Does a dispute relating to compliance with a binding conciliator's recommendation fall within the jurisdiction of the courts or the arbitrator?

Wednesday 21 June 2017

 

Does a dispute relating to compliance with a conciliator's binding recommendation fall within the jurisdiction of the courts or the arbitrator?

 

 

A recent Irish High Court judgment examines a situation where parties to a construction contract which contained an arbitration agreement intended to ring-fence discrete issues justiciable only by the courts.

 

Facts

 

The plaintiff brought an action seeking judgment of €6,364,978.00 against the defendants on the foot of a conciliator’s recommendation regarding disputes arising out of a subcontract agreement in relation to the carrying out of paving and other works forming part of the N7 Castletown to Nenagh road scheme.

 

The relevant clauses from the subcontract are as follows:

 

Clause 13.1.11:

 

“If the conciliator has recommended the payment of money, and a notice of dissatisfaction is given, the following shall apply:

 

(i) the party concerned shall make the payment recommended by the conciliator, provided that the other party first:

 

  1. gave a notice complying with the arbitration rules referred to in sub-clause 13.2, referring the same dispute to arbitration; and

  2. gave the paying party a bond executed by a surety approved by the paying party, acting reasonably, in the form included in the Works Requirement or if there is none, a form approved by the paying party, acting reasonably, for the amount of the payment.”

 

Clause 13(b)(5):

 

“If a party fails to comply with a conciliator’s recommendation which is binding, the other party may take such court proceedings as are appropriate to force compliance with the conciliator’s recommendation without availing further of the conciliation or arbitration process.”

 

Following issue of the conciliator’s recommendation the defendants served a notice of dissatisfaction pursuant to the terms of the subcontract and the plaintiff furnished a bond and gave notice referring the dispute to arbitration.

 

The plaintiff issued summary High Court proceedings seeking judgment on foot of the conciliator’s recommendation. The defendants subsequently brought an application to stay the plaintiff’s High Court proceedings pursuant to Article 8(1) of the Model Law, as adopted by s.6 of the Arbitration Act 2010, on the grounds that the dispute between the parties was the subject of an arbitration agreement.

 

The defendants argued that the matter was not justiciable by the courts but should be dealt with by the arbitrator. The plaintiff argued conversely that a dispute as to whether the conciliator’s recommendation had to be paid was a matter for the courts and not the arbitrator.

 

Judgment

 

The Court accepted the plaintiff’s submission that once the dispute is one concerning compliance with the conciliator’s recommendation, it is a matter justiciable by the court and rejected the defendants’ application to stay the plaintiff’s proceedings.

 

The issue was not whether there was an arbitration agreement between the parties but rather whether the dispute which was the subject of the stay application fell within the scope of the arbitration agreement or had the parties intended that it was a discrete issue for the courts.

 

Mr Justice McGovern pointed out that clause 13(b)(5) gives the court power to have jurisdiction to deal with compliance with the recommendation and that this limited jurisdiction did not undermine the arbitration process agreed by the parties, which would ultimately determine what, if any, monies were due to the plaintiff. He also noted that it was not necessary for the court to go into the merits of the dispute in a motion brought under Article 8 of the Model Law and that questions as to whether the conciliator’s recommendation is binding or not and the construction of clause 13(b)(5) are matters for the court.

 

The Court referred to the House of Lords case of Fiona Trust and Holding Corporation & Ors v Privalov & Ors [2007] 4 All E.R. 951, in which an issue arose as to whether or not one could have part of a dispute dealt with by arbitration and part in another forum. Lord Hoffman stated that very clear language would be needed before a court would decide that a contract allowed for such division.

 

Mr Justice McGovern was satisfied that clause 13(b)(5) was clear in its terms and met the test of rationality and business common sense in that the parties had intended to divide the issues which might be decided by the arbitrator and those that might be decided by the court to avoid if possible a second layer of dispute resolution and without trespassing upon the arbitral process ultimately determining the substantive dispute.

 

The court concluded by noting that if there is an arbitration clause and the dispute is within the scope of the arbitration agreement and there is no finding that the agreement is null and void, inoperative, or incapable of being performed then by virtue of Article 8 of the Model Law, a stay must be granted. However, the court in this instance was satisfied that the particular dispute between the parties as to whether the conciliator’s recommendation has to be paid following notice of dissatisfaction and pending the outcome of the arbitration is a discrete issue which the parties have agreed should be determined by the courts.