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Staying court proceedings in favour of arbitration

AUTHOR(S): GearĂ³id Carey
PRACTICE AREA GROUP: Commercial Litigation and Dispute Resolution
DATE: 25.01.2011

In Barnmore Demolition and Civil Engineering Ltd v Alandale Logistics, the High Court (Commercial) considered the test applicable to staying court proceedings in favour of arbitration and addressed the question of how the court should determine whether the test has been satisfied.(1) Although the court's comments in the latter regard were made in passing, they represent an interesting development in relation to the relevant test under the Arbitration Act 2010, which itself applies the United Nations Commission on International Trade Law (UNCITRAL) Model Law.

Facts

The plaintiff commenced High Court (Commercial) proceedings arising from work that it had performed but for which it had not been paid. The first and second defendants applied to stay those court proceedings and to have the matters in dispute referred to arbitration. They asserted that the plaintiff's claim was subject to an arbitration agreement within the meaning of the act. The plaintiff resisted the application and contended that no arbitration agreement had been reached between the parties.

Decision

At the outset, Justice Feeney observed the obligation upon a court – pursuant to Article 8 of the UNCITRAL Model Law – to refer parties to arbitration unless the "agreement is null and void, inoperative or incapable of being performed." Accordingly, the first question that arose was whether there was in fact an arbitration agreement between the parties. For the purpose of the act, an 'arbitration agreement' is defined by Option 1 of Article 7 of the UNCITRAL Model Law, which broadly requires an arbitration agreement to be in written form (although that conception is relatively broad). Obviously, an arbitration agreement will have been reached if there is an arbitration clause in a contract or a separate agreement to arbitrate. However, an arbitration agreement will also be considered to exist in written form if its content is recorded in any form, irrespective of whether the arbitration agreement has been concluded orally, by conduct or by other means.

The court also recognised the separability of the arbitration agreement – that is, that it has a separate, independent existence from the substantive agreement. It acknowledged that such independent existence is reflected both by Article 16(1) of the UNCITRAL Model Law and by relevant English case law.(2) However, the court stressed that even though an arbitration agreement may have a separate or independent existence, this does not mean that the parties do not have to show that an arbitration agreement or agreement to arbitrate exists in accordance with Option 1 of Article 7.

The court also referred to Article 16(1), which recognises the competence of the arbitral tribunal to determine its own jurisdiction, including questions as to the existence or validity of the arbitration agreement. While this was the issue before the court on this occasion, the court noted that the UNCITRAL Model Law does not require a party that contends that there is no arbitration agreement to have that question determined by an arbitral tribunal. Just because the arbitral tribunal has such a power does not mean that the court cannot also consider the existence or validity of an arbitration agreement. It held that Article 16 is not mandatory, and that the court is not obliged to leave the question to the arbitral tribunal. Ultimately, it held that the "court is not precluded from making such inquiry and deciding if there is an arbitration agreement". Of course Article 8 specifically gives the court such jurisdiction where court proceedings have issued and an application to refer the parties to arbitration is made within the relevant time limits.(3)

The court recognised that, if it is to exercise its jurisdiction to refer parties to arbitration, it must be satisfied that the dispute is subject to an arbitration agreement. However, since both the court and the arbitral tribunal can have jurisdiction to consider the existence of an arbitral agreement, an issue arises as to the standard of review to be applied by the court if it is to exercise its jurisdiction on the issue. Essentially: should there be full judicial consideration of the issue or should that consideration be prima facie only, taking the applicant's case at its highest and assuming all evidence is true?

In considering those alternatives, the court referred to a leading academic text on arbitration, as well as to the different approaches adopted in other jurisdictions. In particular, it cited Gary Born,(4) to the effect that the:

"weight of better reasoned national court authority in UNCITRAL Model Law jurisdictions has interpreted Article 8(1) as permitting full judicial consideration (rather than only prima facie review)… in challenges to existence, validity or legality of the arbitration agreement."

The court further commented that there was a "particularly strong case" that any review should be on the basis of full judicial consideration. However, the court did not have to decide between the two standards because, having considered the contentions put forward by the first and second defendants in light of the evidence before the court, it held that the applicants did not even meet the prima facie test. The application was therefore dismissed.

Comment

This decision appears to endorse the approach whereby, in considering whether an arbitration agreement exists for the purpose of Article 8, the Irish courts are likely to undertake full judicial consideration of the issue. The exercise by a court of its jurisdiction under Article 8 arises separately from the arbitral tribunal's jurisdiction under Article 16, and it is wholly appropriate that the higher standard is applied by the court when exercising its jurisdiction. Moreover, the adoption of full judicial consideration in Ireland is consistent with the approaches adopted in jurisdictions such as Germany, Canada, New Zealand, Hong Kong and Australia.

For further information, please contact Gearoid Carey, Associate in the Commercial Litigation and Dispute Resolution Department at Matheson.

This article first appeared on the International Law.com website (25 January 2011).

_________________________________________________________________________________

Endnotes

(1) Unreported, Justice Feeney, November 11 2010.

(2) Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43.

(3) Such application must be made by a party not later than when submitting its first statement on the substance of the dispute.

(4) International Commercial Arbitration, Chapter 6, page 881.

 

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