The plaintiff argued that for various reasons the requirements of Article 8 (1) had not been met by the defendant and that the court did not have a mandatory obligation to refer the parties to arbitration in respect of the claim.

Article 8 (1) of the Model Law provides as follows:

"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."

The Model Law has force of law in the State and applies to both international commercial arbitrations and domestic arbitrations where the seat of the arbitration is Ireland by virtue of s. 6 of the Arbitration Act 2010.  Barniville J. held where the requirements of Article 8 (1) are satisfied, the court is under a mandatory obligation to make the reference to arbitration and does not retain a discretion.  The plaintiff did not argue that the agreement was "null and void" or "inoperative" or "incapable of being performed" rather it contended that the defendant had not complied with the requirements of Article 8 (1) and also that there was no "dispute" between the parties so as to engage the provisions of the Article.

The plaintiff asserted that the defendant submitted its "first statement on the substance of the dispute" when entering a replying affidavit in January, 2019 in response to the plaintiff's application for liberty to enter final judgment in the summary proceedings. Barniville J. held that the replying affidavit did not amount to the defendant's "first statement on the substance of the dispute" between the parties. It did not refer to the nature of the claim being made or the nature of the defence to that claim. A mere reference to the fact of a dispute could not amount to a "statement" on the "substance" of that dispute. Accordingly, the plaintiff's contention that the defendant failed to comply with this requirement and that, as a consequence, the mandatory obligation on the court under Article 8(1) to make a reference to arbitration did not arise. The Court went on to add that Article 8(1) did not impose any particular time limit within which an application for an order under that provision must be made.

Whether a dispute exists between parties

The plaintiff submitted that there was no dispute between the parties in relation to the plaintiff's entitlement to be paid that sum by the defendant, the plaintiff contends that there is no dispute which could be referred to arbitration under the subcontract and Article 8 of the Model Law. The entitlement of a party to that subcontract to invoke the arbitration provisions arises where a "dispute arises between the parties in connection with or arising out of the Sub-Contract".  Therefore, there must be a "dispute" between the parties before either party can seek to invoke the arbitration provisions. In considering whether there was a dispute that would engage the court's obligation to refer parties to arbitration under Article 8(1) of the Model Law, Barniville J. was not concerned with the merits of the dispute in the sense of whether or not the party seeking the reference to arbitration had or had not established an arguable or credible defence such as would entitle that party successfully to resist an application for summary judgment in respect of that claim.

Once a dispute has arisen between the parties, which is the subject of an arbitration agreement, it is not the role of the court to assess the merits of the parties' respective positions in that dispute. That was the role of the arbitrator. The Court held that it would not usurp the proper role of the arbitrator and fundamentally undermine the arbitral process by holding with the plaintiff. Furthermore, on the facts of the case, Barniville J. was satisfied that there was a dispute between the parties within the meaning of Article 8(1).

Result

The Court was satisfied that the defendant has demonstrated that the requirements of Article 8(1) of the Model Law had been satisfied and that a dispute existed between the parties in respect of the plaintiff's entitlement to judgment in the sum now claimed in the summary proceedings. The Court, in ordering the dispute to be resolved by way of arbitration, encouraged the parties to make an effort to have all of their disputes dealt with in one arbitration rather than in separate arbitrations under each of the two subcontracts.

The case is much in the similar vein of judgments by Barniville J. (who is the Irish Judge appointed under the Arbitration Act to deal with arbitration cases) that Article 8(1) will be enforced where parties have voluntarily agreed to arbitrate any dispute.

For more information please contact Ciaran Joyce, Knowledge Lawyer or a member of the Litigation & Dispute Resolution department at A&L Goodbody.

Date published: 5 February 2020