Wrong Party, Right Answer: The Irish High Court Refuses A Stay To Arbitration Under Article 8 And The Inherent Jurisdiction

The position of a non-signatory to an arbitration agreement is a topic of enduring interest in arbitration circles. The issue can arise in a number of ways, depending on the non-signatory's objectives. If the non-signatory would prefer to arbitrate rather than litigate its dispute, it might bring an application to stay court proceedings to arbitration. Alternatively, the non-signatory may want to escape the consequences of an award already made against it, and defend an application to enforce that award.

In England, the issue of the non-signatory has received reasonably comprehensive treatment in the Court of Appeal (City of London v Sancheti)¹ and the Supreme Court (Dallah v Government of Pakistan).² Now, the Irish High Court has had occasion to deal with a paradigm case.

The case arose out of the project to construct the new acute hospital in Enniskillen, Northern Ireland. In 2008, an Irish construction company (P Elliott) entered into a joint venture agreement with a Spanish construction company (FCC Construcción SA). In the joint venture agreement, the joint venturers established the framework for their collaboration in preparing a tender for and building the hospital. The agreement contained an arbitration clause, providing that any disputes between the joint venturers arising out of the joint venture agreement or the anticipated building contract should go to ICC arbitration in Geneva. Before the tender was awarded, however, the joint venturers decided to create a tax-efficient structure under which the building contract would be entered into by a newly-incorporated company (FCC Elliott) and the joint venturers would be involved indirectly through a suite of other contracts and partnerships. As part of this structure, in 2009 P Elliott and FCC Elliott entered into a consultancy agreement. This agreement contained an exclusive jurisdiction clause in favour of the Irish courts.

In P Elliot & Company Limited v FCC Elliott Construction Limited,³ the claimant brought summary proceedings against the defendant in the Irish courts for payment of invoices rendered under the 2009 consultancy agreement. The defendant applied for a stay to arbitration on two grounds.

First, the defendant said the Court should grant a stay under Article 8 of the Model Law (enacted into Irish law by the Arbitration Act 2010). It pointed to the arbitration clause in the joint venture agreement between PECL and the defendant's ultimate parent FCC Construcción SA. From that starting point, the argument for a stay was superficially attractive, relying on uncontroversial principles in the leading English cases: it argued for a broad, inclusive interpretation of the arbitration clause, consonant with the leading English cases typified by Fiona Trust v Privalov⁴, and urged the Court to look to the commercial reality of the contractual structure and identify the "commercial centre" of the transaction, as recommended by Collins LJ in UPS AG v HSH Nordbank AG.⁵ In brief, FCC Elliott argued that the arbitration clause in the joint venture agreement should be interpreted broadly to cover all disputes relating to the construction of the hospital, and that since the consultancy agreement was part of a contractual structure devised to implement the objectives of the joint venture, the court should find that the joint venture agreement was the "commercial centre" and apply the arbitration clause in it.

MacEochaidh J was not convinced. While accepting the English case law stated the correct principles, he found the fact pattern distinguishable. The cases cited involved complex series of agreements between the same parties; here there was a relatively simple set of contracts involving several different parties. The cases recognised an entirely understandable presumption that reasonable business people would not intend to create conflicting jurisdiction clauses, but that presumption did not apply in circumstances where the parties had plainly intended to replace the earlier arbitration clause with an Irish jurisdiction clause. The judge was guided by the apparently conscious decision to design a suite of contracts each with its own jurisdiction clauses: "if the original joint venturers had decided to stitch in the original arbitration clause from the joint venture agreement to subsequent agreements, they could have done so. It is clear that subsequent agreements, all connected with the purpose of the original joint venture, either deliberately excluded the original arbitration clause or expressly included it. It is the apparent deliberation with which this is done that I find compelling."⁶ FCC Elliott was not a party to the arbitration agreement in the joint venture agreement, and the agreement sued on contained an apparently deliberate Irish jurisdiction clause. For those reasons, Article 8 was not engaged and the stay was refused.

In an interesting aside, MacEochaidh J opined that Article 8 of the Model Law is, at its core, not about arbitration at all, but about keeping parties to their word: "Article 8 ... directs courts to respect the arbitral process and stay court proceedings not out of deference to arbitration per se but rather as an expression of the most basic concept in the law of contract, i.e., that parties who have mutually exchanged promises for value may, at the suit of each other, be kept to their promises. Where parties promise to arbitrate their disputes, courts should stay their proceedings in favour of arbitration if that promise is proved. In this case, the defendant has not proved even to the standard of arguability that it exchanged a promise to arbitrate with the plaintiff."

FCC Elliott's second argument was that even if the court could not grant a stay under Article 8, it should grant one under the inherent jurisdiction. It pointed to the existence of pending arbitration proceedings commenced by it and its ultimate parent against P Elliott, and the existence of jurisdiction issues in those proceedings, and argued that it would be in the interests of procedural economy and coherence that all disputes involving the various parties be heard together. The judge was guided by the judgment of Waller LJ in Al Naimi⁷ where he said that where the court could not be sure of the existence of the arbitration clause or whether the subject of the action is within the clause, a stay under the inherent jurisdiction might be sensible to permit an arbitrator to consider the matter first. MacEochaidh J agreed with that approach but held that on the facts, there was no such uncertainty. The facts were clear: the parties to the consultancy agreement had agreed "in the clearest of terms" that their disputes should be litigated in the Irish courts. This was not an appropriate case to exercise the court's jurisdiction.⁸

The Elliott case is a paradigm example of this type of case. A large project, a series of related contracts, various parties, apparently conflicting jurisdiction clauses, and one side says that the arbitration clause covers all disputes or, even if it does not, the court should stay its proceedings so that everything can go off to arbitration. But on a closer analysis, the contract sued on has no arbitration clause, and indeed it appears the parties expressly designed matters that way, and so the application disappears in a puff of smoke. The Irish courts, like the English courts, accept that in some circumstances, a non-signatory can be bound by an arbitration agreement.⁹ But those circumstances are rare. If the parties have actually agreed something else, they will be held to that.

Footnotes

^{1 [2008] EWCA Civ 1283}

^{2 [2010] UKSC 46}

^{3 P Elliot & Company Limited (In Receivership and in Liquidation) v FCC Elliott Construction Limited [2012] IEHC 361}

^{4 [2007] UKHL 40}

^{5 [2009] EWCA Civ 589 (per Collins LJ at 747)}

^{6 Paragraph 64 of the judgment}

^{7 Ahmad Al Naimi v Islamic Press Agency [2000] 1 Lloyd's Rep 150 (CA)}

^{8 It was common ground that such jurisdiction existed: apart from Al Naimi, the parties and the judge referred to the judgment of Clarke J in Kalix Fund Ltd v HSBC Institutional Trust Services (Ireland) Ltd [2010] IR 581. In that case, part of the long-running Madoff litigation in the Irish courts, Clarke J decided to stay the Irish proceedings to allow related US litigation to proceed first.}

^{9 In England, this is plain as a matter of statute: Section 82(2) extends the definition of a party to an arbitration agreement to include "any person claimingunder or through a party to an agreement.". The Irish legislation has no equivalent provision, but MacEochaidh J was clear that in the right circumstances a non-signatory could apply for a stay, the key question being whether it had a sufficient factual or legal connection to the signatory.}

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