Irish High Court refuses application to stay proceedings and refer dispute to arbitration

In The Lisheen Mine (being a partnership between Vedanta Lisheen Mining Limited and Killoran Lisheen Mining Limited) v Mullock and Sons (Shipbrokers) Limited and Vertom Shipping and Trading BV [2015] IEHC 50, the Irish High Court considered its jurisdiction to assess whether an arbitration agreement existed, in particular whether it should apply a prima facie or "full judicial consideration" test.

The High Court refused an application to stay proceedings and refer the dispute to arbitration. It held that it was appropriate for the court, rather than an arbitral tribunal, to decide whether an arbitration agreement existed, and gave full judicial consideration to the issue.

The decision highlights, once again, the tension between the courts and arbitrators over responsibility for deciding challenges to arbitrators' jurisdiction, and the limits to the Kompetenz-Kompetenz principle.

Background

Irish Arbitration Act 2010
Section 6 of the Arbitration Act 2010 provides that: "Subject to this Act, the Model Law shall have the force of law in the State and shall apply to arbitrations under arbitration agreements concerning – (a) International commercial arbitrations or (b) Arbitrations which are not international commercial arbitrations."

Article 8 of the UNCITRAL Model Law provides that: "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 effect of Article 8 (together with Article 7) is that in order for a matter to be referred to arbitration, there must be a valid arbitration agreement between the parties.

Article 16 of the Model Law deals with the competence of an arbitral tribunal to rule on its jurisdiction. It provides: "The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement."

The court's jurisdiction in considering whether an arbitration agreement exists
In Barnmore Demolition and Civil Engineering Ltd and Alandale Logistics Ltd and Others [2010] IEHC 544, Feeney J stated that "Article 16 is not mandatory and the existence of the power does not have the consequence that the Court is obliged in every instance to refer a dispute about whether or not an arbitration agreement exists to the tribunal..."

Feeney J noted that "there has to be an agreement between the parties to arbitrate", before a court can refer a dispute to an arbitral tribunal.

Facts
The Lisheen Mine (Lisheen) is a mining firm, consisting of a partnership between Vedanta Lisheen Mining Limited and Killoran Lisheen Mining Limited. A dispute arose between Mullock and Sons (Mullock) (a ship brokers), Vertom Shipping and Trading BV (Vertom) (ship owners), and Lisheen, in relation to whether the parties had agreed contracts for the carriage of cargo between Cork, as the shipping port, and Antwerp, Belgium and Stettin, Poland, as the receiving ports.

In the ordinary course of business, Lisheen would ask its shippers to enter into two contracts, a master/framework agreement, which set out prices and general terms for a defined period, and charter agreements, which set out terms for specific voyages. The master/framework agreement was to be agreed as between Lisheen and Mullock, as agents for and on behalf of Vertom, while the charter party agreement was between Lisheen Milling Limited (a separate entity) and Mullock and Sons, as agents for and on behalf of Vertom.

The parties entered into negotiations for the shipping contracts and, while negotiations were ongoing, a need arose for a shipping voyage from Cork to Antwerp. The question then arose as to whether contracts had been agreed between the parties, with Mullock and Vertom asserting contracts existed, while Lisheen denied their existence.

Lisheen issued proceedings in the Irish High Court, seeking a declaration that it had not entered into any contract with the defendants for the carriage of cargo between Cork, and Antwerp, Belgium or Stettin, Poland. In the alternative, Lisheen sought a declaration that, if it was a party to such a contract, it was entitled to rescind the contract, and that it did so lawfully. Lisheen also pleaded that, even if it had concluded a contract, it had not entered into a standard charter party agreement (which included the arbitration clause at issue).

Vertom sought an order staying the court proceedings, pursuant to Article 8 of the Model Law as incorporated into Irish law by the Arbitration Act 2010 and Order 56, rule 3 of the Rules of the Superior Courts, and/or pursuant to the inherent jurisdiction of the High Court. Vertom also sought an order referring the proceedings to arbitration, because the standard charter party agreement included an arbitration clause.

Subsequent to the issuing of these proceedings by Lisheen, Vertom commenced separate arbitration proceedings in London against both Lisheen and Lisheen Milling Limited (a separate entity), pursuant to the arbitration clause in the alleged charter party agreement (which Vertom alleged had been incorporated into the alleged master/framework agreement).

It was common ground that there was no written master/framework agreement or charter party agreement which had been signed by both parties. There was, however, an exchange of emails and it was a matter for the court to ascertain from these emails whether a contract had been concluded as between the parties.

A further matter to be considered by the court was the confusion, particularly on the part of Vertom, as to who the exact parties to each alleged agreement were.

Decision
The court held that the parties had not agreed a charter party agreement. Therefore, there was no arbitration agreement between the parties and the court refused Vertom's application to stay the court proceedings and refer the dispute to arbitration.

As to whether the court should consider the validity of an arbitration agreement on a prima facie basis or on a "full judicial consideration" basis, Cregan J concluded that the court should give "full judicial consideration" to the issue for the following reasons:

  • A finding that an arbitration agreement exists on only a prima facie basis would mean that the issue may have to be re-argued before the arbitrator as to whether an arbitration clause exists on a conclusive basis. This would be entirely wasteful of costs.
  • If the court leaves the matter open for the arbitrator, and the arbitrator decides that there is or is not an arbitration agreement, then that decision itself is open to challenge by way of appeal on a point of law. This would mean that the court might have to decide the issue again. The prospect of parties having to fight the issue on three separate occasions would not be in the interests of proper case management.
  • The question of whether there is an arbitration agreement is a question of law which is best decided by a court. The courts are well used to considering whether on the basis of the affidavit evidence before the court, there is a valid and concluded contract in existence between the parties.

However the judge stated that, even if he was wrong to have decided the issue on a full judicial consideration basis, and that the appropriate test as to whether there was an arbitration clause was the prima facie test, the defendants also failed that test. The defendants had not established a prima facie case that there was a concluded master/framework agreement between the parties, nor had they established that there was a concluded charter party agreement between the parties.

Was there a concluded master/framework agreement?
Cregan J concluded, on an analysis of the various email exchanges between the parties, that there was no master/framework agreement because the underlying correspondence between the parties established that there would be no master/framework agreement concluded until the charter party agreement had been agreed.

As such, the existence of an enforceable master/framework agreement turned on whether the parties had agreed the terms of a charter party agreement.

Was there a concluded charter party agreement?
Cregan J concluded that the parties had not agreed a charter party agreement because, although the correspondence between the parties evidenced negotiations of the charter party agreement, those negotiations had not concluded in an agreement. It was agreed that the parties did not sign a charter party agreement and the court was unable to identify any document setting out the agreed upon terms of a charter party agreement.

Therefore, Cregan J found that "the evidence in this case falls a long way short of what would be required for a court to conclude there was a concluded charter party agreement between the parties". 

Was the arbitration clause in the charter party agreement incorporated into the master/framework agreement?
As discussed above, the master/framework agreement did not contain an arbitration clause. Rather, the arbitration clause was found in the draft standard conditions of the charter party agreement, which had not been agreed as between the parties.

Cregan J noted that the issue of incorporation by reference, in a two contract situation, had been considered in Habas Sinai v Sometal S.A.L. [2010] EWHC 29 (Comm). In that case, Clarke J found that courts adopted a more restrictive approach to the incorporation by reference in two-contract situations. 

Accordingly, Cregan J concluded that, even if the parties had concluded a master/framework agreement, it was not appropriate, as a matter of law, to incorporate the arbitration agreement found in the draft charter party agreement (which had not been agreed) into the master/framework agreement. This was particularly the case because the parties to the master/framework agreement differed from the parties to the proposed charter party agreement.

Inherent jurisdiction
In its notice of motion, but not in its legal or oral submissions before the court, Vertom also sought to stay the proceedings pursuant to the inherent jurisdiction of the court. It was clear that the court had such a jurisdiction. However, in light of his findings that there was no arbitration agreement between the parties, Cregan J was of the view that there were no grounds upon which to exercise the court's inherent jurisdiction to stay proceedings.

Comment
This decision shows that both the court and the arbitral tribunal may rule on the existence of an arbitration agreement. However, Cregan J was of the view that the question is best decided by a court, on a full judicial consideration basis.

The judge noted that a similar approach had been adopted in England and Wales, where the courts have held that any question as to the existence of an arbitration agreement may be dealt with by the court, because an arbitrator's decision on that issue would be valid only if the parties had previously agreed to an arbitration agreement (see Al Naimi v Islamic Press Agency Inc. [2000] EWCA Civ 17Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; and Premium Nafta Products Ltd & Ord v Fill Shipping Co Ltd & Ors [2007] UKHL 40). 

Case
The Lisheen Mine (being a partnership between Vedanta Lisheen Mining Limited and Killoran Lisheen Mining Limited) v Mullock and Sons (Shipbrokers) Limited and Vertom Shipping and Trading BV [2015] IEHC 50 (12 January 2015) (Courts Service for Ireland). 

This note was first published by Practical Law Arbitration.

Reproduced with permission of the publisher. For more information, see http://uk.practicallaw.com.

For further information please contact Davinia Brennan at dbrennan@algoodbody.com or Joe Kelly at jkelly@algoodbody.com.

Date published; 24 February 2015