knowledge | 24 January 2019 |
High Court says Clarity is Key: Agree to Arbitrate and You are Presumed to Want to Arbitrate
In the recent judgment of K&J Townmore Construction Ltd v Kildare and Wicklow Education and Training Board,1 in referring a contractual dispute to arbitration,the High Court has again demonstrated the strong support of the Irish courts for the arbitral process and the liberal approach which they will adopt to the construction of arbitration agreements.
In this case, the contractor was employed to carry out construction works at a national school in Kildare under a standard form, Public Works Contract (the Public Works Contract for Minor Building and Engineering Works designed by the Employer). Following completion a dispute arose as to payment. The contractor claimed the balance owed to it came in at €206,245.72 (ex VAT). The contractor further claimed that this amount had been agreed to by the Kildare and Wicklow Education Board (the "Board") in 2016 and later confirmed by its former chief-executive. The contractor now sought judgment in that amount in summary proceedings.
However, the Board contended that the contract contained an arbitration agreement (at clause 13.2) under which the parties agreed that any dispute arising “under” the contract was required to be “finally settled” by arbitration. As the current dispute had arisen in relation to the contractor’s claim, it had arisen “under” the contract and therefore, fell within the scope of the arbitration agreement.
The contractor opposed the submission of the dispute to arbitration on three grounds. First, it argued that the amount arose on foot of an account which was stated and settled, and so, the dispute fell outside the scope of the arbitration clause. Second, the contractor maintained that the alleged agreement reached in 2016 gave rise to an estoppel which prevented the Board from relying on the arbitration clause. Finally, the contractor argued that the clause was superseded by this 2016 agreement to render the arbitration agreement "inoperative" within the meaning of Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration.2
Barniville J. dismissed each of these arguments. While he accepted that an estoppel could arise, he found that one had not arisen here. For an estoppel to arise there had to be a clear unequivocal promise or representation to the effect that the arbitration agreement would not be relied upon. In addition, the party seeking to oppose the reference to arbitration must have acted on the basis of that representation.3 In this case, Barniville J. found that there had been no clear unequivocal promise made to the effect that the arbitration agreement contained in clause 13.2 of the Public Works Contract would not be relied upon.
In summarising the applicable principles, Barniville J. distilled them into the following five clear points:
- In construing an arbitration agreement, the court must give effect, so far as the language used by the parties will permit, to the commercial purpose of the arbitration agreement.
- The construction of an arbitration agreement should start from an assumption or presumption that the parties are likely to have intended any dispute arising out of the relationship which they entered into to be decided by the same body or tribunal. In other words, there is a presumption that they intended a "one-stop" method of adjudication for their disputes.
- The arbitration agreement should be construed in accordance with that assumption or presumption unless the terms of the agreement make clear that certain questions or issues were intended by the parties to be excluded from the jurisdiction of the arbitrator.
- A liberal or broad construction of an arbitration agreement promotes legal certainty and gives effect to the presumption that the parties intended a "one-stop" method of adjudication for the determination of all disputes.
- The court should construe the words "arising under" a contract and the words "arising out of" a contract when used in an arbitration agreement broadly or liberally so as to give effect to the presumption of a "one-stop" adjudication and the former words should not be given a narrower meaning than the latter words. Fine or "fussy" distinctions between the two phrases are generally not appropriate.
-  IEHC 770.
- Section 6 of the Arbitration Act 2010 adopts the Model Law both for international commercial arbitrations and for domestic arbitrations where the seat is Ireland.
- Furey v. Lurgan-ville Construction Company Limited  4 I.R. 655; Go Code Limited v. Capita Business Services Limited  IEHC 673.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.