Dadoun v Biton [2019] EWHC 3441 (Ch) (13 December 2019)

Neutral Citation Number: [2019] EWHC 3441 (Ch)
Case No: HC-2015-002841

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)

ON APPEAL FROM THE BETH DIN OF THE FEDERATION OF SYNAGOGUES
IN THE MATTER OF AN ARBITRAL AWARD DATED 4 APRIL 2014

Rolls Building
Fetter Lane, London, EC4A 1NL
13/12/2019

B e f o r e :
MR MICHAEL GREEN QC
(sitting as Deputy Judge of the Chancery Division)

____________________

Between:

RABBI MOSHE AVRAM DADOUN
Claimant

– and –
 
 
YITZCHOK BITON
Defendant

____________________

Mr Steven Woolf (by direct access) for the Claimant
Ms Giselle McGowan (instructed by RIAA Barker Gillette) for the Defendant

Hearing date: 27 November 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

MR MICHAEL GREEN QC:

Introduction

    1. This is an appeal pursuant to section 68 of the Arbitration Act 1996 (the Act) challenging an arbitral award dated 4 April 2014 (the Award) of the Beth Din of the Federation of Synagogues in London (the Beth Din) on the grounds that there was a serious irregularity affecting the tribunal, the proceedings or the Award. The Beth Din is a Jewish Rabbinical Court and it can be used by Orthodox Jews to arbitrate their commercial disputes, as happened in this case. The Beth Din consists of three Dayanim (or Judges) and they make their decisions by reference to Halacha, which is Jewish Law and Jurisprudence, rather than English civil law.
    2. The sole basis for the appeal concerns alleged apparent bias on the part of the “Rosh” or Head of the Beth Din, Dayan Yisroel Lichtenstein. There is no dispute that Dayan Lichtenstein spoke to the brother of the Defendant, Rabbi Daniel Biton, in June 2013 (the discussion). The Claimant says that the discussion, which he only discovered had taken place in 2017, is highly suspicious and led to a serious irregularity affecting the Award. The Defendant says that the discussion that Dayan Lichtenstein and Rabbi Biton had was insignificant, very short and simply concerned the timing of the Award being issued, as by then it had been 5 years since the oral hearing had taken place before the Beth Din. I heard evidence from both Dayan Lichtenstein and Rabbi Biton as to the content of their discussion.
    3. The Claimant also challenges the Award under s.69 of the Act on a point of law, although that part of the claim is presently stayed and is not before me.

Background to the Dispute

    1. The underlying dispute determined in the Award relates to the shareholdings in a company called RSM Ltd Property Investments Limited (RSM) and the Defendant’s entitlement to any profits from RSM. I heard no evidence in relation to the underlying dispute and I take these brief facts from the parties’ skeleton arguments and the Award. The material events are now over 20 years old.
    2. In December 1997, the Claimant and Mr Shlomo Friedman were the only shareholders in RSM and another company, Chaplin Walk Limited (Chaplin). Each company owned and managed one property: RSM owned a property in Golders Green, London; and Chaplin, a property in Southport, Merseyside.
    3. On 14 December 1997, a Memorandum of Agreement was signed by the Claimant, Mr Friedman, the Defendant and the Defendant’s brother, Rabbi Biton. The Memorandum of Agreement provided for a quasi-partnership between the four parties in which the principal terms were for the Defendant and his brother to invest a total of £275,000 for a 50% shareholding in each of RSM and Chaplin. This would leave the Claimant and Mr Friedman with the other 50% in each company.
    4. On 18 December 1997, the Defendant transferred £275,000 to the Claimant’s solicitor. The Defendant’s evidence was that he understood that the £275,000 would be repaid by the companies as soon as a mortgage was obtained by them.
    5. In August 1999, the Claimant acquired a loan of £250,000 by mortgaging his own home. Of this sum, the Claimant paid £120,000 to Mr Friedman to purchase his shareholdings in the companies. The remaining £130,000 was paid to the Defendant and the purpose of this payment forms the subject-matter of the dispute. The Claimant’s case is that he paid the £130,000 to purchase the Defendant’s 50% shareholding in RSM which the Claimant thereafter would wholly own. The Defendant however maintains that the loan was actually obtained on behalf of the partnership and was a part-repayment of the Defendant’s investment of £275,000. The Defendant was therefore claiming that he was still owed £145,000 and that he retained his 50% shareholding in RSM.
    6. Nothing seemed to have happened for five years until in November 2005, the Defendant engaged lawyers to commence legal proceedings against the Claimant. The Claimant then applied to the Beth Din for a restraining order to prevent the Defendant from proceeding in Court. The Beth Din issued the restraining order and Court proceedings were not commenced.
    7. On 6 March 2008, the parties agreed that their dispute should be referred to arbitration by the Beth Din. On 2 June and 4 August 2008, the Beth Din, consisting of three Dayanim, including Dayan Lichtenstein, heard submissions and evidence. In his oral evidence, Dayan Lichtenstein said that they continued to receive documents and evidence, including hearing further evidence in Israel on one occasion, until around 2011. He also said in his written evidence that:

“During the intervening period, there were numerous attempts made by intermediaries and “honest brokers” on the part of both parties to try to resolve the matter outside the formal Arbitration but ultimately no agreement could be reached and it was necessary for the Beth Din to give an Award.”

    1. Eventually the Award was issued on 4 April 2014 (it was apparently only formally “released” to the parties on or about 1 September 2014), nearly six years after the initial oral hearing. The Beth Din largely found in favour of the Defendant, concluding that the Defendant retained his 50% shareholding in RSM and was therefore entitled to 50% of the income from both properties owned by RSM and Chaplin. The Beth Din quantified the sums owed to the Defendant based on his entitlement at £213,150.
    2. On 4 June 2015, the Claimant issued the Claim Form seeking to appeal the Award, at that stage only pursuant to s.69 of the Act. There then followed some procedural wrangling concerning service out of the jurisdiction (the Defendant is resident in Israel).
    3. On 8 March 2017, the Claimant became aware of the meeting that had taken place between Dayan Lichtenstein and Rabbi Biton and sought to amend his Claim Form to include an appeal under s.68 of the Act. On 27 September 2017, Deputy Master Pickering granted the Claimant permission to challenge the Award under s.68 of the Act and to re-amend the Claim Form. At the same time, the Deputy Master stayed the appeal under s.69 of the Act.

The Discussion

    1. In the Claimant’s witness statements, there were two allegations of apparent bias by Dayan Lichtenstein: the primary allegation concerned the contents of the discussion in June 2013; and there was also an allegation that the provision of a witness statement of Dayan Lichtenstein on the s.69 appeal on behalf of the Defendant was further evidence of apparent bias. Mr Steven Woolf on behalf of the Claimant confirmed at the hearing that the Claimant does not rely on the witness statement allegation and the appeal is purely based on what was discussed between Dayan Lichtenstein and Rabbi Biton in June 2013 and the fact that the discussion was not disclosed.

(a) The 23 July 2013 letter

    1. In January 2017, the Claimant was granted access to the documents retained by the Beth Din in relation to the Award. In amongst the files of documents, the Claimant discovered a letter from the Defendant to Dayan Lichtenstein dated 23 July 2013 (or 16 Av 5773 in the Jewish calendar). This long 17 paragraph letter, written in Hebrew, revealed that there had been a meeting between Dayan Lichtenstein and the Defendant’s brother some four weeks earlier and that Rabbi Biton had written to Dayan Lichtenstein a week before this letter. It is not disputed that none of this had been disclosed to the Claimant either at the time or any time thereafter.
    2. The letter of 23 July 2013 is the only contemporaneous document in relation to the discussion. The first two paragraphs are material as it is there that the discussion is mentioned. The letter is addressed to “Your Honor, The Israel Court of Justice” and it is headed “Subject: Ruling on the claim Biton-Dadoun“. The first two paragraphs read as follows (in their English translation, with underlining added):

“1. My brother, Rabbi Daniel, may he live a long and healthy life, brought to my attention the content of the discussion he held with the honorable President of the Court, Rabbi Ya’acov Lichtenstein, may he live a long and healthy life, on the 17th day of Tammuz, this year. Furthermore, [he also brought to my attention] the content of his letter that he dispatched to the honorable President of the Court on the 11th day of Av, this year.

2. According to that stated by Rabbi Daniel, I was informed that the honorable President of the Court promised him that this time it is a final promise (after in the past, there were promises that were not honoured) and that the verdict will be handed down even before the 9th Day of Av in the year 5773 (2013). Today, when I approached my brother with a request to contact you to speed up the materialization of the “”Promise”” (double inverted commas), his response was: “My brother, I am unable to help you any further with respect to this matter, Go ahead and do what you deem fitting”.

    1. The letter continued in what was a somewhat aggressive diatribe to complain bitterly about the delay in the Beth Din providing its Award. The Defendant was clearly perturbed about the substantial delay, not only since the start of the arbitration proceedings but also since the material events in 1997-1999.
    2. In relation to the discussion, the letter shows the following:

(1) That the discussion took place on 17 Tammuz, which was 25 June 2013;

(2) That in the discussion Dayan Lichtenstein gave a final promise that the Award would be issued by 9 Av, which was 16 July 2013, that is within 3 weeks of the discussion;

(3) That Rabbi Biton wrote to Dayan Lichtenstein on 11 Av, which was 18 July 2013; this was just after the promised deadline for the delivery of the Award.

    1. Rabbi Biton’s letter of 18 July 2013 has not been found. Nor is there any evidence of a reply by Dayan Lichtenstein or the Beth Din’s Registrar to either Rabbi Biton’s letter of 18 July 2013 or the Defendant’s letter of 23 July 2013. It is admitted by the Defendant that neither the discussion nor the letters were disclosed to the Claimant.
    2. The Claimant says that it is implausible that the discussion was limited to the timing of delivery of the Award and that by reference to the circumstances of the meeting there must have been a discussion as to the merits of the underlying dispute.
    3. Before looking at the evidence of Dayan Lichtenstein and Rabbi Biton, some context is required:

(1) By June 2013, the parties had been waiting for five years since the first hearings by the Beth Din; this is an extraordinarily long time to be waiting for the Award, particularly as the material events had taken place 14-16 years previously;

(2) Rabbi Biton is a senior Rabbi in Israel and a well-known publisher of Jewish religious works;

(3) As is clear from paragraph [6] above and the Award, Rabbi Biton was himself a party to the Memorandum of Understanding, although ultimately the only parties to the dispute were the Claimant and the Defendant; Rabbi Biton did not give evidence to the Beth Din but he was clearly a person who featured in the case;

(4) Jewish afternoon prayers (Mincha) are held daily between 1 and 2pm at the Federation of Synagogues’ Offices (which includes the Beth Din) at 65 Watford Way, London NW4; any Jewish member of the public is able to attend this service together with those who are working on the premises.

(b) Dayan Lichtenstein’s evidence

    1. In his witness statement dated 28 June 2017, Dayan Lichtenstein said the following about his meeting and discussion with Rabbi Biton:

“4.5 On a date that I cannot recall but not on the 17th Tammuz (that date being an important fast day commemorating the destruction of the two Jewish Temples in Jerusalem) our daily afternoon prayers were attended by Rabbi Daniel Biton. His appearance at the afternoon prayers was not prearranged and I was not introduced to Rabbi Biton (who I had never met previously) prior to the prayers commencing.

4.6 However, following the conclusion of the prayers (which last approximately 15 minutes) a man came up to me who introduced himself as Rabbi Daniel Biton, being the brother of Mr Yitzchok Biton, the Defendant and/or Respondent in these proceedings. Although I had not previously met Rabbi Biton knew [sic] of him by reputation as he is a well-known publisher of religious books in Israel. Rabbi Biton simply asked me how much longer his brother was going to have to wait for the Courts decision in respect of the claim brought by Rabbi Dadoun. I advised Rabbi Biton that we intended to issue our decision by the end of the summer. Rabbi Biton thanked me for this information, our conversation concluded and Rabbi Biton left without any further discussion with me.

4.7 I cannot now recall the date of my conversation with Rabbi Biton and until I was shown Rabbi Dadoun’s evidence I had forgotten about it. At the time, I did not regard the conversation of any consequence and so I made no record of it although now that my memory had been jogged I do have a clear recollection of the conversation.

4.8 I note what Rabbi Dadoun has said about Rabbi Biton but I cannot see that the status of Rabbi Biton is of any relevance whatsoever. We did not discuss any aspect of the proceedings ongoing in the Beth Din other than the timing of the Court’s decision and the conversation lasted only a matter of several minutes.

4.9 …The impromptu conversation with Rabbi Biton has had no bearing whatsoever on the decision taken by the Court in this case…

4.13 …Clearly there was no conversation with Rabbi Biton of substance. The conversation which as I said above could not have lasted more than a matter of minutes focused very simply on when the Court were going to issue the Award and in those circumstances, I do not see how that discussion (which in any event was not with Mr Biton himself) could have undermined the Court’s impartiality or the sense of fairness attaching to its Award.”

    1. In a further witness statement dated 5 March 2018, Dayan Lichtenstein said as follows:

“4.3 I must say I find recalling or reciting all what was said at this brief discussion which took place nearly 5 years ago to be an impossible task; in my capacity at the Beth Din I speak to a great many people each and every day, recollecting the events of these discussions is simply impossible.

4.4 As I have previously stated in my previous witness statement I recall Rabbi Daniel Biton approaching me at the end of the afternoon prayer meeting on 17th Tammuz (25th June 2013) to initiate a discussion; at the time of his approach he was of course a stranger to me as I had never met him before.

4.5 Rabbi Biton then asked about the timing of the handing down of its arbitration award and I believe I gave an explanation for the on-going delay; I also gave a projected date when the parties could finally expect the Beth Din’s decision. But I have already said I am simply unable to recall much of what was said as it was over 5 years ago.

4.6 All in I would say the totality of the discussion lasted around 3 to 5 minutes but this only [sic] a hazy estimation given the significant passage of time.

4.7 I must however emphasise once again for the record, that I did not discuss the dispute or arbitration in any substantive way with Rabbi Biton and certainly this brief discussion did not have any influence on the contents of the Award.

4.8 As I have stated in my Second Witness Statement the discussion was short lived and insofar as any aspect of the discussion related to the arbitration, it only related to the timing of the Beth Din’s decision. At the time I saw no compelling reason to create any memorandum for the office file for what was an [sic] essentially an administrative enquiry (albeit one made face to face.) For the same reason I did not think to inform Rabbi Dadoun about this discussion as nothing of any note whatsoever turned on it.

4.9 I understand that following the Beth Din’s inability to comply with the Award’s projected hand down date, Rabbi Biton then wrote to the Beth Din on 18th July 2003 chasing the Award. I do not actually recall seeing this letter and we have searched thoroughly the Beth Din’s offices for a copy without any success. I note that the Claimant himself has not been able to locate a copy in the file of papers he received from the Beth Din.

4.10 I cannot say for sure whether the Beth Din actually received Rabbi Biton’s letter or it has been unfortunately mislaid somewhere at our office; this may be a possible reason why it was not copied to Rabbi Dadoun.”

    1. There are a few inconsistencies within and between the two witness statements such as: (1) being sure in the first that the discussion had not taken place on 17 Tammuz whereas he appeared to accept it was on that date in the second; (2) claiming that it was “impossible” to recall the discussion after this length of time but then being sure that there was no discussion of the substantive dispute.
    2. Dayan Lichtenstein was cross examined by Mr Woolf. The following pertinent points arose from his evidence:

(1) He has been the Rosh of the Beth Din since 1988; the Beth Din has roughly 60 commercial arbitration cases a year; these sometimes have three Dayanim hearing them, but more normally there will just be one.

(2) The Beth Din deals with a lot of other matters as well, including marriage, divorce and kashrut; it is therefore very busy and some of the explanation for the delay is down to this and also there being not enough full time Dayanim.

(3) Even though the evidence and oral hearing took place in 2008, the Beth Din continued to receive further documentary evidence until 2011 and heard oral evidence in Israel from Mr Friedman; (this receipt of further evidence is surprisingly not referred to in the Award).

(4) There were a number of difficult Halachic issues in relation to the Award and it required a lot of working out between the three Dayanim.

(5) In relation to the discussion, when Rabbi Biton introduced himself to Dayan Lichtenstein he immediately knew who he was and that he was the brother of the Defendant; furthermore, Dayan Lichtenstein immediately recalled the case and did not need any reminding from Rabbi Biton as to the facts and features of the case.

(6) The gist of the discussion was Rabbi Biton asking when they were going to receive the Award and Dayan Lichtenstein was able to tell him that it would be ready within the month;

(7) Dayan Lichtenstein was adamant that there was no discussion of the issues in the case; nor was it necessary for Rabbi Biton to remind him of the details of the case or explain what it was about.

(8) The further delay of nine months from the discussion to the issue of the Award was because of a very heavy workload, short-staffing, Dayan Lichtenstein taking a last minute summer holiday, and the very difficult Halachic questions involved.

(9) The discussion was so insignificant in Dayan Lichtenstein’s mind that he did not make a note of it; nor did he disclose it to the Claimant.

(10) Dayan Lichtenstein did not remember receiving the 18 July 2013 letter from Rabbi Biton; he or the Registrar would normally reply to every letter and it would normally be disclosed to the other side.

(11) Dayan Lichstenstein also did not remember seeing the letter of 23 July 2013 from the Defendant which, given the timing, he would have expected the Registrar to have put on his desk so he could deal with it on his return from holidays; he also added that there had been a number of letters from the Defendant chasing the Award.

(c) Rabbi Biton’s evidence

    1. Rabbi Biton gave both his written and oral evidence in Hebrew and they were translated. After explaining why he was in London around the 25 June 2013 (which explanation was somewhat different in his oral evidence), Rabbi Biton’s witness statement dated 25 May 2018 said this about the discussion:

“6. On June 25, 2013, I attended a service in the Beth Din in the early afternoon, as I understood that Dayan Lichtenstein would supervise the afternoon prayers.

7. I remember that I spoke to with Dayan Lichtenstein, and asked that the Beth Din should just ‘make a decision’, since the matter had dragged on for so long. I told Dayan Lichtenstein that despite the hearings held between May and August 2008, the parties were still waiting for the Beth Din’s decision.

8. I recall that Dayan Lichtenstein offered apologies for the long delay in the handing down of the decision. I remember that the delay apparently stemmed from the fact that the Beth Din had been short staffed for a long time and had hindered the ‘signing off’ of the decision.

9. Dayan Lichtenstein assured me that the decision should ultimately be with the parties by 16 July 2013; however, the Beth Din did not actually provide the Award until 4 April 2014.

10. Although I struggle to remember the details of my discussion with Dayan Lichtenstein, I can certainly confirm to this court that I did not discuss the dispute or the contents of the potential decision – my discussions only regarded when the parties could finally expect to see the decision.

11. I understand that Claimant believes that I would try to use my status as an Honorable Rabbi to influence the Beth Din in my brother’s favour. I reject this claim as I have a sincere belief that rabbinical justice is a serious matter to be undertaken with the utmost transparency and fairness. Moreover, I do not believe for a moment that a well-regarded institution such as the Beth Din could be affected in such an easy and unlawful fashion.”

    1. Rabbi Biton was cross examined by video link to Miami and, as I have said, it was translated from Hebrew. The following emerged from the cross examination:

(1) Rabbi Biton and his brother, the Defendant, were and are extremely angry with the Claimant as they believe that he has wrongfully kept them from their money and entitlements for over 20 years.

(2) They were also both very frustrated with the long delay in the delivery of the Award; Rabbi Biton said that the Defendant had sent so many letters chasing the Award (I have not seen any of these letters).

(3) Rabbi Biton explained that he had been in Argentina for work and he decided to change his travel plans to go back to Israel via London so that he could attend a wedding that he had been invited to; while in London he could also go to try to see Dayan Lichstenstein to ask when the Award would be available.

(4) Rabbi Biton said that he was booked into the Melia Hotel which was near to the Beth Din offices; that he arrived early in the morning at the hotel having flown in from Argentina; and then he attended the afternoon prayers in the Beth Din and met Dayan Lichstenstein there; after the discussion, he went straight off to the wedding, which was outside London; in the end he did not even have time to see his business partner based in London and he admitted that he prioritised seeing Dayan Lichstenstein over his business partner.

(5) Rabbi Biton was also adamant that they simply discussed the timing of the Award and he was assured by Dayan Lichstenstein that they would have it by Tisha b’Av (16 July 2013).

(6) Rabbi Biton did not retain a copy of his letter of 18 July 2013 but that he thought it was likely to have been 2 or 3 lines sent by fax saying that the Beth Din had promised the Award by Tisha b’Av but it had not yet been received.

(7) He did not remember seeing his brother’s letter of 23 July 2013.

(8) He did not speak to or see Dayan Lichstenstein again.

(9) He agreed that the discussion could not have taken place on 17 Tammuz (25 June 2013) as this was a fast day and he would not have been attending a wedding on that day.

    1. There are some unsatisfactory aspects to Rabbi Biton’s evidence. The wholly new explanation under cross examination as to why he came to be in London on or around 25 June 2013 is inconsistent with paragraphs 2 and 3 of his witness statement where he states that it was a “planned” trip to meet his business partner. There is no mention in his witness statement of Argentina, changing his plans to attend a wedding or the fact that he did not in the end meet up with his business partner. The explanation of the wedding also does not fit with the discussion taking place on 25 June 2013 which, as I have said above, is the Jewish fast day of the 17 Tammuz. Nevertheless, his account of the discussion is broadly similar to that of Dayan Lichtenstein.

(d) Conclusions on the evidence

    1. Mr Woolf submitted that this was not a chance meeting between Dayan Lichtenstein and Rabbi Biton as the latter deliberately attended the service at the Beth Din’s offices in order to discuss his brother’s case. Having done so, Mr Woolf said that it is implausible and inconceivable that there would not have been a discussion as to the merits of the case and that, given Rabbi Biton’s status as a respected and distinguished Jewish scholar and publisher, whatever he said would have been likely to carry weight with Dayan Lichtenstein. Mr Woolf even went so far as to suggest something which the Claimant had put forward in his evidence that the further delay to the delivery of the Award from the discussion to 4 April 2014 was suspicious particularly as the Award then found heavily in favour of the Defendant.
    2. I reject those submissions and accept the material parts of the evidence of Dayan Lichtenstein and Rabbi Biton as to the contents of their discussion. I find that the discussion was purely about the timing of the delivery of the Award. I do so for the following reasons:

(1) By the time of the discussion, the Award had been very considerably delayed; the Defendant had been pressing the Beth Din for the Award; and it was clearly a matter of great concern on the Defendant’s side.

(2) So far as Dayan Lichtenstein was concerned, the appearance of Rabbi Biton at the afternoon prayers was a complete surprise and he did not know who he was until he introduced himself; given the circumstances of the meeting, it is likely that any conversation between the two of them would have been short.

(3) Dayan Lichtenstein knew of Rabbi Biton and his reputation; he also knew that Rabbi Biton featured in the case as a party to the Memorandum of Agreement; his evidence was that he immediately recalled the case and did not need reminding of the details; I accept that evidence because the Beth Din must then have begun to draft their Award if it was going to be ready quite soon.

(4) The most important contemporaneous evidence which corroborates Dayan Lichtenstein’s and Rabbi Biton’s evidence is the Defendant’s letter of 23 July 2013; this indicates clearly that the discussion was limited to the question of delay and Dayan Lichtenstein promised that the Award would be with the parties within about three weeks; the letter does not hold back from criticising both the Claimant and the Beth Din in trenchant terms but this only serves to emphasise the fact that delay was uppermost in the Defendant’s and his brother’s minds.

(5) Rabbi Biton must have believed that he had done his bit by approaching Dayan Lichtenstein and extracting a “promise” that the Award would be delivered shortly and then sending his letter of 18 July 2013; the second paragraph of the Defendant’s letter of 23 July 2013 suggests that Rabbi Biton did not want any further involvement.

(6) The shortness and insignificant nature of the discussion is given more credence by the fact that Dayan Lichtenstein did not make a note of the discussion nor inform the Claimant; while that has to be put in the context of the apparent failure to disclose the letters to the Claimant, I accept Dayan Lichtenstein’s evidence on this and consider that he would have made a note if something of substance had been discussed.

(7) I do consider that it is regrettable that the letters of 18 and 23 July 2013 were not disclosed to the Claimant; however I do not think that this was deliberate or an attempt to conceal the discussion; there would have been no problem with disclosing the letter of 23 July 2013 and it would no doubt have been regarded by the Claimant as merely another aggressive attack by the Defendant on him personally as well as the Beth Din.

(8) The delay from the discussion until the issue of the Award nine months later is not suspicious; rather it is consistent with the very considerable five year delay that the parties had suffered up to that point; I do not fully understand why the Award took so long to write but the Beth Din was very busy and short-staffed.

(9) In short, there is no evidence at all to contradict the evidence of Dayan Lichtenstein and Rabbi Biton which is corroborated particularly by the letter of 23 July 2013 and, while there are some inconsistencies, they do not detract from the overall credibility of their evidence as to the content of a very short discussion that took place over six years ago.

(10) Accordingly, I accept the evidence of Dayan Lichtenstein and Rabbi Biton that the discussion they had on or around 25 June 2013 was limited to the timing of the delivery of the Beth Din’s Award.

Relevant Legal Principles on Apparent Bias

    1. Even though the Claimant’s primary case was that the discussion was more extensive than I have found, Mr Woolf did still submit that the limited discussion as to timing would give rise to apparent bias and serious irregularity. He based this submission on the failure to disclose both the discussion and the letters of 18 and 23 July 2013 rather than the limited discussion itself. Ms McGowan submitted that this alternative case of non-disclosure has not been pleaded and it would be unfair for the Claimant to be allowed to run it.
    2. It is necessary therefore to look briefly at some of the relevant legal principles.

(a) Serious Irregularity within s.68 of the Act

    1. The relevant parts of s.68 of the Act provide as follows:

“68.- Challenging the award: serious irregularity

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award…

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant –

(a) Failure by the tribunal to comply with section 33 (general duty of tribunal);”

    1. Section 33 of the Act is headed “General duty of the tribunal” and it provides as follows:

“(1) The tribunal shall –

(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

    1. It is also relevant to refer to s.24 of the Act which enables a party to apply to the court to remove an arbitrator. One of the grounds for removal under subsection (1) is:

“(a) that circumstances exist that give rise to justifiable doubts as to his impartiality”

    1. It is common ground that apparent bias on the part of the Beth Din would amount to a breach of the general duty in s.33 of the Act and would constitute a serious irregularity under s.68(2)(a) of the Act. As was said in paragraph 8-100 of Russell on Arbitration (24th Ed):

“As to a failure to observe principles of natural justice, actual or apparent bias on the part of the tribunal would, if established, amount to a breach of the general duty and a serious irregularity under s.68(2)(a). There is considerable overlap between a challenge to an award on this ground as a result of actual or apparent bias and an application under s.24 to remove the arbitrator.”

Furthermore, a finding of apparent bias will almost inevitably lead to there being a “substantial injustice” within s.68(2). Paragraph 7-129 of Russell states:

“Once the court has found a real possibility of bias…then substantial injustice will normally be imputed as a matter of course. In other words in cases of actual or apparent bias there is no second hurdle to overcome, or if there is it is a very low one. As Morison J said in ASM Shipping Ltd v TTMI Ltd,

“In my judgment there can be no more serious or substantial injustice than having a tribunal which was not, ex hypothesi, impartial, determine parties’ rights.””

(b) The test for apparent bias

    1. The same common law test for impartiality and apparent bias applies to arbitrations. That well-known test as encapsulated in Lord Hope’s speech in Porter v Magill [2002] 2 AC 357 at [102] to [103] is “whether the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” Ms McGowan submitted that the fair minded and informed observer is not unduly sensitive or suspicious but neither are they complacent – see Bubbles & Wine Ltd v Lusha [2018] EWCA Civ 468 at para. [18].
    2. In the Bubbles case a private conversation had taken place during the trial between the judge and one-party’s counsel. Amongst other things, they had discussed the case. Although the Court of Appeal was critical of the Judge’s behaviour, nevertheless it found that there was no apparent bias. That case was materially different to this because very soon after the conversation, the Judge emailed the opposing counsel informing him of the discussion that he had had. There was also no real doubt about what was said as it was confirmed by counsel’s evidence, contemporaneous emails and the judge’s comments in the judgment.
    3. The significance of the non-disclosure of facts relevant to the impartiality of an arbitrator has recently been examined by the Court of Appeal in Halliburton Company v Chubb Bermuda Insurance Ltd and ors [2018] 1 WLR 3361. In the judgment of the Court, the following statements of general principle were said (underlining added):

“71. In summary, we consider the present position under English law to be that disclosure should be given of facts and circumstances known to the arbitrator which, in the language of section 24 of the Act, would or might give rise to justifiable doubts as to his impartiality. Under English law this means facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.

What are the consequences of failing to make disclosure of circumstances which should have been disclosed?

73 There are, as it seems to us, two distinct questions for the court considering an allegation of non-disclosure after the event. First, the court needs to consider whether disclosure ought to have been made in accordance with the principles we have just enunciated. Secondly, the court needs to consider the significance of that non-disclosure in the context of the application with which the court is dealing. In the case of an application for removal of the arbitrator in question, the court will consider on the basis of all the factual information available when that application is heard (including the fact that there has been non-disclosure), whether the fair-minded and informed observer would conclude that there was a real possibility that the arbitrator was biased.

74 If a disclosure that ought to have been made has not been made, that will mean that the arbitrator will not have displayed the “badge of impartiality” which he should have done. As Lord Bingham observed in the Davidson case: the fact of non-disclosure “must inevitably colour the thinking of the observer”.

75 Non-disclosure is therefore a factor to be taken into account in considering the issue of apparent bias. An inappropriate response to the suggestion that there should be or should have been disclosure may further colour the thinking of the observer and may fortify or even lead to an overall conclusion of apparent bias – see, for example, Paice v Harding [2015] EWHC 661, and Cofely Ltd v Bingham [2016] EWHC 240.

76 Non-disclosure of a fact or circumstance which should have been disclosed, but does not in fact, on examination, give rise to justifiable doubts as to the arbitrator’s impartiality, cannot, however, in and of itself justify an inference of apparent bias. Something more is required – see, for example, the comments of Lord Mance in Helow v Home Secretary at [58].”

    1. It is clear from Halliburton that non-disclosure is not in itself enough to found apparent bias and “something more is required“. The fact of non-disclosure will contribute to the fair minded and informed observer’s assessment of the impartiality of the arbitrator but it is only a factor and there needs to be some other factor(s) before the Court can conclude that there was apparent bias.

Conclusion

  1. As I said above, the Claimant’s allegation of apparent bias now rests wholly on the non-disclosure of the discussion and the 18 and 23 July 2013 letters. By putting his case in that way, Mr Woolf accepted that, if the content of the discussion was limited to the timing of the Award, such a discussion was not itself evidence of any apparent bias. That must be right. An enquiry by one party to an arbitrator or a Judge as to when an award or judgment might become available cannot possibly be improper or constitute evidence of apparent bias.
  2. The next question therefore is whether the non-disclosure to the Claimant of that discussion can constitute apparent bias. It is difficult to see how the non-disclosure of something that was not evidence of apparent bias could itself be evidence of apparent bias. This is not even within the Halliburton test of being something that “should have been disclosed“. Accordingly the non-disclosure of an insignificant conversation about timing is not something that a fair minded and informed observer would consider gives rise to any doubts about the impartiality of Dayan Lichtenstein and the Beth Din.
  3. Mr Woolf also relied upon the non-disclosure of the 18 and 23 July 2013 letters and this is what I think Ms McGowan was referring to in her submission that this point was not pleaded. It is certainly correct to say that the non-disclosure of those letters is not referred to in the Re-Amended Claim Form and the Amended Grounds of Appeal. Nor did Mr Woolf refer to this point in his skeleton argument.
  4. Whether it is pleaded or not, I do not regard it as a good point. While I certainly think that it is unfortunate and regrettable that the Defendant’s letter of 23 July 2013 was not disclosed to the Claimant at the time (I have not seen the 18 July 2013 letter from Rabbi Biton, so cannot comment on whether it ought to have been disclosed), that was because of a failure of administration at the Beth Din rather than anything sinister. If it had been disclosed to the Claimant at the time, he would have seen that there had been a discussion between Dayan Lichtenstein and Rabbi Biton about when the Award would be issued and he probably would have been totally unconcerned about that. I do not consider that the failure to disclose this letter provides any evidence that could support a case for apparent bias against the Beth Din.
  5. In all the circumstances, I dismiss the Claimant’s challenge to the Award under s.68 of the Act.
  6. In her skeleton argument, Ms McGowan invited me to lift the stay on the s.69 appeal and to give further directions in relation to progressing that appeal. I do not know what Mr Woolf says about that and unless the parties can agree those directions and any other consequential matters, it may be that a further hearing will be necessary. I would invite the parties to attempt to agree all outstanding matters but of course if that is not possible a hearing can be held at a time convenient to all.

Bowen Construction Ltd (In Receivership) & anor v Kelly’s of Fantane (Concrete) Ltd (In Receivership) [2019] IEHC 861 (06 December 2019)

THE HIGH COURT
[2019] IEHC 861
[2018 No. 76 MCA]
IN THE MATTER OF THE ARBITRATION ACT 2010
AND IN THE MATTER OF AN ARBITRATION
BETWEEN
BOWEN CONSTRUCTION LIMITED (IN RECEIVERSHIP)
AND
SOMAGUE ENGENHARIA SOCIEDADE ANOMINA
TRADING TOGETHER IN JOINT VENTURE AS BOWEN SOMAGUE JV
APPLICANT
AND
KELLY’S OF FANTANE (CONCRETE) LIMITED (IN RECEIVERSHIP)
RESPONDENT
JUDGMENT of Mr. Justice David Barniville delivered on the 6th day of December, 2019
Introduction
1.       This is my judgment on an application by a joint venture between Bowen Construction
Limited (in receivership) and Somague Engenharia SA, a Portuguese company, which is a
party to an arbitration brought by Kelly’s of Fantane (Concrete) Limited (in receivership).
The joint venture challenges a ruling by the arbitrator pursuant to Article 16(3) of the
UNCITRAL Model Law on International Commercial Arbitration 1985 (as amended in 2006)
(the “Model Law”), that she has jurisdiction over certain parts of the claims made in the
arbitration. For ease of reference, and to avoid endless confusion, I will refer in this
judgment to the applicant to this application as the “respondent” (as it is the respondent
in the arbitration) and the respondent to the application as the “claimant” (as it is the
claimant in the arbitration).
2.       In the course of the arbitration, the respondent contended that the arbitrator did not have
jurisdiction over certain parts of the claim sought to be advanced by the claimant as those
claims had not been referred to in the notice referring the dispute to arbitration. The issue
on jurisdiction arose in the following circumstances. The respondent sought to rely on
certain points by way of defence to the claimant’s claim. It argued that, on the basis of
certain determinations made by it following the termination of the relevant contract
between the parties, the claimant could not succeed in certain parts of its claim which
were affected by those determinations. When the claimant sought to challenge the
determinations in the course of the arbitration proceedings, the respondent contended
that the claimant was not entitled to do so as it had not referred those issues to
arbitration and that, as a consequence, the arbitrator did not have jurisdiction to deal
with the attempted challenges to its determinations.
3.       The parties agreed that it was open to the respondent to rely upon its determinations by
way of defence to the relevant parts of the claimant’s claim. However, the parties did not
agree that the claimant could, in response to the defence advanced by the respondent in
reliance upon the determinations it had made, seek to challenge those determinations in
the arbitration, as no such challenge had been adverted to in the notice referring the
dispute to arbitration.
4.       The claimant’s position was that the dispute referred to arbitration encompassed a
challenge to the relevant determinations and that, once it was open to the respondent to
rely on the determinations by way of defence, it would in turn be open to the claimant to
respond to that defence by challenging the determinations in the arbitration.
5.       The arbitrator delivered a ruling on 9th March, 2018, in which she found that she did have
jurisdiction in respect of the contested parts of the claimant’s claim. The respondent
disagreed with that ruling on jurisdiction and brought this application to the court
pursuant to Article 16(3) of the Model Law requesting the court to decide the issue of
jurisdiction in relation to the relevant parts of the claimant’s claim.
6.       The application involves a number of interesting points of law which have not previously
been considered by the Irish Courts, although they have been considered elsewhere in
the common law world. It will, in, due course, be necessary to consider those points,
including the principles applicable to the construction of a notice referring a dispute to
arbitration and to the ascertainment of the ambit or scope of a particular dispute referred
to arbitration.
7.       Before considering those issues, it is necessary to set out the relevant factual background
contractual relationship between the parties as well as the circumstances in which the
dispute between the parties was referred to arbitration and the manner in which it was
dealt with in the course of the arbitration. It will be necessary to consider the function of
the court and the proper approach to be taken in the context of an application under
Article 16(3) of the Model Law. It will then be necessary to consider the respective
contentions of the parties on the jurisdiction issue and, in that context, to address the
legal principles applicable to the construction of a notice referring a dispute to arbitration
and to the question as to how a court should determine whether a particular dispute (or
issue within a dispute) has been referred to arbitration. Having done all that, I will set out
my conclusions on the various issues.
Outcome of Application
8.       I should indicate at this stage that, for the detailed reasons set out in this judgment, I
have concluded that the arbitrator does have jurisdiction in relation to the relevant parts
of the claimant’s claim which is the subject of this application and that the arbitrator was
correct in ruling that she had such jurisdiction.
Factual Background
9.       There is substantial agreement between the parties as to the relevant facts. The following
is a summary of the relevant facts as found by me, which I have taken from the affidavits
sworn by the parties in connection with the respondent’s application.
The Parties
10.       The respondent is an unincorporated joint venture between Bowen Construction Limited
(“Bowen”) and Somague Engenharia SA (“Somague”), a Portuguese entity, which was
formed by way of an agreement between the parties made in February, 2008. Bowen
went into receivership in July, 2011. Thereafter, Somague assumed all of the obligations
of the joint venture under the terms of the relevant joint venture agreement. Bowen did
not, therefore, participate in the proceedings.
11.       The claimant, Kelly’s of Fantane (Concrete) Limited, is a specialist building subcontractor
providing road paving and associated works. The claimant went into receivership on 21st
March, 2011.
The Contracts
12.       On 31st January, 2008, the respondent and Laois County Council entered into a contract
under which the respondent was to execute and complete various works, including paving
works, on the N7 Castletown to Nenagh (Derrinsallagh to Ballintotty) Scheme (the “main
contract”). The main contract was in the form of the “Public Works Contract for Civil
Engineering Works designed by the Contractor”(19 February 2007). On 19th January,
2009, the respondent entered into a subcontract with the claimant under which the
claimant was appointed to carry out and supply road surfacing works and materials to the
respondent in connection with the scheme (the “subcontract”). The subcontract expressly
incorporated the “Conditions of Sub-contract for use in conjunction with the Forms of
Main Contract for Public Works for use with Domestic Sub-contractors”. Substantial
completion of the works under the main contract was achieved on 22nd December, 2010.
The respondent certified that the claimant’s subcontract works were substantially
complete on that date and the road was opened for public traffic around that time.
13.       The parties engaged in discussions in relation to monies which were being claimed by the
claimant and which it contended were outstanding from the respondent under the
subcontract.
9th March 2011 Claim
14.       On 9th March, 2011, the claimant submitted a claim to the respondent under clauses
10(a), 10(b) and 10(c) of the subcontract (the “9th March, 2011 claim”). The 9th March,
2011 claim was expressly stated to incorporate sums unpaid from previous applications
and included a claim for extension of time and additional costs allegedly incurred by the
claimant as a result of alleged delays to the works under the subcontract which it is
alleged were beyond the claimant’s control. The 9th March, 2011 claim was made by way
of a letter of that date which enclosed four folders of documents (appendices A to D). The
total amount claimed was €13,798,995.00.
23rd March 2011 Rejection
15.       The 9th March, 2011 claim was rejected by the respondent in a letter dated 23rd March,
2011 (the “23rd March, 2011 rejection”). In the 23rd March, 2011 rejection the
respondent pointed out that the claim was being advanced by the claimant just after
substantial completion and more than two years after some of the alleged events
occurred. It further asserted that clause 10(a)(1) of the subcontract contained a condition
precedent which the claimant had to comply with in order successfully to pursue a claim
(the condition relied upon by the respondent was one requiring that notice in certain
terms be given within a particular time period where the claimant considered that it was
entitled to an adjustment to the subcontract sum or that it had any other entitlement
under or in relation to the subcontract). The respondent contended that the claimant had
failed to comply with that condition and as a consequence, the respondent had no liability
in relation to the 9th March, 2011 claim. For that reason, the claim was “rejected in its
totality”.
Termination of the Subcontracts and Subsequent Events
16.       A receiver was appointed to the claimant on 21st March, 2011. The respondent was
unaware of this fact when it sent the 23rd March, 2011 rejection. Having been informed
of the appointment of a receiver to the claimant, the respondent terminated the
subcontract by letter dated 12th April, 2011, in accordance with clause 12(a) of the
subcontract. That clause entitled the respondent to terminate the subcontract in the event
of a receiver being appointed to the claimant. Thereafter, the provisions of clause 12(b) of
the subcontract provided that the provisions of clause 12.2 of the main contract were to
apply. Those provisions deal with the consequences of the termination of the subcontract
in the case of a default by the claimant. I will set out in somewhat more detail later in my
judgment the relevant provisions of the subcontract and of the main contract in this
regard. It should be noted at this point that there is no dispute between the parties as to
the respondent’s entitlement to terminate the subcontract.
17.       Following the termination of the subcontract, the respondent sought to implement the
steps provided for in clause 12.2 of the main contract (which applied by virtue of clause
12(b) of the subcontract). First, the respondent wrote to the claimant on 3rd June, 2011,
informing it that the respondent had determined that the amount due to the claimant
under the subcontract for works completed in accordance with the subcontract and unpaid
was “nil”. This is what is known in clause 12.2.3 as the “termination value”. The
respondent was, therefore, informing the claimant that the termination value was nil.
Second, the respondent wrote to the claimant by letter dated 21st October, 2011,
reminding the claimant that the respondent had informed the claimant that the
respondent was obliged to appoint a replacement contractor to complete and remedy
certain alleged defects in the subcontract works and that those works were now complete
and that all defects had been remedied. In those circumstances, the respondent informed
the claimant that it was in a position to determine the “termination amount” in
accordance with clause 12.2.9 of the subcontract. The respondent informed the claimant
that it had determined the “termination amount” at €768,911.27 and it set out a
breakdown of that sum. In the same letter, the respondent demanded that the claimant
pay to the respondent the sum of €768,911.27 being the amount by which the
termination amount exceeded the termination value. That demand was made pursuant to
clause 12.2.11 of the subcontract. The respondent also informed the claimant that if that
sum was not paid within ten working days of the date of the letter, the respondent
intended to make a claim on foot of the performance bond provided by the claimant.
Under the performance bond, Hiscox Insurance Company Limited was the bondsman (the
“bondsman”).
18.       The claimant did not respond to the respondent’s letters of 3rd June, 2011 and 21st
October, 2011 in which the claimant was informed of the respondent’s determination of
the termination value and of the termination amount, respectively.
Respondent’s Claim Against the Bondsman
19.       The sum demanded by the respondent on 21st October, 2011 was not paid by the
claimant. In those circumstances, the respondent sought to recover that sum from the
bondsman. It is accepted that the quantity surveyors engaged by the bondsman liaised
with Anthony Kelly, the managing director of the claimant, in relation to that claim. Prior
to the determination by the respondent of the termination amount but following its
determination of the termination value, the bondsman wrote to the respondent’s solicitors
on 5th October, 2011 informing them that in the event that the respondent ultimately
pursued a claim against the bondsman, sums due to the claimant would need to be
calculated and offset against any sums incurred in completing the works in order to
establish if there were any monies due under the bond. That letter made clear that the
bondsman did not accept that the termination value was nil.
20.       In due course, the respondent commenced proceedings against the bondsman in 2013
seeking payment on foot of the performance bond (the “bondsman proceedings”). In its
statement of claim in those proceedings, the respondent pleaded the fact of the
determination of the termination value and of the termination amount. In its defence to
those proceedings, the bondsman admitted that the respondent had determined the
termination value at nil and the termination amount at €768,911.27. However, the
bondsman denied that the determination of the termination value and of the termination
amount was correct. The bondsman expressly pleaded that the termination amount
claimed by the respondent did not take into account all sums properly due or which might
become due to the claimant under the subcontract and contended that that amount had
not been properly calculated in accordance with the terms of the subcontract. The
bondsman proceedings proceeded up to the point of discovery in 2014.
Correspondence in November – December 2014
21.       On 13th November, 2014, Hussey Fraser, the claimant’s solicitors wrote to the
respondent’s solicitors, Maples and Calder. This was the first time that the claimant had
written to the respondent since June, 2011 and the first time that the claimant had
written in relation to the determinations made by the respondent of the termination value
and of the termination amount under the subcontract. There is major disagreement
between the parties as to the interpretation and effect of the Hussey Fraser letter of 13th
November, 2014. It will, therefore, be necessary to examine the contents of that letter in
some detail later in this judgment. At this stage, however, I will note that the letter
referred to the fact that the respondent had issued proceedings against the bondsman
and that Hussey Fraser were instructed to issue proceedings against the respondent on
behalf of the receiver of the claimant arising out of the subcontract. The letter then
referred to the claim against the bondsman before moving on to refer to the valuation of
the works carried out by the claimant under the subcontract up to completion in
December, 2010. It referred to various discussions and negotiations between the claimant
and the respondent in relation to the final account and disputed the deletion of variations
that had allegedly been previously agreed and a deduction of alleged unsubstantiated
contra charges on behalf of the respondent which the complainant said would be
vehemently defended”. The letter then referred to the “cost of completion” of €768,911
asserted by the respondent (i.e. the termination amount) and asserted that the claimant’s
works had been completed by November, 2011 and that there were no works
outstanding. The letter then referred to alleged defects in the claimant’s works and took
issue with the claims being made in respect of the alleged defects. The letter then
considered the claimant’s claims against the respondent and indicated that, after allowing
contra charges which had been agreed and payments on account made to date, the sum
of €1,329,670.00 remained due to the claimant and asserted that that sum did not
include additional compensation payable to the plaintiff in respect of various matters
including additional movements, delay and disruption. The letter then suggested that
there may be additional claims and made reference in that context to the 9th March, 2011
claim and stated that the claimant’s solicitors had not yet examined that claim in detail.
The letter concluded by referring to clause 13(a) of the subcontract providing for
arbitration and the service of a notice to refer and asked whether the respondent’s
solicitors had authority to accept service of the notice to refer.
22.       The respondent’s solicitors replied to the letter of 13th November, 2014, by letter dated
1st December, 2014 (the “Maples letter of 1st December, 2014”). In that letter, they
described the claimant’s claim as set out in the Hussey Fraser letter of 13th November,
2014 as having “no substance” and being an attempt by the claimant “to leverage
nuisance money” from the respondent by attempting to interfere with the bondsman
proceedings. The basis for that contention was then set out in a series of numbered
paragraphs. Amongst those grounds was the fact that the claimant had not sought to
advance its claim for more than three years. It was also asserted that the Hussey Fraser
letter of 13th November, 2014 was “littered with various factual inaccuracies regarding
the works performed and not performed by [the claimant], the status of [the claimant’s]
account at the time that [the respondent] terminated its obligation to complete the
works, and the manner in which the subcontract was performed by the parties.”. The
claimant attaches some significance to the terms of the Maples letter of 1st December,
2014 in support of its contention that the respondent was aware that the claimant was
disputing the determinations in relation to termination value and termination amount. The
respondent’s solicitors concluded their letter by contending that the claimant’s claim was
not “legitimate, meritorious or sustainable” and that the claimant saw “its opportunity
cheaply to make some nuisance money…”. They stated that the respondent did “not
intend to waste time or legal fees engaging with” the terms of the Hussey Fraser letter.
They concluded by confirming that they had authority to accept service of any dispute
resolution proceedings initiated by the claimant pursuant to the subcontract.
23.       The claimant’s solicitors responded by letter dated 19th December, 2014. In that letter,
they stated that the claimant did not intend to interfere with the bondsman proceedings
and asserted that, insofar as the respondent was maintaining in those proceedings that
the claimant was indebted to it, the letter of 13th November, 2014 commenced with that
alleged debt in order to demonstrate that the respondent was indebted to the claimant
rather than the other way around. The letter further noted that the respondent had been
given substantial material in the claim documents furnished in March, 2011 and concluded
by indicating that the claimant would anticipate serving a notice to refer to arbitration in
early course.
The Notice to Refer
24.       The claimant served a notice to refer to arbitration (the “notice to refer”) on 13th March,
2015. I set out below the terms of the notice to refer as significant reliance is placed by
both parties on the notice in support of their respective positions as to the disputes and
issues which were referred to arbitration by means of that notice.
25.       The notice to refer contained four recitals which were in the following terms:-
WHEREAS:
I. The claimant and the respondent entered into a sub-contract agreement dated the
19th January 2009 whereby the claimant was sub-contractor and the respondent
was main contractor in respect of works to be executed in respect of the N7,
Castletown to Nenagh Road Scheme on the terms and conditions more particularly
set out in that agreement.
II. The works the subject matter of that sub-contract were completed on or about the
20th November 2010.
III. The claimant submitted a claim for payment to the respondent on or about the 9th
March 2011 for a total sum of €13,798,955.
IV. The respondent disputes the said claim.”
26.       Having set out those recitals, the notice to refer continued:-
“TAKE NOTICE that the claimant hereby refers the said dispute to arbitration pursuant to
clause 13(a) of the terms and conditions of contract. The issues in dispute are as follows:
1. The balance due to the claimant on foot of the contract without reference to
variations, extras, contra-charges or additional sums.
2. The sum due on the variation account.
3. The sum due in respect of the tack coat.
4. The sum due in respect of prolongation charges between the 9th August 2010 and
the 20th November 2010.
5. The amount due in respect of changes to the central reserve…
6. The amount due in respect of additional moves (remobilisation at different
locations) …
7. The claimant’s entitlement to be compensated for the cost of heating bitumen over
a prolonged period.
8. Additional sums due in respect of work on side roads and accommodation works not
included in the sub-contract sum.
9. The sum due in respect of additional cores which were required to be filled by the
claimant. These additional works were not included in the sub-contract sum.
10. Because the works had to proceed in a piecemeal fashion in circumstances giving
rise to legitimate claims on the part of the claimant, more tar joints and cbm joints
had to be made than otherwise would have been the case. This gave rise to a claim
for additional materials and additional works.
11. The sum due in respect of delay and disruption, standing time and inefficiencies
identified in appendix D, supporting sheets B, C, D, E, F and G and therein
described on the last page of each of those summary sheets as ‘standing time’.
12. Finance charges and/or interest payable to the claimant.
13. The costs of the arbitration proceedings.”
The notice to refer then called upon the respondent to agree to the appointment of an
arbitrator and proposed two persons as arbitrator.
Conciliation
27.       Having served the notice to refer, the provisions of clause 13(b)(1) of the subcontract
applied. Under that clause, no step could be taken in the arbitration after the notice to
refer had been served until the disputes had first been referred to conciliation. The parties
agreed on a conciliator and referred their disputes to him. He issued a recommendation in
December, 2015 which found that the sum of [REDACTED] was due by the respondent to
the claimant following termination of the subcontract. The respondent was unhappy with
that recommendation and gave notice of its dissatisfaction.
28.       The claimant commenced summary proceedings seeking judgment against the respondent
in the amount of the recommendation. The respondent brought an application under
Article 8(1) of the Model Law staying the proceedings on the grounds that the dispute
between the parties was the subject of an arbitration agreement (contained in clause
13(a) of the subcontract). The High Court (McGovern J.) refused that application in a
judgment delivered on 1st June, 2017 (Kelly’s of Fantane (Concrete) Limited (In
Receivership) v. Bowen Construction Ltd (In Receivership) & ors [2017] IEHC 526).
McGovern J. concluded that the dispute between the parties as to whether the
conciliator’s recommendation had to be paid following notice of dissatisfaction and
pending the outcome of the arbitration between the parties was a discrete issue which the
parties agreed should be determined by the courts. In a further judgment delivered on
31st July, 2017, McGovern J. granted summary judgment to the claimant on foot of the
conciliator’s recommendation ([2017] IEHC 526).
29.       Subsequent to the hearing before me of the respondent’s application in relation to the
arbitrator’s jurisdiction, the Court of Appeal delivered judgment on the respondent’s
appeal from the judgment and order of McGovern J. granting summary judgment to the
claimant. The judgment of the Court of Appeal was delivered on 20th March, 2019
([2019] IECA 98). The Court of Appeal dismissed the respondent’s appeal. While the
judgment of the Court of Appeal is not directly relevant to the issues which I have to
decide on this application, it is relevant to observe that, in the course of his judgment for
the Court of Appeal, Peart J. noted that following termination of the subcontract, the
respondent determined that the termination value was “nil” and that the termination
amount was €768,911.00 and that the claimant did not accept those calculations made by
the respondent and issued a notice to refer the dispute to arbitration under clause 13(a)
of the subcontract. The claimant argued in the course of the summary proceedings that
the dispute the subject of the conciliation was the same dispute which was the subject of
the notice to refer to arbitration dated 13th March, 2015. The respondent argued that the
dispute the subject of the notice to refer, was not the “same dispute” as was the subject
of the conciliator’s recommendation. That issue was relevant to the summary proceedings
in light of the provisions of clause 13.1.11 of the main contract which applied to the
subcontract by virtue of clause 13(b) thereof. The High Court (McGovern J.) had held that
the dispute before the conciliator and the dispute referred to arbitration was the “same
dispute”. The Court of Appeal agreed.
30.       At para. 30 of his judgment for the Court of Appeal, Peart J. stated:-
“The question then arises as to whether the ‘same dispute’ that was referred to
arbitration has been the subject of the conciliator’s recommendation. I am
completely satisfied that the dispute that went to arbitration is essentially the same
as that which became the subject of the conciliator’s recommendation. The dispute
which arose was referred to arbitration. That arbitration was put on hold until such
time as the matter was referred to conciliation as provided for in clause 13(b).
What was referred to conciliation was the dispute that was the subject of the notice
to refer dated 13th March 2015… I am satisfied that the trial judge was entitled on
the evidence before him to conclude that the dispute which was the subject of the
notice to refer dated [13th] March 2011 is the same dispute that was referred to
the conciliator and became the subject of his recommendation.”
31.       The Court of Appeal dismissed the respondent’s appeal from the judgment and order of
the High Court (McGovern J.) granting summary judgment to the claimant on foot of the
conciliator’s recommendation. As that judgment was delivered after the hearing before
me had concluded, the parties were afforded the opportunity of making further
submissions to me arising from the judgment of the Court of Appeal and, while initially
indicating that further submissions would be made, it was subsequently agreed between
the parties that they were not necessary.
The Arbitration
32.       In the meantime, and following the giving of the conciliator’s recommendation in
December, 2015, the parties agreed to the appointment of an arbitrator on foot of the
notice to refer. Ms. Siobhan Fahey, chartered engineer and chartered arbitrator, was
appointed arbitrator by agreement between the parties.
33.       Following her appointment, the arbitrator held a preliminary meeting on 7th April, 2016 at
which a timetable for the arbitration was agreed. The timetable and further directions
were confirmed by an order for directions (No. 1) dated 12th April, 2016. The arbitrator
gave extensive directions in relation to the conduct of the arbitration and in relation to
various applications which the claimant had indicated it intended bringing. The claimant
had indicated an intention to bring an application for early disclosure of documents in
relation to claims made by the respondent “against the employer which directly or
indirectly related to, or were connected with” works carried out by the claimant under the
subcontract. The claimant also indicated an intention to bring an application for an early
interim award in respect of “the sum due on the agreed valuation of the measured works
and variations”. The respondent indicated its intention to bring an application for security
for costs in respect of those two intended applications. The arbitrator gave detailed
directions in relation to those proposed applications. In addition to doing that, the
arbitrator further directed that while clause 13(c)(2) of the subcontract made reference to
the Arbitration Procedure, 2000 published by Engineers Ireland (the “2000 Procedure”),
the relevant procedural rules that would apply in the arbitration from the date of the
preliminary meeting on 7th April, 2016 would be the Arbitration Procedure, 2011
published by Engineers Ireland (the “2011 Procedure”). The parties are in agreement that
up to the date of the preliminary meeting on 7th April, 2016, the 2000 Procedure applies
with the 2011 Procedure applying after the date of the preliminary meeting.
34.       The claimant brought its applications for early disclosure and for an early interim award
and they were responded to by the respondent. In response to the claimant’s application
for an early interim award in respect of the measured works and variations, the
respondent made reference to the provisions of clause 12.2 of the main contract as
applied by clause 12(b) of the subcontract and to the determinations as to termination
value and termination amount made by the respondent under clause 12.2 of the main
contract (paras. 62 to 67 of the respondent’s response to the claimant’s application dated
29th April, 2016). At para. 66 of that response, the respondent stated that the claimant
had never disputed the termination value or the termination amount and that the
respondent would, therefore, be entitled to rely upon the provisions of clause 12.2.2 of
the main contract even if the claimant obtained an early award in respect of the
“measurement account”.
35.       The arbitrator gave her decision in respect of the claimant’s two applications on 25th May,
2016 (the “May, 2016 decision”). In her decision in relation to the request for early
disclosure, the arbitrator commented on the scope of the dispute referred to arbitration
under the notice to refer and expressed the view (at that stage) that the scope of the
dispute referred and the extent of her jurisdiction in the arbitration corresponded with the
scope of the 9th March, 2011 claim (para. 3.15 of the May, 2016 decision). The arbitrator
expressed the view that the claim was not for all financial entitlements that might be due
to the claimant in respect of the subcontract works but was for particular additional
payments claimed under four broad headings, namely, prolongation, delay and disruption,
additional testing/“quality issues” and revised scope of works (paras. 3.15 and 3.16). The
arbitrator was not persuaded (at that stage) by the claimant that item 1 in the notice to
refer was sufficient to include all additional payments claimed and received by the
respondent from the employer in respect of the subcontract works carried out by the
claimant (which was the subject of the claimant’s application for early disclosure). The
arbitrator concluded, therefore, that the scope of the claimant’s request for disclosure
extended significantly beyond the scope of the dispute which was referred to arbitration
and over which she had jurisdiction (para. 3.17).
36.       In ruling on the claimant’s application for an early interim award in the May, 2016
decision, the arbitrator returned to the question of jurisdiction. She stated (at para. 4.13)
that she had “come to question” whether the issue of the disputed sum which was due to
be paid to the claimant for measured subcontract works fell within the scope of the
dispute referred to arbitration and questioned her jurisdiction to deal with it (para. 4.13).
She then stated (at para. 4.14) that, as she saw it, the scope of the dispute referred to
arbitration and, therefore, the extent of her jurisdiction in the arbitration, corresponded to
the “scope of the claimant’s claim by letter dated 9th March, 2011”. She could find no
reference in the 9th March, 2011 claim to the claimant’s measurement amount (para.
4.14).
37.       The arbitrator refused both of the claimant’s applications in the May, 2016 decision. It is
accepted by the respondent that the May, 2016 decision does not amount to a final
determination by the arbitrator on the question of jurisdiction although it is said that the
views she expressed in that decision represented her determination of the objective
meaning of the notice to refer and that it is relevant on that basis.
38.       The arbitrator gave further directions in her order for directions No. 2 dated 25th May,
2016. She directed the parties to address the question of her jurisdiction to deal with the
issue of the disputed sum due to be paid to the claimant for measured subcontract works
in circumstances where she had raised a question as regards her jurisdiction to deal with
that issue in the May, 2016 decision. She directed the exchange of further written
submissions by the parties on that issue. This was done and on 17th June, 2016, the
arbitrator issued a ruling stating that she had jurisdiction in the arbitration to deal with
the issue of the disputed sum due to be paid to the claimant for measured subcontract
works. The arbitrator had given further directions in her order for directions No. 2, dated
25th May, 2016 for the service by the claimant of its statement of case and also gave
directions in relation to the respondent’s intended application for security for costs.
39.       The claimant served its statement of case on 1st July, 2016. The statement of case did
not refer to clause 12(b) of the subcontract or clause 12.2 of the main contract. While the
statement of case referred to the termination of the subcontract by the respondent and to
the determinations by the respondent of the termination value and of the termination
amount, it did not assert that those determinations were incorrect or unlawful in any
respect. There is much disagreement between the parties as to the significance of the
failure by the claimant expressly to challenge those determinations by the respondent in
the statement of case.
40.       Following the service of the statement of case, the arbitrator dealt with security for costs
issues. In its application for an order for security for costs dated 15th July, 2016, the
respondent stated that it intended defending the claimant’s claims on various grounds
including jurisdictional grounds (paras, 43(i) to (xxx) of the respondent’s application for
security for costs). Among the grounds set out by the respondent was that, the claimant
was not entitled to any further payment from the respondent save under clause 12(b) of
the subcontract and clause 12.2 of the main contract having regard to the termination of
the subcontract and that the claimant had not pleaded an entitlement to payment on that
basis. The respondent further asserted that the scope of the arbitration was co-extensive
with the scope of the 9th March, 2011 claim for extensions of time and for associated
costs and that no claim was made in the statement of case for an extension of time or for
associated costs. The respondent also indicated that it would rely on the notice provisions
contained in the subcontract (clause 10). Numerous grounds of intended defence were set
out in the respondent’s application.
41.       The arbitrator gave her decision in principle in respect of the respondent’s application for
security for costs on 4th November, 2016 (the “November, 2016 decision”). She granted
the respondent’s application and decided in principle that the claimant should provide
security for costs. The arbitrator subsequently made an order for security for costs on 8th
February, 2017. The security for costs required to be provided by the claimant was
provided in full on 5th May, 2017.
42.       Thereafter, the respondent sought particulars arising from the claimant’s statement of
case. Those particulars were provided. There was a dispute in relation to the adequacy of
the particulars provided and the arbitrator ruled on that dispute on 26th July, 2017. The
claimant was directed to provide certain further particulars.
43.       The respondent served its statement of defence on 7th September, 2017 in accordance
with a further order for directions made by the arbitrator on 18th August, 2016. In its
statement of defence, the respondent raised a number of preliminary defences including
jurisdictional defences. The respondent pleaded that the arbitrator had no jurisdiction to
determine the claimant’s claims on two separate bases. The first basis advanced by the
respondent was founded on clause 12(b) of the subcontract and clause 12.2 of the main
contract. It was pleaded that the respondent had complied with the provisions of clause
12.2 of the main contract (which applied to the subcontract by virtue of clause 12(b)) and
had proceeded to determine the termination value and the termination amount in
accordance with the provisions of clause 12.2 and that those determinations had not been
disputed by the claimant whether in the context of the dispute referred to arbitration or
otherwise. In support of that contention, the respondent pleaded that the scope of the
claimant’s reference to arbitration was co-extensive with the 9th March, 2011 claim and
that, therefore, the reference to arbitration could not include a dispute relating to the
determinations as to termination value or termination amount since neither of those
matters had been determined at the time of the 9th March, 2011 claim. The respondent
pleaded, therefore, that those determinations were not within the scope of the reference
to arbitration and were, therefore, not within the jurisdiction of the arbitrator. The
respondent advanced another preliminary defence based on want of jurisdiction in respect
of the prolongation claim which is not relevant to the present application. The respondent
attached legal submissions to its statement of defence (at schedule A) concerning the
arbitrator’s jurisdiction.
44.       Particulars were sought by the claimant arising from the statement of defence and were
furnished by the respondent. The claimant then served a statement of reply on 8th
November, 2017 in which reference was made by the claimant to the “purported
determinations” by the respondent of the termination value and termination amount and
also addressed the notice to refer. The claimant did not accept that the arbitrator did not
have jurisdiction in relation to its claim or in relation to those determinations.
45.       The respondent indicated that it wished to serve a statement of rejoinder. However, prior
to doing so, the claimant served a draft amended statement of case on 10th November,
2017 and another version of a draft amended statement of case on 21st November, 2017.
That was not done by agreement with the respondent or on foot of any direction made by
the arbitrator. The claimant’s solicitors redelivered the amended statement of case on
29th March, 2018 on foot of further directions given by the arbitrator that day following
the delivery of her ruling on jurisdiction of 9th March, 2018. While a timetable for the
delivery of further amended pleadings by the respondent appears to have been agreed on
29th March, 2018, the directions made that day were superseded by the respondent’s
application to the High Court under Article 16(3) of the Model Law in relation to the
arbitrator’s jurisdiction.
46.       The claimant’s amended statement of case does now seek expressly to challenge the
respondent’s determinations as to termination value and termination amount and
contends that those determinations were wrongful and unjustified in failing to take
account of the legitimate entitlements of the claimant under the subcontract. The
amended statement of case further contends that the Hussey Fraser letter of 13th
November, 2014 did reject and dispute the respondent’s determinations in relation to
termination value and termination amount and asserts that the notice to refer to
arbitration, validly referred to arbitration the dispute between the parties concerning the
claimant’s rejection of those determinations made by the respondent and its entitlement
to recover the monies claimed in the 9th March, 2011 claim and in the Hussey Fraser
letter of 13th November, 2014. Three new reliefs were included in the amended
statement of case including declarations that the purported determinations by the
respondent of the termination value and the termination amount should be opened up,
reviewed and revised to reflect the findings made by the arbitrator in relation to the
merits of the claimant’s claims and the respondent’s defences in the arbitration and
declarations as to the correct amounts arising in respect of the termination value and the
termination amount under clause 12(b) of the subcontract and clause 12.2 of the main
contract.
47.       The respondent relies on the stark contrast between the pleas contained in the statement
of case and in the amended statement of case in support of its contention that no issue in
relation to the respondent’s determinations of termination value and termination amount
were referred to arbitration or are within the jurisdiction of the arbitrator.
48.       In her order for directions No. 6, dated 18th August, 2017, the arbitrator directed that
potential or intended applications by either party in respect of the arbitrator’s jurisdiction
should be deferred until after the close of pleadings. On 27th November, 2017, the
arbitrator informed the parties that she felt that it was appropriate at that stage to
proceed to hear an application and to make a ruling on her jurisdiction having regard to
the preliminary defences in relation to her alleged want of jurisdiction pleaded by the
respondent in its statement of defence. Further directions were agreed and issued by the
arbitrator in her order for directions No. 7, dated 4th December, 2017. The arbitrator
directed a simultaneous exchange of written submissions and fixed 18th January, 2018 as
the date for the hearing of the jurisdictional issue. The hearing proceeded on that date
and the arbitrator reserved her decision.
The Arbitrator’s Ruling on Jurisdiction
49.       With commendable expedition, the arbitrator delivered her ruling in respect of jurisdiction
on 9th March, 2018. In a detailed ruling, the arbitrator ruled that she had jurisdiction in
respect of the two disputed areas where her jurisdiction was challenged by the
respondent, namely, in respect of the issues arising under clause 12 of the subcontract
and clause 12.2 of the main contract and in respect of the prolongation claim. The latter
aspect of her ruling has not been challenged by the respondent.
50.       In rejecting the respondent’s contention that she did not have jurisdiction in relation to
the claims sought to be made by the claimant having regard to clause 12(b) of the
subcontract and clause 12.2 of the main contract, the arbitrator looked at the notice to
refer and concluded that there was an ambiguity in the description of the dispute which
was referred to arbitration by that notice. She ruled, therefore, that she was entitled to
look at documents other than the 9th March, 2011 claim in interpreting the scope of the
reference. She decided that, in accordance with the case law relied upon by the claimant,
it was necessary to ascertain what dispute had crystallised as of the date of the notice to
refer, as that was the dispute which had been referred to arbitration. In seeking to
ascertain what that dispute was, the arbitrator agreed with the claimant that it was
appropriate that she should have regard to the factual background to the notice to refer
as evidenced in the exchange of communications between the parties pre dating that
notice. Having referred to the exchange of communications between the parties between
December, 2010 and the date of service of the notice to refer on 13th March, 2015, the
arbitrator was satisfied that the Hussey Fraser letter of 13th November, 2014 and the
Maples letter of 1st December, 2014 demonstrated that the claimant intended to pursue
its claims against the respondent as set out in the 9th March, 2011 claim and that the
respondent did not accept those claims and maintained its position in relation to the
termination value and the termination amount. The arbitrator did not accept that the first
part of the Hussey Fraser letter of 13th November, 2014 was only a “running
commentary” on the bondsman proceedings and considered that the claimant was
disputing in that letter the termination value and the termination amount as determined
by the respondent. On that basis, the arbitrator rejected the respondent’s contention that
the dispute referred to arbitration did not include a dispute in respect of the termination
value and the termination amount. She ruled that such a dispute had been referred to
arbitration.
51.       The arbitrator further noted that while the notice to refer did not state that the claimant
took issue with the termination value and the termination amount, it was common ground
between the parties that if a claim was referred to arbitration by the claimant then so
were the defences to that claim which were sought to be relied upon by the respondent.
The arbitrator stated that it was clear from the statement of defence and from the
respondent’s written submissions on the question of jurisdiction, that one of the defences
advanced by the respondent was based on clause 12 of the subcontract and, in particular,
on the respondent’s determination as to termination value and termination amount. The
arbitrator, therefore, concluded that that defence did form part of the dispute referred to
arbitration. The arbitrator did not accept the respondent’s argument that the dispute was
“co-extensive” with the 9th March, 2011 claim. The arbitrator also rejected the contention
that she had already determined the scope of the reference in the May, 2016 decision, as
that decision concerned the claimant’s application for early disclosure and for an interim
award and the arbitrator was not at that stage being asked to consider or rule
exhaustively upon the extent of her jurisdiction or to define the ambit of the dispute
which had been referred to her. For those reasons, the arbitrator concluded that she had
jurisdiction in respect of the issues concerning clause 12 of the subcontract and did not
accept the preliminary objection raised by the respondent that there was a want of
jurisdiction in respect of those issues.
Respondent’s Challenge to Jurisdiction
52.       The respondent contends in this application that the arbitrator’s ruling that she has
jurisdiction in respect of the entirety of the claimant’s claim, including those parts of the
claim which seek to impugn the respondent’s determinations as to termination value and
termination amount, is wrong. It contends that the arbitrator does not have jurisdiction in
relation to those issues having regard to clause 12(b) of the subcontract and clause 12.2
of the main contract and to the terms of the notice to refer.
53.       Before considering that the basis on which the respondent contends that the court should
decide that the arbitrator has no jurisdiction in relation to those issues, I should, first,
outline in a little more detail the provisions of the subcontract and of the main contract
which are relevant to the jurisdiction issue and, second, consider the approach which the
court should take in considering the question of jurisdiction under Article 16(3) of the
Model Law.
Relevant Provisions of the Subcontract and of the Main Contract
54.       It will be apparent from my outline of the relevant factual background and of the
circumstances in which the arbitrator came to give her ruling on jurisdiction in March,
2018, that the most relevant provisions of the subcontract and of the main contract are
clause 12(b) of the subcontract and clause 12.2 of the main contract.
55.       Before setting out those provisions, I should refer also to the provisions of clause 10 of
the subcontract which provides for claims and adjustments. Clause 10(a) was relied upon
by the respondent in the 23rd March, 2011 rejection which rejected the 9th March, 2011
claim. Clause 10(a) provides for the procedure whereby a subcontractor who considers
that it is entitled to an adjustment of the subcontract sum or that it has any other
entitlement under or in relation to the subcontract must follow in order to claim such
adjustment or entitlement. Clause 10(a) requires the subcontractor to give notice of its
alleged entitlement to the contractor in certain terms and within a particular time limit.
Clause 10(a) then provides for the procedure to be followed in relation to such claims.
Clause 10(a)(3) provides that if the subcontractor does not give the required notice and
details within the stipulated time period, the subcontractor will not be entitled to an
increase in the subcontract sum and the contractor will be released from all liability to the
subcontractor in relation to the particular claim, save in certain circumstances. As I have
indicated, in the 23rd March, 2011 rejection, the respondent rejected the claim made in
the 9th March, 2011 claim on the grounds that the claimant failed to comply with the
notice requirement contained in clause 10(a)(1), which it asserted amounted to a
condition precedent. As a consequence, it was contended that the respondent had no
liability in respect of the claimant’s claim, and for that reason, its claim was rejected in its
totality. The respondent has pleaded the claimant’s failure to comply with the notice
requirement in clause 10(a)(1) of the subcontract in its statement of defence as a
preliminary defence (without prejudice to the other preliminary defences raised by it) and
as a substantive defence to the claimant’s claims.
56.       Clause 12 of the subcontract is concerned with termination. Clause 12(a) provides for the
circumstances in which the respondent could terminate the subcontract in the event of a
default on the part of the claimant. Under clause 12(a)(x), the respondent was entitled to
terminate the subcontract if any of the insolvency events referred to in clause 12.1 of the
main contract occurred in relation to the claimant. One of those insolvency events was
the appointment of a receiver to the claimant. As outlined earlier, the respondent
terminated the subcontract in accordance with clause 12(a)(x) following the appointment
of a receiver to the claimant. There is no dispute between the parties as to the
termination of the subcontract.
57.       Clause 12(b) is concerned with the consequences of the termination of the subcontract in
the case of a default by the subcontractor. It provides that where the subcontractor’s
obligation to complete the subcontract works is terminated under clause 12(a), the
provisions of clause 12.2 of the main contract will apply mutatis mutandis as between the
contractor and the subcontractor as if every reference to the contractor in clause 12.2
were a reference to the subcontractor and all references to the employer in clause 12.2 or
the employer’s representative were to the contractor.
58.       Clause 12.2 of the main contract (as adapted and applied to the subcontract by virtue of
clause 12(b) of the subcontract) provides as follows:-
“12.2 Consequences of default termination
If the subcontractor’s obligation to complete the works is terminated under sub
clause 12.1, the following shall apply:
12.2.1 The subcontractor shall leave the site in an orderly manner.
12.2.2
Payment of all sums of money that may then be due from the contractor
to the subcontractor shall be postponed, and the contractor shall not be
required to make any further payment to the subcontractor except as
provided in this sub-clause.
12.2.3
The contractor shall, as soon as practicable, determine the amount due
to the subcontractor under the sub-contract for the works completed in
accordance with the subcontract and unpaid (the termination value).
12.2.4 
12.2.5
The contractor may engage other contractors, use any works, items and
subcontractor’s things on the site and do anything necessary for the
completion of the works.
12.2.6 
12.2.7 
12.2.8 
12.2.9
When the works have been completed and the termination amount as
described below has been determined, the contractor shall give a
certificate to the subcontractor setting out the total of the following (the
termination amount):
(1) the contractor’s additional cost of completing the works compared with
the cost that would have been incurred if the works had been
completed by the subcontractor in accordance with the subcontract.
(2) loss and damage incurred by the contractor as a result of the
termination and its cause.
(3) the amounts due to the contractor by the subcontractor under or in
connection with the subcontract or in connection with the works.
12.2.10 
12.2.11
If the termination amount is less than the termination value, the
subcontractor shall issue an invoice to the contractor for the difference
and the contractor shall pay the amount due on the invoice within 15
working days after receiving the invoice. If the termination amount is
more than the termination value, the subcontractor shall pay the
contractor the difference within 10 working days of receiving the
contractor’s demand for payment.”
The Parties Respective Positions Following Termination of Subcontract
59.       As outlined earlier, following the termination of the subcontract in April, 2011, the
respondent sought to implement the provisions of clause 12.2 of the main contract (which
applied to the subcontract by virtue of clause 12(b) thereof). It determined the
termination value at “nil” (under clause 12.2.3) and the termination amount at
€768,911.27 (under clause 12.2.9) and demanded that latter sum from the claimant
under clause 12.2.11. The respondent has sought to rely on clause 12.2.2 as providing for
the postponement of the payment following the termination of the contract of any sums
of money that might then have been due from the respondent to the claimant and the
statement that the respondent was not required to make any further payment to the
claimant except as provided for in clause 12.2.
60.       At the heart of the dispute between the parties in relation to the jurisdiction of the
arbitrator is the question as to whether the arbitrator has jurisdiction to deal with the
claimant’s claims in light of the provisions of clause 12.2 of the main contract as applied
to the subcontract by virtue of clause 12(b) of that contract and in light of the
determinations made by the respondent as to the termination value and the termination
amount. The respondent contends that none of those matters were referred to arbitration
although it contends (and the claimant accepts) that the respondent is entitled to rely on
the provisions of clause 12.2 and its determinations as to termination value and
termination amount by way of a defence to the claim. However, the respondent contends
that the claimant is not entitled to respond to those defences by seeking to challenge the
determinations as to termination value and termination amount. The claimant contends,
for various reasons, that all of those matters were referred to arbitration and that the
arbitrator has jurisdiction to deal with them. It maintains that in circumstances where the
respondent is entitled to rely on its determinations of termination value and termination
amount in defence of the claimant’s claims, so too is the claimant entitled to challenge
those determinations in response.
The Dispute Resolution Provisions of the Subcontract
61.       Clause 13 of the subcontract is concerned with disputes. Clause 13(a) is headed “Notice
to Refer” and provides as follows:
“If a dispute arises between the parties in connection with or arising out of the sub
contract, either party may, by notice to the other, refer the dispute for arbitration
by serving on the other a notice to refer. The notice to refer shall state the issues in
dispute. The service of the notice to refer will deemed to be the commencement of
arbitration proceedings.”
62.       Central to the dispute between the parties in this application is the proper construction of
the notice to refer served by the claimant on the 13th March, 2015. As we shall see, a
number of legal principles apply to the construction of a notice to refer and to the
ascertainment of the ambit or scope of the dispute or issues referred to arbitration.
63.       Clause 13(b) provides for conciliation and, as touched upon earlier, clause 13(b)(1)
provides that:-
“No step will be taken in the arbitration after the notice to refer has been served
until the disputes have first been referred to conciliation.”
64.       There is then a provision for the conduct of the conciliation. Certain provisions of the main
contract are expressly applied to any conciliation between the contractor and the
subcontractor under the subcontract. As noted earlier, a conciliation did take place
between the parties following service of the notice to refer. The conciliator made a
recommendation in favour of the claimant which was not complied with and led to the
commencement of the summary proceedings by the claimant to enforce the conciliator’s
recommendation and ultimately to the recent judgment of the Court of Appeal. Once the
conciliation took place, the parties could proceed with the arbitration on foot of the notice
to refer and did so.
65.       Clause 13(c) is concerned with the procedure applicable to the arbitration. It provides as
follows:-
“(1) The parties shall jointly appoint the arbitrator and, if the parties are unable to agree
an arbitrator to be appointed under this clause, the arbitrator will be appointed by
the President of Engineers Ireland.
(2) Any arbitration between the contractor and the subcontractor will be governed by
the Arbitration Procedure 2000 published by Engineers Ireland and will be subject
to the Arbitration Acts 1954 – 1998.”
66.       The parties ultimately agreed on the appointment of Ms. Fahey as arbitrator.
Notwithstanding the reference to the Arbitration Acts 1954-1998 in clause 13(c), it is
accepted by the parties that the 2010 Act applies (having regard to s.3 of that act). In
her first order for directions dated 12th April, 2016, the arbitrator directed (with the
agreement of the parties) that the 2000 Procedure would apply up to the date of the
preliminary meeting on 7th April, 2016 but that the 2011 Procedure would apply
thereafter. The 2000 Procedure is potentially relevant to the jurisdiction issue between
the parties and it is appropriate, therefore, to refer to a number of its provisions at this
stage. Although clause 13 of the subcontract does not expressly so state, it seems to me
that it must be the case that in the event of any conflict or inconsistency between the
provisions of the subcontract and the 2000 Procedure, the provisions of the subcontract
must prevail. It remains to be seen as to whether there is any conflict or inconsistency
between the subcontract and the 2000 Procedure.
The 2000 Procedure
67.       The following seem to the most potentially relevant provisions of the 2000 Procedure for
present purposes. Rule 2 is concerned with the commencement of the arbitration. Rule
2.1 provides as follows:-
“Unless otherwise provided in the contract, a dispute or difference shall be deemed
to arise when a claim or assertion made by one party is rejected by the other party
and that rejection is not accepted, or no response is received within the period of
28 days. Subject only to the due observance of any condition precedent in the
contract or the arbitration agreement, either party may then invoke arbitration by
serving a notice to refer on the other party.”
The parties directed some argument to the construction and application of this rule in the
context of the scope of the dispute referred to arbitration and its interaction with clause
13(a) of the subcontract.
68.       Rule 2.3 provides as follows:-
“The notice to refer shall list the matters which the party serving the notice to refer
wishes to be referred to arbitration. Nothing stated in the notice to refer shall
restrict that party as to the manner in which it subsequently presents its case.”
Again the parties addressed this provision and its interaction with clause 13(a) of the
subcontract.
69.       Rule 5.2 provides as follows:-
“Once his appointment is completed, the arbitrator shall have jurisdiction over any
issue connected with and necessary to the determination of any dispute or
difference already referred to him whether or not any condition precedent to
referring the matter to arbitration had been complied with.”
This provision is also potentially relevant to the scope of the dispute which was referred to
arbitration and the extent of the arbitrator’s jurisdiction to deal with issues within the
dispute referred.
70.       These appear to me to be the relevant provisions of the subcontract, the main contract
and the 2000 Procedure for the purposes of the jurisdiction issues which arise on this
application.
Article 16(3): The Role of the Court
71.       The first issue I have to address is to the approach which the court is required to take in
considering a challenge to a ruling by an arbitrator that he or she has jurisdiction in
relation to all or part of a claim. The parties made extensive written and oral submissions
on this issue. However, it seems to me that ultimately there was not a great deal of
difference between them on the issue.
Article 16
72.       Under Article 16(1) of the Model Law, an arbitral tribunal may rule on its own jurisdiction.
Article 16(2) requires that a challenge to the jurisdiction of the arbitral tribunal must be
made in a timely manner. Article 16(3) then provides as follows:-
“The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article
either as a preliminary question or in an award on the merits. If the arbitral tribunal
rules as a preliminary question that it has jurisdiction, any party may request,
within thirty days after having received notice of that ruling, the court specified in
Article 6 to decide the matter, which decision shall be subject to no appeal; while
such a request is pending, the arbitral tribunal may continue the arbitral
proceedings and make an award.”
73.       In the arbitration between the claimant and the respondent, the respondent did challenge
the jurisdiction of the arbitrator to deal with certain parts of the claimant’s claims having
regard to clause 12(b) of the subcontract and clause 12.2 of the main contract and the
terms of the notice to refer. It did so in its statement of defence (having previously
adverted to the jurisdiction issue in earlier submissions) as one of a number of
preliminary defences advanced by it. The arbitrator received submissions on the issue of
jurisdiction and conducted a hearing on the issue before giving her decision on jurisdiction
in the March, 2018 ruling. She ruled that she had jurisdiction in relation to the contested
issues. The respondent has brought this application under Article 16(3) contending that
the arbitrator was incorrect in so ruling and asking the court to “decide the matter” under
Article 16(3) by concluding that the arbitrator does not have jurisdiction in relation to the
contested issues.
Standard of Review
74.       There was some debate between the parties as to the standard review the court should
adopt in carrying out its function under Article 16(3) of the Model law and, in particular,
whether the court should adopt what has been termed a “full judicial consideration” of the
matter” (i.e. the question of jurisdiction) or whether it should consider that question on a
prima facie basis”. Ultimately, the claimant accepted the respondent’s contention that
the court has to decide the jurisdiction question on the basis of a “full judicial
consideration” of that question. That is undoubtedly correct. I have no hesitation in
concluding that the approach which the court must take when deciding on the question of
jurisdiction under Article 16(3) is to engage in a “full judicial consideration” of the
question. In my view, this follows from the requirement imposed on the court under
Article 16(3) to “decide the matter”. It should be borne in mind that the court is not in
fact carrying out a “review” of the decision or ruling of the arbitrator on the issue of
jurisdiction or hearing an “appeal” from that decision or ruling.
75.       It is now well established that the “full judicial consideration” standard is the standard
which must be applied by the court in determining whether an arbitration agreement
exists between the parties for the purposes of an application for a reference to arbitration
under Article 8(1) of the Model Law (see: Lisheen Mine v. Mullock & Sons (Shipbrokers)
Limited [2015] IEHC 50; Sterimed Technologies International Limited v. Schivo Precision
[2017] IEHC 35; Kellys of Fantane Limited v. Bowen Construction Limited & Anor.
[2017] IEHC 357; and K.& J. Townmore Construction Limited v. Kildare & Wicklow Education and
Training Board [2019] IEHC 666).
76.       In his judgment in Barnmore Demolition and Civil Engineering Limited v. Allendale
Logistics Limited & Ors. [2013] 1 I.R. 690, Feeney J. was dealing with a similar issue,
namely, whether an arbitration agreement was in existence between the parties for the
purpose of an application to refer the parties to arbitration under Article 8(1) of the Model
Law. He was faced with the competing lines of authority as to whether the court should
consider that issue on the basis of “full judicial consideration” or whether it should do so
on a “prima facie basis”. Feeney J. ultimately did not have to decide as to which approach
should be adopted as he was satisfied that on either standard there was no arbitration
agreement between the parties. However, among the authorities he considered was the
leading textbook in the area of international commercial arbitration, Gary Born
“International Commercial Arbitration (1st Ed., Kluwer Law International, (2009)) which
provided express support for the application of the “full judicial consideration” approach in
the context of the consideration of an objection to the jurisdiction of an arbitrator. Born
stated as follows: –
“When a party seeks an interlocutory judicial determination of jurisdictional
objections, prior to any arbitral award on the subject, there is uncertainty regarding
the standard of judicial review that should be applied by court under the Model
Law. As discussed below, the text of the Model Law, and many judicial authorities,
strongly suggest that full judicial review of the jurisdictional objection is
appropriate, at least in some circumstances. In contrast, as also discussed below,
some judicial authority, and some aspects of the Model Law’s drafting history,
suggest that only prima facie interlocutory judicial consideration is ever
appropriate”. (Chapter 6, p. 881, quoted by Feeney J. at 696).
77.       Born’s preference was clearly for the application of the “full judicial consideration”
approach in the context of the consideration by a court of a challenge to the jurisdiction of
the arbitrator.
78.       Laffoy J. in the High Court in John G. Burns Limited v. Grange Construction and Roofing
Company Limited [2013] 1 I.R. 707 expressed a similar view. Without definitively
deciding the point, Laffoy J. was dealing with an application pursuant to Article 16(3) of
the Model Law for the court to decide whether or not an arbitrator had jurisdiction to act
in a particular arbitration. The assertion by the applicant in that case was that there was
no jurisdiction to nominate an arbitrator and that no arbitration agreement existed
between the parties as none was agreed. The arbitrator had ruled as a preliminary
question that he had jurisdiction to act as arbitrator. The applicant then applied to the
court under Article 16(3) for the court to decide that issue. Laffoy J. decided that the
arbitrator did not have jurisdiction to act in the arbitration.
79.       In the course of her judgment, Laffoy J. had to consider the function of the court under
Article 16(3). Having noted that its function was “to decide the matter”, Laffoy J. assumed
that in doing so “the standard to be applied by the Court is the normal standard in
determining matters in civil cases, on the balance of probabilities” although she did not
definitively decide that issue (per Laffoy J. at para. 24, p. 723).
She then stated as follows:-
“. . . counsel for the respondent pointed to the fact that the Court’s jurisdiction is
‘to decide the matter’, acknowledging that the process is not an appeal from the
decision of [the arbitrator]. He acknowledged that the Court may consider such
evidence as it sees fit and is not bound by the submissions made to [the
arbitrator]. In other words, the Court has untrammelled jurisdiction to consider de
novo the issue whether there is an arbitration agreement which binds the parties”.
(Per Laffoy J. at para. 24 at p. 723).
80.       That is the approach that Laffoy J. took in Burns. She ultimately concluded that there was
no arbitration agreement between the parties and, therefore, there was no jurisdiction to
appoint the arbitrator.
81.       Although Laffoy J. did not definitively decide the issue in Burns and although, in the
passage quoted above, she was recording the submission of counsel for one of the
parties, the description given by Laffoy J. to the function of the court under Article 16(3)
of the Model Law in the passage quoted above, was subsequently found to be correct by
the High Court (McGovern J.) in Mayo County Council v. Joe Reilly Plant Hire Limited
[2015] IEHC 544. In that case, McGovern J. recorded Laffoy J. as having held that in an
application brought under Article 16(3):-
“, … the court may consider such evidence as it sees fit and is not bound by the
submissions made to the arbitrator. I accept that as being the correct approach.”
(Per McGovern J. at para. 11).
82.       In that case, the arbitrator had embarked upon a preliminary hearing as to whether or
not he had jurisdiction in the arbitration. The arbitrator concluded that he did have
jurisdiction. The applicant applied to the court under Article 16(3) of the Model Law and
asked the court to decide that the arbitrator did not have jurisdiction in the arbitration.
Although McGovern J. stated that the courts would be “very slow to interfere with the
arbitrator’s ruling on his own jurisdiction” (para. 13), he went on to state that an
application under Article 16(3) is a “challenge to the arbitrator’s jurisdiction” and “not an
appeal against his construction of the agreement” (para. 14). He continued: –
“What this court has to decide is whether he had jurisdiction to hear the preliminary
issue, or whether the arbitration clause giving him that power was spent. If he has
jurisdiction, then it is a matter for him as to how he construes the agreement. In
this case, there is no challenge to the arbitration clause. The court therefore has to
decide whether or not the arbitrator was correct in law in holding that he had
jurisdiction to commence the hearing and rule on his own jurisdiction including any
objections with respect to the existence or validity of the arbitration agreement”.
(Per McGovern J. at para. 14).
83.       McGovern J. held that the arbitrator did have jurisdiction and was competent to rule on
the preliminary issues before him and that it was: –
“ . . for the arbitrator and not this Court to determine the issues before him”.
(Per McGovern J. at para. 15).
84.       There was some debate between the parties as to the effect and application of these dicta
of McGovern J. in the Mayo County Council case. The respondent felt that these dicta
downplayed the role of the court under Article 16(3). The claimant felt that, if read
literally, the dicta might be difficult to reconcile with the obligation of the court under
Article 16(3) to “decide the matter”. The claimant felt the Mayo County Council case was
concerned with quite specific and distinct facts which may have made those dicta
appropriate in that case. I am inclined to agree. In my view, it is clear from Article 16(3)
that the role of the court is to “decide the matter”. When dealing with an application in
relation to jurisdiction under Article 16(3), the court is not conducting an appeal from the
decision or ruling of the arbitrator, or a review of that decision or ruling. The court is
deciding the question of jurisdiction. Further, in performing its function under Article
16(3), the court must carry out a “full judicial consideration” of the question of
jurisdiction and not consider that question on a mere “prima facie basis”. I agree with the
assumption made by Laffoy J. in Burns that in carrying out that function, the court must
apply the normal civil standard, namely, to decide the issue of jurisdiction on the balance
of probabilities. I also agree with McGovern J. in Mayo County Council and with the
submission made in Burns, as recorded by Laffoy J., that in carrying out that function, the
court may consider such evidence as it sees fit and is not bound by the submissions made
to the arbitrator or the evidence before him or her. To be clear, in my view, no matter
how eminent or distinguished the arbitrator, the court should not exercise any deference
to the arbitrator or to adopt the position that it should be slow to interfere with the
arbitrator’s decision on jurisdiction. In my view, the court has an untrammelled power to
consider the question of jurisdiction without reference to any question of deference. The
absence of any requirement to show deference to the decision of the arbitrator on
jurisdiction is, I believe, consistent with the decision of the Supreme Court in Galway City
Council v. Samuel Kingston Construction Limited [2010] 3 IR 95 (see para. in particular,
per O’Donnell J at paras 34-35, pp 110-111).
85.       The fact that the application in relation to jurisdiction under Article 16(3) is a full
rehearing and not an appeal or a review and without any question of deference, is also, I
believe, consistent with the approach taken by the Courts of England and Wales under s.
67 of the Arbitration Act, 1996 (the “English 1996 Act”). That section is the section under
which a party to arbitral proceedings may apply to the court to challenge an award of the
arbitral tribunal as to its substantive jurisdiction or for an order declaring that an award
made by the tribunal on the merits is of no effect, in whole or in part, because the
tribunal did not have substantive jurisdiction. Under s. 67(3) of the English 1996 Act, the
court may by order confirm or vary or set aside the award. While there is no express
statement in s. 67 requiring the court to “decide the matter”, as there is in Article 16(3)
of the Model Law, and while there is no express statement as to the nature of the
exercise required to be undertaken by the court under that section, it is well established
that the section entails a “complete rehearing rather than a review”. The authors of
Russell on Arbitration (24th Ed.) (2015) put the position as follows, at para. 8-069:-
“Rehearing rather than a review. A s. 67 hearing is a complete rehearing rather
than a review:-
‘A party who is not submitted to the arbitrator’s jurisdiction is entitled to a
full judicial determination on the evidence of an issue of jurisdiction before
the English Court’.
There is no halfway house between a limited review akin to that which the court
conducts when reviewing the exercise of judicial discretion and a full rehearing.
Section 67 entails the latter. The court should not be put in a worse position than
the arbitrator in determining the issue of substantive jurisdiction. The court’s role is
to confirm that the tribunal reached the right answer, not simply to decide that it
was entitled to reach the decision it did.” (para. 8-069, p. 498) (footnotes omitted).
The dictum quoted in the extract from Russell on Arbitration is from the judgment
of Moore-Bick L.J. in the Dallah case discussed below.
86.       Both parties relied on the approach taken by the UK Supreme Court in Dallah Real Estate
& Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan [2011] 1
AC 763 to illustrate the approach taken by the Courts of England and Wales to a challenge
to the decision of an arbitral tribunal as to its jurisdiction. It should be said, however, that
that case did not involve an application under s. 67 of the English 1996 Act but rather an
application to enforce under s. 101 of the English 1996 Act an arbitration award which
was made under the auspices of the International Chamber of Commerce in Paris under
the provisions of the New York Convention. Leave to enforce the award was granted at
first instance. The defendant applied successfully to set aside the order granting leave.
The English Court of Appeal upheld the judge’s decision and its decision in turn was
affirmed by the UK Supreme Court. The arbitral tribunal had concluded that the defendant
was bound by the relevant agreement to arbitrate and that it, therefore, had jurisdiction
in the arbitration. Of relevance for present purposes is that the English Court of Appeal
and the UK Supreme Court considered the approach which the court should adopt when
considering whether an arbitral tribunal had jurisdiction and, in particular, the weight that
should be afforded to the tribunal’s own decision on jurisdiction.
87.       In the Court of Appeal, Moore-Bick LJ. addressed the contention made by counsel for the
claimants (who were seeking to enforce the award) and stated as follows:-
Moreover, I have to say that I find it difficult to understand exactly what [counsel]
had in mind when submitting that the court should accord deference to the
tribunal’s conclusions, particularly in view of the fact that she asserted that the
principle was flexible in its application. If it meant no more than that the court
should have regard to the tribunal’s reasoning in reaching its own conclusion, I
should have little difficulty with it, since the tribunal’s reasons will almost invariably
be before the court and will carry as much persuasive weight as their cogency gives
them. That is not, however, what I understood her to mean, since it was essential
to her argument that the court should at least accord great weight to the tribunal’s
conclusions unless they are clearly wrong. However, as became clear in the course
of argument, it is impossible to formulate any satisfactory principle that falls
somewhere between a limited review akin to that which the court undertakes when
reviewing the exercise of a judicial discretion and a full re-hearing, not to mention
one that is also capable of flexibility in its application. Moreover, for the court to
defer to the tribunal’s conclusions in the manner suggested by [counsel] when it is
required to decide whether a particular state of affairs has been proved would be to
give the award a status which the proceedings themselves call into question. It is
for similar reasons that our courts have consistently held that proceedings
challenging the jurisdiction of an arbitral tribunal under s. 67 of the Arbitration Act,
1996 involve a full rehearing of the issues and not merely a review of the
arbitrators’ own decision.” (per Moore-Bick LJ. at para. 21, p. 775)
88.       In the UK Supreme Court, Lord Mance stated:-
“30. …The tribunal’s own view of its jurisdiction has no legal or evidential value, when
the issue is whether the tribunal had any legitimate authority in relation to the
Government at all. This is so however full was the evidence before it and however
carefully deliberated was its conclusion. It is also so whatever the composition of
the tribunal – a comment made in view of Dallah’s repeated (but no more attractive
for that) submission that weight should be given to the tribunal’s ‘eminence’, ‘high
standing and great experience’ …
31. This is not to say that a court seised of an issue under [the relevant provisions of
the New York Convention and the English 1996 Act] will not examine, both carefully
and with interest, the reasoning and conclusion of an arbitral tribunal which has
undertaken a similar examination. Courts welcome useful assistance…” (per. Lord
Mance at paras. 30 and 31, p. 813)
89.       Lord Mance approved of the summary of the correct position set out in the defendant’s
written submission in the case, namely, that:-
In making its determination, the Court may have regard to the reasoning and
findings of the alleged arbitral tribunal, if they are helpful, but it is neither bound
nor restricted by them.” (para. 31, p. 813)
90.       In his judgment, Lord Saville also accepted that summary as being correct. Prior to that,
he stated:-
In my judgment therefore, the starting point cannot be a review of the decision of
the arbitrators that there was an arbitration agreement between the parties. Indeed
no question of a review arises at any stage. The starting point in this case must be
an independent investigation by the court of the question whether the person
challenging the enforcement of the award can prove that he was not a party to the
arbitration agreement under which the award was made. The findings of fact made
by the arbitrators and their view of the law can in no sense bind the court, though
of course the court may find it useful to see how the arbitrators dealt with the
question. Whether the arbitrators had jurisdiction is a matter that in enforcement
proceedings the court must consider for itself.” (per Lord Saville at para. 160, p.
850)
91.       I accept that these observations made by the UK Supreme Court, albeit in the context of
the enforcement of an arbitral award under the New York Convention, accurately describe
the approach which a court should take in “deciding the matter” of jurisdiction under
Article 16(3) of the Model Law and the weight which should be given to the arbitrator’s
decision or ruling on jurisdiction. The court can carefully consider the reasoning and
conclusions of the arbitrator and may find them to be of useful assistance but is not
bound or restricted by those findings. The role of the court under Article 16(3) of the
Model Law is to embark on a full and complete rehearing of the question of jurisdiction
and is required to decide that question itself.
92.       Interestingly, a similar view have been expressed by the courts of Singapore. The High
Court of Singapore expressed the view in Insigma Technology Co. Ltd v. Alstom
Technology Ltd [2008] SGHC 134 that the court’s jurisdiction to decide on the jurisdiction
of an arbitral tribunal is an “original jurisdiction and not an appellate one” on the basis of
the wording of Article 16(3) providing for the court to “decide the matter” of jurisdiction
after the tribunal made a ruling that it had jurisdiction. The court (Judith Prakash J.)
stated that “this is not language implying that the court’s powers to act are of an
appellate nature” (at para. 21).
93.       The Court of Appeal of Singapore confirmed the position both in relation to Article 16(3)
and Article 36(1) (which provides for the grounds for refusing recognition or enforcement
of an arbitral award). In PT First Media TBK v. Astro Nusantara International BV
[2013] SGCA 57, Sundaresh Menon CJ. (delivering the judgment of the court) cited with approval
the decision of the UK Supreme Court in Dallah and, in particular, the judgment of Lord
Mance and, where he stated that the arbitral tribunal’s own view as to its jurisdiction “has
no legal or evidential value… [and] this is so however full was the evidence before it and
however carefully deliberated was its conclusion…” (at para. 30) (quoted by the Chief
Justice at para. 162), and stated:-
“The extracted passage represents the leading statement on the standard of curial
review to be applied under the New York Convention, and there is no reason in
principle for the position under the Model Law to be any different. Significantly, the
jurisprudence of the Singapore courts has also evinced the exercise of de novo
judicial review… We affirm these local authorities. In particular, we also agree with
Lord Mance JSC that the tribunal’s own view of its jurisdiction has no legal or
evidential value before a court that has to determine that question.” (at para. 163)
94.       In summary, therefore, in deciding on an application in relation to jurisdiction under
Article 16(3) of the Model Law, the court is exercising an original and not an appellate
jurisdiction. It is not conducting an appeal or a review but a complete de novo rehearing
on the question of jurisdiction. While the decision or ruling of the arbitral tribunal on the
question of jurisdiction and the reasons for its decision or ruling may be of interest and of
assistance and while the court may have regard to the reasoning and findings of the
arbitral tribunal, if they are helpful, it is not bound or restricted by them. Further, the
court does not afford deference to the arbitrator when exercising its function under Article
16(3) of the Model Law in deciding on the question of jurisdiction. As indicated earlier, the
decision of the Supreme Court in Samuel Kingston makes clear that it is not appropriate
for the court to show deference to the decision of the arbitrator where the issues before
the court were issues of law and that it would “be taking judicial humility to excessive
lengths” (in the words of O’Donnell J.) to afford such deference. While those observations
were made in the context of the pre-2010 Act legislative regime, in my view, they are
equally relevant to the approach the court is required to take in deciding jurisdiction
under Article 16(3) of the Model Law. While I was urged by the claimant to have regard to
the very significant expertise of the arbitrator in the field of dispute resolution in the
construction field, and while that experience was not in any way contested by the
respondent, and while I have no hesitation whatsoever in accepting the undoubted
experience and expertise of the arbitrator, it would not be appropriate for me to afford
any deference to the arbitrator’s decision on jurisdiction or the reasons for that decision
having regard to the function which I am required to exercise under Article 16(3) of the
Model Law, as discussed and considered in the authorities to which I have referred. I will,
therefore, proceed to consider the question of jurisdiction in accordance with the
principles derived from those cases and without exercising any deference to the decision
of the arbitrator or to the reasons given by her for her decision.
Consequences of Termination of Subcontract.
Respondent’s Position on Consequences
95.       The parties made submissions on the consequences of termination of the subcontract
and on the respective rights and entitlements of the claimant following such termination.
The essential contention of the respondent was that on termination of the subcontract,
there was a fundamental alteration of the contractual relationship between the
respondent, as contractor, and the claimant, as subcontractor. This fundamental
alteration occurred as a consequence of the importation into the subcontract, by virtue of
clause 12(b) of the subcontract, of the provisions of clause 12 of that contract and, in
particular, the importation of the provisions of clause 12.2 of the main contract which sets
out the consequences of a default termination. The respondent drew attention, in
particular, to the provisions of clause 12.2.2 of the main contract (as applied and adapted
to the subcontract) which provides that the payment of all sums that may be due from
the contractor is “postponed” on termination of the subcontract and that the contractor
shall not be required to make any further payment to the subcontractor except as
provided in [clause 2.2]”. The respondent then relied on the fact that it determined that
the termination value under clause 12. 2.3 was nil and that the termination amount under
clause 12.2.9 was €768,911.27 with that sum thereby being payable by the claimant to
the respondent under clause 12.2.11. The respondent contended that these provisions of
clause 2.2 of the main contract (as adapted and applied to the subcontract) effected a
substantive change in the contractual relations between the claimant and the respondent
on the termination of the subcontract rather than a mere procedural change. As a
consequence, the respondent contended that on termination of the subcontract, the
claimant can only make a claim for payment under the subcontract in accordance with
clause 12.2 of the main contract (as adapted and applied to the subcontract) and not
under clauses 9, 10 or 11 of the subcontract.
Claimant’s Position on consequences
96.       The claimant’s position is that clause 12.2 effects a procedural rather than a substantive
change to the contractual relationship between it and the respondent. It contended that
the substantive entitlements of the parties (which would inform the determinations made
by the respondent in respect of the termination value and the termination amount) were
to be primarily determined by reference to the contractual entitlements and obligations of
the parties under the provisions of the subcontract. The claimant contended that while its
entitlement to payment under the subcontract is postponed upon the termination of the
subcontract, clause 12.2 provides for the procedural mechanism by which its entitlement
to be paid (or otherwise) is determined albeit that its substantive entitlement to be paid is
governed by the other provisions of the subcontract such as clauses 9, 10 and 11, where
applicable. Clause 12.2 does not create or confer any right or claim to payment which is a
pre-existing right or entitlement under the other relevant provisions of the subcontract, in
the claimant’s submission. The claimant stressed in that regard the references in clauses
12.2.3 and 12.2.9, with regard to the determination of termination value and termination
amount, to the respective entitlement to payment of the subcontractor and the contractor
in accordance with” the subcontract, although no express reference is made to the
relevant provisions of the subcontract conferring the entitlement to payment. The
claimant contended that clause 12.2 is regulating what is to happen on termination and
preserving a right of set off as between the contractor and the subcontractor on the
termination of the subcontract. The claimant, therefore, submitted that where a claim for
additional remuneration is made by a subcontractor, following the termination of the
contract, that claim will necessarily entail a challenge to all determinations whether made
during the currency of the subcontract or following termination which are alleged by the
contractor to have the effect of denying or defeating the subcontractor’s entitlement to
such payment.
White Cedar
97.       Both the respondent and the claimant made reference in the course of their submissions
to the judgment of the High Court (Laffoy J.) in White Cedar Developments Limited v.
Cordil Construction Limited (In Receivership) [2012] IEHC 525 (“White Cedar”). That was
a judgment on an application by the plaintiff for an interlocutory injunction restraining the
presentation and advertising of a petition to wind-up the plaintiff pursuant to s. 213 of the
Companies Act, 1963. The plaintiff was the employer and the defendant was the
contractor under a building contract which incorporated almost identical provisions of the
public works contract as applies to the subcontract at issue in the present case. The
contract was terminated by the plaintiff under the provisions of clause 12.1 of the
contract. A conciliation process, which was in place prior to the termination, continued
after the termination and led to a recommendation that the plaintiff pay a particular sum
to the defendant under the contract. Following termination of the defendant’s obligation
to complete the works, the plaintiff made alternative arrangements for their completion.
The receivers of the plaintiff demanded payment from the defendant on foot of the
recommendation of the conciliator. The demand was expressly stated to be a notice
pursuant to s. 214 of the 1963 Act. In seeking to restrain the presentation and
advertising of a winding up petition by the defendant, the plaintiff contended that there
was no debt due by the plaintiff to the defendant when the demand was served and,
alternatively, that the amount of the demand was less than the amount due to the
plaintiff on a crossclaim.
98.       In the course of her judgment, Laffoy J. considered the provisions of clauses 11 and 12 of
the contract (which are almost identical to those at issue in the present case). As in the
present case, there was no issue in that case as to the entitlement of the plaintiff to
terminate the contract. The court considered the provisions of clause 12.2 dealing with
the consequences of a default termination and referred to the very same provisions that
are at issue in the present case (save that clause 12.8 was not incorporated into the
subcontract in the present case). The court then discussed the provisions of clause 13
which dealt with disputes and their resolution and made provision in the first instances for
conciliation and then for arbitration.
99.       Having analysed those provisions, Laffoy J. concluded that the proper application of the
provisions in the context of the factual position in that case was clear. She held that as
neither party had given notice of dissatisfaction in relation to the recommendation of the
conciliator, the recommendation was conclusive and binding on the parties and the
plaintiff was obliged to comply with it. However, she stated that that obligation was “one
obligation only in the overall scheme of mutual rights and obligations of the parties under
the [contract], all of which continue to apply notwithstanding the fact that one dispute
may be resolved in accordance with Clause 13” (per Laffoy J. at para. 18).
100.       Laffoy J. continued (at para. 18):-
“Secondly, the rights and obligations to which the plaintiff’s termination of the
defendant’s obligation to complete the Works gave rise under Clause 12 provide
that all the defendant is entitled to following termination is the termination value,
as determined in accordance with Clause 12.2.3, and the plaintiff is entitled to set
off against that sum the termination amount as determined in accordance with
Clause 12.2.9. Both determinations are to be carried out by the ‘Employer’s
Representative’. Obviously, in determining the termination value, the Employer’s
Representative would have to factor in the sum which the Conciliator recommended
is to be paid by the plaintiff to the defendant. Thirdly, the termination amount does
not fall to be determined by the Employer’s Representative until the Works have
been completed.”
101.       Laffoy J. noted that it was the plaintiff’s contention that the termination amount likely to
be certified would be well in excess of the termination value so that there would be no
sum due to the defendant from the plaintiff, although it was acknowledged by the plaintiff
that it was a matter for the employer’s representative to determine both termination
value and termination amount (as it is a matter for the respondent under the subcontract
in the present case). Bearing in mind the test to be applied on an application to restrain
the presentation or advertising of a winding up petition, Laffoy J. was satisfied that not
only had the plaintiff disputed the debt in good faith and on substantial grounds but had
done so in a “very convincing manner” (para. 29). Laffoy J. continued:
“Having regard to the provisions of Clause 12.2, of the Building Agreement, until
such time as the termination amount has been determined in accordance with
Clause 12.2.9 whether there is any amount due to the defendant by the plaintiff
cannot be determined. Once the termination amount is determined, if it is less than
the termination value, the defendant will be entitled to demand repayment of the
difference from the plaintiff by delivering an invoice in accordance with Clause
12.2.11 and the plaintiff will then have 15 working days in which to make payment.
In short, the service of the s. 214 demand was premature. It has not been shown
that the plaintiff is indebted to the defendant, and, accordingly, the defendant does
not have standing to present a petition to wind up the plaintiff.” (para. 29).
In those circumstances, the court made an order restraining the defendant from
presenting or advertising the petition to wind up the plaintiff.
102.       While both parties made reference to the judgment in White Cedar and while it may be
the only judgment of the Irish Courts dealing with the provisions of clause 12.2 of the
relevant public works contract (which applied in that case and in the present case), in my
view, it does not advance the position of either party in this case. All that Laffoy J. was
deciding was that until the procedures provided for under clause 12.2 in relation to the
determination of the termination value and the termination amount were concluded, it
was not possible to determine whether any sum would be due by the plaintiff to the
defendant or vice versa. In those circumstances, the service of a statutory demand under
the 1963 Act and any attempted presentation or advertisement of a petition would be
premature and inappropriate. Therefore, Laffoy J. was in a position to apply the well-
established case law that where a debt is disputed in good faith and on substantial
grounds, it would be an abuse to proceed with the presentation or advertising of a
winding up petition.
103.       The judgment in White Cedar does not, nor was it intended to, determine the question as
to whether the provisions of clause 12.2 of the public works contract effected a
fundamental and substantive alteration in the contractual relationship of the parties in
terms of the entitlement or otherwise to payment of either party to the contract or
whether it merely affected a procedural change in terms of regulating the procedure by
which the parties’ respective entitlements and obligations under the relevant contract
were to be addressed following the termination of the relevant contract.
Wren
104.       Another authority referred to by both parties was Thomas Wren Public Works in Ireland
Procurement and Contracting” (2014, Clarus Press). Wren provides a commentary on the
provisions of clause 12.2 of the public works form of contract. Both parties sought to rely
on that commentary in support of their respective positions.
105.       At para. 16-85, Wren comments generally on the provisions of clause 12.2. He says as
follows:-
This provision, when read together with clause 12.8, amounts to an exclusive remedies
schema or code as commented by the BLR editors in reporting the decision of the
[English] Court of Appeal in Stocznia Gdynia v. Gearbulk Holdings [[2009] EWCA Civ 75,
[2009] BLR 196]. For the greater part, clause 12.2 is prescriptive in nature. The start-
point is twofold in that it assumes the contractor was in default and that a valid notice of
termination was served by the employer. Where either or both are not contested by the
contractor, the procedure acts to cut in and foreclose on other rights and obligations
contained in numerous other provisions of the GCCC major forms, clause 11 in
particular.” (para. 16-85, p.683)(footnotes omitted)
It should be noted, however, that the subcontract in the present case does not incorporate the
provisions of clause 12.8 of the main contract.
106.       In commenting on clause 12.2.2 providing for the postponement of payment, Wren
observes (at para. 16-87) that provision “effectively freezes all further payment of monies
as would otherwise have been due to the contractor pursuant to clause 11, except as
clause 12.2 provides”.
107.       Having commented upon the determinations as to termination value and termination
amount, Wren then observes in relation to clause 12.2.11 (in relation to the settlement of
account under clause 12.2) as follows:-
“Under this provision, the two figures represented by the supplementary terms
‘termination value’ and ‘termination amount’ as determined by the ER form the
basis for a final settlement of account as between the parties. Under the exclusive
code which clause 12.2 provides, the employer is entitled to recover the
termination amount from the contractor. If the sum so certified by the ER is less
than the termination value, then the former is deducted by way of contractual
setoff and any remaining balance on the termination value shall be due to the
contractor, subject to the contractor raising an invoice for the balance. In this
respect, the two-stage payment mechanism in clause 11 is maintained, with the
employer having 15 working days to pay the amount of the invoice.” (para. 16-101,
pp. 689-690) (footnotes omitted).
108.       Again, it seems to me, that these passages from Wren do not conclusively determine the
issue as to whether clause 12.2 fundamentally and substantively alters the contractual
relationship between the contractor and the subcontractor or whether merely affects a
procedural change regulating the entitlement to payment in accordance with the
provisions of clause 12.2. However, in my view, it is unnecessary for me to resolve that
issue in determining the question of the arbitrator’s jurisdiction in this arbitration. It
would, I believe, be inappropriate for me to express a concluded view on this issue since I
have concluded that the arbitrator does have jurisdiction in relation to the claims and it
would, therefore, be wrong for me to express any concluded view as to whether clause
12.2 of the main contract (applied to the subcontract in the present case) constitutes a
complete separate code which fundamentally and substantively alters the contractual
relationship between a contractor and a subcontractor or whether it merely sets out the
procedural mechanism by which the parties’ rights and entitlements to additional
payments under the contract are to be regulated following the termination of the
contract. That is a matter which ultimately may well have to be determined by the
arbitrator and I will refrain, therefore, from expressing any concluded view on the issue.
However, I should make clear that even if I were to assume that the respondent is correct
in its contention that there is such a fundamental and substantive alteration in the
contractual relationship between the parties, I would have still reached the same decision
which I have reached in terms of the arbitrator’s jurisdiction.
Detailed Consideration of Jurisdiction Issue
109.       I now move to consider the substance of the dispute between the parties on the question
of jurisdiction. This will involve a consideration of the legal principles applicable to the
construction of a notice referring a dispute to arbitration and of the principles to be
applied by a court in determining whether a particular dispute has been referred to
arbitration. In doing so, it will be necessary for me to consider two separate but
inextricably related strands or principles of law which have been considered quite
extensively by the Courts of England and Wales.
110.       It is, I believe, necessary for me to summarise in relatively brief terms the respective
contentions of the parties on the question of jurisdiction. I will set out at this point in
relatively general, albeit brief, terms, the respective contentions of the parties. I will,
where appropriate, consider further and in more detail those respective contentions when
addressing the applicable legal principles.
Respondent’s Position on Jurisdiction
111.       In broad terms, it is the respondent’s position that the only dispute referred to arbitration
on foot of the notice to refer is the dispute arising from the making by the claimant of the
9th March, 2011 claim and from the rejection of that claim by the respondent in the 23rd
March, 2011 rejection. The respondent contended that no dispute has been referred to
arbitration concerning the validity or otherwise of the respondent’s determinations as to
termination value or termination amount or concerning any claim by the claimant for
payment under clause 12 of the subcontract. While the respondent accepted that a
dispute concerning the validity of the determinations as to termination value or
termination amount or as to any claim for additional payment under clause 12 could have
been referred to arbitration under the provisions of clause 13(a) of the subcontract, it was
the respondent’s contention that no such dispute in respect of those issues was in fact
referred. The respondent further contended that while any defence which might be open
to it to raise by way of defence in response to the claim referred (including the
determinations made by it under clause 12.2 as to termination value and termination
amount) would be encompassed within the scope of the dispute referred to arbitration as
this would be a matter of procedural fairness to the respondent. The respondent did not
accept that any response which the claimant might have or wish to advance in respect of
any such defence or defences is also within the scope of the reference. The respondent
submitted that if it were open to the claimant to rely on any such response or responses
to any defence or defences which the respondent may wish to raise to the claimant’s
claim, it would mean that it would never be possible to raise a jurisdiction objection
before an arbitrator and any such objection would always be capable of being overcome.
112.       The respondent contended that it was not open to the arbitrator, and is not open to the
court, to have regard to correspondence between the parties, such as the Hussey Fraser
letters of 13th November, 2014 and 19th December, 2014 or the Maples letter of 1st
December, 2014 in construing the notice to refer and, in particular, in determining the
scope of the dispute referred to arbitration on foot of that notice. In the alternative, the
respondent contended that if it were open to the arbitrator, and is open to the court, to
have regard to that correspondence, notwithstanding that it is not expressly referred to in
the notice to refer, in construing or interpreting the notice and the scope of the dispute
referred to arbitration, that correspondence does not support the contention that the
claimant had put in issue the validity of the respondent’s determinations as to termination
value or termination amount or its entitlement to additional payment under the provisions
of clause 12.2 of the subcontract. In addition, the respondent also relied on clause 13(a)
of the subcontract itself which requires that the notice to refer “state the issues in
dispute” and contended that the notice to refer does not state any issue in relation to
clause 12 or in relation to the respondent’s determinations as to termination value or
termination amount under clause 12.2.
Claimant’s Position on Jurisdiction
113.       The claimant’s position can be briefly explained in general terms. The claimant contended
that it is necessary to construe the notice to refer by reference to the state of affairs
which existed as of the date of the notice. It maintained that the arbitrator was, and the
court is, required to construe the notice in light of the background factual matrix which
would include the 9th March, 2011 claim and the 23rd March, 2011 rejection as well as
the subsequent correspondence between the parties following the termination of the
subcontract including the respondent’s determinations as to termination value or
termination amount and the Hussey Fraser letters of 13th November, 2014 and 19th
December, 2014 and the Maples letter of 1st December, 2014 as well as the
correspondence in connection with the bondsman proceedings. While asserting that the
notice must be construed in light of this factual background matrix, the claimant
contended that, although its claim is as set out in the 9th March, 2011 claim, nonetheless
the correspondence demonstrates that as of the date of the notice to refer in March,
2015, the claimant had taken issue with the respondent’s determinations as to
termination value and termination amount and that, therefore, the validity of those
determinations and the entitlement of the claimant to additional payment, whether under
clause 12 of the subcontract or otherwise, was within the scope of the dispute referred to
arbitration by the notice to refer. The claimant made the further point that since it is
accepted that the respondent is entitled to rely on clause 12 and on its determinations as
to termination value and termination amount in defence of the claimant’s claim, the
dispute referred must, therefore, include those defences and any response which the
claimant may have to them. While accepting that the notice to refer makes no express
reference to clause 12 of the subcontract or to any challenge to the validity of the
determinations made by the respondent as to termination value and termination amount,
the claimant contended that it was not necessary to refer expressly to those issues in the
notice to refer as it was clear from the factual background matrix, including the
correspondence between the parties, that as of the date of the notice to refer, a dispute
had arisen between the parties in relation to these various issues.
114.       Although it was accepted by the claimant that it was necessary for it to seek to amend its
statement of case, in order to deal with the points raised by the respondent in its
statement of defence, including the defences and jurisdiction objections raised by the
respondent in reliance on clause 12.2 and on the determinations which the respondent
had made thereunder, it maintained that that gave rise to a pleading point rather than a
jurisdictional point and that it was open to the arbitrator to permit the claimant to amend
its statement of case to include a challenge to those determinations and otherwise to deal
with the points sought to be raised by the way of defence in reliance on clause 12.2.
Finally, and by way of a fallback position, the claimant sought to rely, in particular, on the
provisions of clause 5.2 of the 2000 Procedure which was expressly incorporated into the
subcontract by clause 13(c)(2). The claimant contended that the arbitrator had
jurisdiction over issues in relation to clause 12.2 and the validity of the determinations as
to termination value and termination amount in that those issues were “connected with
and necessary to the determination of any dispute or difference already referred to [the
arbitrator] whether or not any condition precedent to referring the matter to arbitration
had been complied with”. The claimant also sought to rely on certain other provisions of
the 2000 Procedure (including clause 2.1 and clause 2.3). In response, the respondent
did not accept that the 2000 Procedure was of any assistance to the claimant in light of
what it regarded as the clear terms of the notice to refer and that while all defences to
the claim actually made and referred would travel with the referred claim and be within
the jurisdiction of the arbitrator, additional claims intended to overcome or defeat those
defences would not.
115.       Broadly speaking, those are the respective contentions of the parties on the jurisdiction
question. To resolve this issue, it is necessary to refer to some statements of the relevant
legal principles applicable to the construction of notices to refer and to the ascertainment
of the scope or ambit of a dispute referred to arbitration.
Construction of Notice to Refer: Legal Principles
116.       The proper approach to be taken to the construction of a notice to refer a dispute or
disputes to arbitration has been the subject of much discussion and consideration in
leading academic texts and in judgments of the Courts of England and Wales. I will
consider in this part of my judgment some of those texts and cases. While I have not
referred to all of the cases open to me, as to do so would be unnecessary, I have
considered all of the relevant cases in forming the views expressed in this judgment.
117.       In Russell on Arbitration (24th Ed.) (2015), the authors consider the requirements of a
notice to refer to arbitration and the approach to be taken in determining the scope of the
reference. They state as follows:-
“5-027 Identifying matters in dispute. Whilst it is not a requirement of the statute, the
notice of arbitration should identify the matters in dispute and indeed there may be
a contractual requirement to do so. Care should be taken to identify all the matters
in dispute which are to be determined in the arbitration. This is because the tribunal
will have jurisdiction to decide only those matters actually referred, and if there is
doubt about whether a particular matter has been included, a tribunal’s jurisdiction
to deal with it will be open to challenge. Consequently, it is advisable to include in
the notice of arbitration some general wording which embraces all the outstanding
matters in dispute between the parties, as well as specific wording identifying clear
and discreet issues to be decided which can be described in the notice.
5-028 Scope of the reference. Whether a particular matter is within the reference will
be determined as a matter of construction of the notice of arbitration, giving the
words used their natural meaning in the context in which they were used and
applying an objective test. The scope of matters that can be referred will normally
be constrained by the scope of the agreement to arbitrate, although the parties
may agree that the reference should be broader and can agree an ad hoc
submission of issues enlarging the scope of the tribunal’s jurisdiction beyond their
original agreement to arbitrate. The scope of the reference may include both claims
by a claimant and counterclaims brought by a respondent, which again must be
within the agreement to arbitrate. The factual background to the giving of the
notice and any previous communications between the parties concerning the issues
between them will also be relevant in construing the scope of the reference to
arbitration. If, by the time the notice of arbitration is given, the parties’ previous
communications indicate that it would be natural to expect the reference to include
all the outstanding disputes, that fact may be taken into consideration. The
reference may also include claims arising subsequent to the commencement of the
arbitration if the notice of arbitration demonstrates the parties’ intention to do so.
Provided they are within the scope of the reference, the tribunal has a discretion
whether to permit new claims to be introduced in the course of the arbitration, but
if they are outside the scope of the reference, new claims cannot be entertained
without agreement of the parties.” (pp. 205-206)
118.       In one of the leading Irish texts, Hutchinson Arbitration and ADR in Construction
Disputes” (2010), the author addresses the question of the adequacy of the notice to
refer to arbitration as follows:-
“6-11 In every case, the notice must provide sufficient details so as to identify the dispute
or disputes to which it relates with sufficient particularity. The leading cases
Interbulk Limited v. Ponte DEI SOSPIRI Shipping Co (The “Standard Ardour”)
[1988] 2 Lloyd’s Rep 159, where Saville J. held that the notice must not only
‘require’ the recipient to appoint or concur in the appointment of an arbitrator, but,
further said (emphasis added):-
‘In my view, when the question arises whether an arbitral tribunal constituted
as in the present has jurisdiction to determine a particular dispute or claim it
is necessary to look objectively at what passed between the parties to the
reference, and on that basis to determine whether or not any particular
matter is included in the reference… It is not sufficient for a party privately to
seek to invest his arbitrator with power to determine a particular claim unless
this is also made clear to the other party’
6-12 Thus, it is not possible to defeat the time limits by issuing a ‘general’ notice to refer
in respect of an unknown dispute so as to constitute a valid reference for a dispute
not yet arisen…
6-13 Once sufficient detail has been provided in the notice, however, it is not essential
that it be an exhaustive catalogue of all the issues in dispute in issue between the
parties – further issues can be introduced at a later stage provided they are
founded in the same fact pattern and contractual claim (Panchaud Freres S.A. v.
Etablissements General Grain Co [1970] 1 Lloyd’s Rep 159).”
119.       Both parties referred to and relied upon these passages from Russell and Hutchinson. I
agree that the statements of principle set out in the passages from both texts quoted
above represent the law in this jurisdiction. I should observe, however, that the
respondent submitted that the statement in Hutchinson that further issues could be
introduced in an arbitration after the notice to refer, provided those further issues are
founded in the same fact pattern and contractual claim”, is incorrect and is not
consistent with the decision of the Court of Appeal of England and Wales in Kenya
Railways v. Antares Pte Limited [1987] 1 Lloyd’s Rep 424. The respondent relied in
support of that contention on the emphasis placed in the decision in that case on the
consensual basis of arbitration which undermined the contention by the appellant in that
case, that the court had the power to add or substitute a new party to an existing
arbitration. Having so found (on an issue which arose in the case before it), the Court of
Appeal went on to state (in the judgment of Lloyd L.J.) as follows:-
I have equal difficulty in seeing how the court could order the addition or
substitution of a new cause of action, for the arbitrator’s jurisdiction is confined to
the dispute or disputes which have been referred to him. He has no jurisdiction to
decide disputes which have not been referred to him even though they may arise
out of the same facts or substantially the same facts…. If the new cause of action
falls outside the reference, then, unless the parties agree to refer the new cause of
action, the arbitrator would have no jurisdiction to deal with it.” (per Llyod L.J. at
p.432)
120.       That statement is fine as far as it goes. It does, however, beg the question as to whether
the particular dispute or disputes at issue fell within the scope of the reference made. I do
not myself see how these obiter dicta of Lloyd L.J.in Kenya Railways are inconsistent with
what Hutchinson said in the impugned passage of para. 6-13 of his text. He made clear
that further issues could be introduced after the notice to refer provided they are founded
not only on the same fact pattern but also on the same “contractual claim”. Thus,
Hutchinson was not talking about the introduction of a new cause of action as such but
rather an additional issue or aspect as part of the same contractual claim which has been
referred to arbitration. The case cited by Hutchinson in support of the principle referred to
by him in the passage, criticized by the respondent in the present case is the decision of
the Court of Appeal of England and Wales in Panchaud Fréres S.A. v. Établissements
General Grain Company [1970] 1 Lloyd’s Rep 159. In that case the court held that
original claim made within time was that there was entitlement on the part of the buyers
to reject a shipment of goods on the basis that the goods did not conform to the
contractual description. That claim was made within the contractual time for the
arbitration. However, the buyers sought to make an additional claim (outside the relevant
contractual time limit) to the effect that they were entitled to reject the goods for late
shipment. The Court of Appeal held (obiter) that the claim to reject for late shipment was
a different claim to the claim to reject the goods as not being within the contractual
description. They were, therefore, different contractual claims. I do not, therefore, agree
that the statement of principle in Hutchinson is incorrect. However, it should be said that
not a great deal turns on that point for the purposes of my ultimate conclusion on the
issues in this case.
121.       Both parties relied on the judgment of Saville J. in Interbulk Limited v. Ponte dei sospri
Shipping Co (The “Standard Ardour”) [1988] 2 Lloyd’s Rep 159. In that case, the court
held that the particular reference to arbitration at issue in the case referred a claim to
arbitration but did not refer a counterclaim. The judgment is important for present
purposes in that Saville J. identified the test to be applied in determining whether a
particular dispute or claim has been referred to arbitration. He said as follows:-
“In my view, when the question arises whether an arbitral tribunal constituted as in
the present case has jurisdiction to determine a particular dispute or claim it is
necessary to look objectively at what passed between the parties to the reference,
and on that basis to determine whether or not any particular matter is included in
the reference. This seems to me to be the approach of Mr. Justice Neill in The World
Ares [1984] 2 Lloyd’s Rep 481 and one which I adopt. It is not sufficient for a party
privately to seek to invest his arbitrator with power to determine a particular claim
unless this is also made clear to the other party. That was not done in the present
case.” (p.162)
122.       I agree that this is the approach to be taken in interpreting the notice to refer in the
present case. It will be necessary for me to look objectively at what passed between the
claimant and the respondent and, on that basis, to determine whether issues in relation
to clause 12 of the main contract as applied to the subcontract and issue concerning the
validity of the determinations made by the respondent in relation to termination value
and termination amount were included in the reference.
123.       The claimant contended that adopting this approach entitles the court to look at the
background to or factual matrix in relation to the reference to arbitration. The respondent
did not accept that the court should look at the factual background or matrix unless the
description of the dispute being referred in the notice to refer is ambiguous. In any event,
it contended that even if the court can look at the factual background or matrix, it does
not support the construction of the notice to refer urged on the court by the claimant. In
my view, it is appropriate for the court to look at the factual background or matrix leading
up to the notice to refer and it is not necessary to establish an ambiguity in the language
used in the notice to refer before regard can be had to that background or matrix.
124.       That conclusion is, I believe, supported by another judgment to which both parties
referred, Lesser Design & Build Limited v. University of Surrey (1991) 56 BLR 57. In that
case, Hirst J. had to construe a reference to arbitration in circumstances where the
respondent to the arbitration challenged the jurisdiction of the arbitrator to determine
certain matters which it claimed had not been referred to arbitration. The court,
therefore, had to construe the reference to arbitration. Hirst J. noted that:-
“It is common ground that the matter must be decided on the normal rules of
construction, i.e. giving the words their natural meaning in their context, and
applying an objective test.” (at p. 67)
125.       This is similar to what Saville J. had said in The “Standard Ardour”. In approaching the
exercise of construction, Hirst J. looked at the background or matrix and, in particular,
the correspondence passing between the parties prior to the reference to arbitration. Hirst
J. observed that in reaching his conclusions on the scope of the reference, it was
“convenient first to consider the probabilities in the light of the background or matrix” (p.
71). He concluded that “the background or matrix strongly supports [the claimant’s]
submission on the inherent probabilities” (p. 72). The court then analysed the terms of
the reference letter and concluded that the arbitrator had jurisdiction in respect of the
disputed issues.
126.       In a commentary on the judgment by the editors of the Building Law Reports, a number
of useful observations can be identified. In commenting on the judgment, the editors
observed:-
“…It is clear from the approach adopted by Hirst J. that a court will not approach
the construction of a letter referring certain matters to arbitration as if it were a
statute. It is to be considered in the light of the claims which the parties have made
during the course of the contract and the differences which existed between them.
Hirst J. attached considerable importance to the factual matrix within which the
[reference letter] had been written…” (p. 59)
It should be noted, however, that the editors felt that the judge may have placed a little
too much emphasis on the desires of the contractor to include all outstanding issues
within the scope of the arbitration.
127.       I agree with the two important points made by the editors in their commentary. First, I
agree that the court should not construe the notice to refer as if it were a statute and
should not approach the construction of the notice in an excessively legalistic fashion.
This point was also strongly made in Cantillon Limited v. Urvasco Limited [2008] EWHC
282 (TCC) to which I will refer later. Second, it is open to a court in construing a
reference to arbitration to consider the factual matrix in respect of the reference. The
outcome of Lesser Design indicates that recourse to the factual matrix can be of
considerable assistance in determining the scope of the dispute referred.
128.       A similar point was made by Judge Lloyd QC in KNS Industrial Services (Birmingham)
Limited v. S Limited [2000] All ER (D) 1153 (an adjudication case). Judge Lloyd QC
commented as follows:-
When the jurisdiction of a person appointed to make a decision under a contract
(such as an adjudicator) is called into question, it is always necessary to ascertain
with precision what the decision-maker was authorised to do. The events leading up
to [the notice to refer] have to be examined in order to understand what dispute
the adjudicator was appointed to resolve.” (para. 14).
The court adopted the approach taken by Judge Thornton QC in Fastrack Contractors
Limited v Morrison Construction Limited [2000] 75 Con LR 33 where (again in the context
of an adjudication) the judge stated that it is generally a question of fact as to what is in
dispute between the parties and the dispute is “whatever claims, heads of claims, issues
or contentions or causes of action that are then in dispute which the referring party has
chosen to crystallise into an adjudication reference.”. Judge Thornton QC then stated:-
A vital and necessary question to be answered, when a jurisdictional challenge is
mounted, is: what was actually referred? That requires a careful characterisation of
the dispute referred to be made. This exercise will not necessarily be determined
solely by the wording of the notice of adjudication since this document, like any
commercial document having contractual force, must be construed against the
background from which it springs and which will be known to both parties.” (para.
20)
129.       While KNS and Fastrack were both adjudication cases, and while there are undoubtedly
differences between arbitration and adjudication (which takes place in a particular
statutory context in England and Wales), in my view, the observations made by both
judges have equal force in the case of a reference to arbitration. The reference must, in
my view, be construed against the background from which it emerges which is of course
known by both parties.
Scope of Dispute: Legal Principle
130.       I was referred to several further decisions of the Courts of England and Wales on the
approach which should be taken by a court to ascertain the ambit or scope of a dispute
referred to arbitration. There is a vast number of cases on this issue and it is unnecessary
to refer to them all. However, two further points clearly emerge from these cases.
131.       First, the point in time on which the court must focus in determining the ambit or scope of
a dispute referred to arbitration is the date of the commencement of the arbitration
process which will generally be the date of the reference to arbitration. That is clear from
several of the cases to which I have referred including Fastrack and Allied P&L Limited v.
Paradigm Housing Group Limited [2009] EWHC 2890. As noted earlier, in Fastrack Judge
Thornton QC observed that:-
“…The ‘dispute’ is whatever claims, head of claim, issues, contentions or cause of
action that are then in dispute which the referring party has chosen to crystallise
into an adjudication reference” (para. 20)
132.       In Allied P&L (an adjudication case), Akenhead J. noted that it was necessary for the court
to “analyse what if any dispute has been referred at the time that the procedure to refer,
laid down in the contract or by statute, is initiated” (para. 29(c)).
133.       I agree with these statements of principle. The scope or ambit of the dispute referred by
the claimant to arbitration must be determined by reference to the state of affairs
between the parties at the date of the notice to refer, 15th March, 2015.
134.       The second important point which emerges from the English cases is that it is generally
unnecessary to specify in the document referring the dispute to arbitration the particular
defences or responses which the other party has advanced or wishes to advance in
opposition to the claim being made. As observed by Judge Lloyd QC in KNS:-
“A party to a dispute who identifies the dispute in simple or general terms has to
accept that any ground that exists which might justify the action complained of is
comprehended within the dispute for which adjudication is sought.” (para. 21)
135.       In Cantillon (an adjudication case), Akenhead J. said:-
It is, I believe, accepted by both parties, correctly in my view, that whatever
dispute is referred to the Adjudicator, it includes and allows for any ground open to
the responding party which would amount in law or in fact to a defence of the claim
with which it is dealing. Authority for that proposition includes KNS…” (para. 54)
136.       Akenhead J. continued:-
“There has been substantial authority, both in arbitration and adjudication, about what
the meaning of the expression ‘dispute’ is and what disputes or differences may arise on
the facts of any given case. Cases such as Amec Civil Engineering Limited v. Secretary of
State for Transport [2005] EWCA Civ 291, [2005] 1 WLR 2339… and Collins (Contractors)
Ltd v. Baltic Quay Management (1994) Limited [2004] EWCA Civ 1757, 99 Con LR 1…
address how and when a dispute can arise. I draw from such cases as those the following
propositions:
(a) Courts (and indeed adjudicators and arbitrators) should not adopt an over legalistic
analysis of what the dispute between the parties is.
(b) One does need to determine in broad terms what the disputed claim or assertion
(being referred to adjudication or arbitration as the case may be) is.
(c) One cannot say that the disputed claim or assertion is necessarily defined or
limited by the evidence or arguments submitted by either party to each other
before the referral to adjudication or arbitration.
(d) The ambit of the reference to arbitration or adjudication may unavoidably be
widened by the nature of the defence or defences put forward by the defending
party in adjudication or arbitration.” (para. 55)
137.       Akenhead J. continued:-
“In my view, one should look at the essential claim which has been made and the
fact that it has been challenged as opposed to the precise grounds upon which that
it has been rejected or not accepted. Thus, it is open to any defendant to raise any
defence to the claim when it is referred to adjudication or arbitration. Similarly, the
claiming party is not limited to the arguments, contentions and evidence put
forward by it before the dispute crystallised. The adjudicator or arbitrator must then
resolve the referred dispute, which is essentially the challenged claim or assertion
but can consider any argument, evidence or other material for or against the
disputed claim or assertion in resolving that dispute.” (para. 55)
138.       In my view, these are significant observations by Akenhead J. as they are expressly
stated to refer not just to adjudication cases but also to cases involving arbitrations. The
judge was careful to expressly apply the statements of principle to arbitrations. The judge
also made clear that it would not be appropriate for a court to analyse the ambit or scope
of a dispute referred to arbitration in an overly legalistic manner. He also made the point
that not only was it open to a respondent to raise any defence to the claim which has
been referred to arbitration but also that the claimant was not limited to arguments,
contentions and evidence put forward by it before the dispute crystallised by the
reference to arbitration and that the arbitrator was entitled to consider “any argument,
evidence or other material for or against the disputed claim or assertion in resolving that
dispute”. I accept and agree with those statements of principle. In my view, they also
reflect the position in this jurisdiction.
139.       Furthermore, as the respondent in the present case correctly maintained, procedural
fairness requires that a respondent should be entitled to raise any point or argument by
way of defence or response to the claim. This is particularly so, but not exclusively the
case, where the respondent has not had any input into the preparation of the reference.
However, it seems to me that procedural fairness requires more than that. It also requires
that a claimant who is faced with a point or argument raised by a respondent in response
to the claim should be entitled to deal with that point or argument and should not be
precluded from doing so or hamstrung in its response, provided that such response
directly arises from the defence advanced by the respondent and concerns an issue which
falls within the scope of the arbitration agreement and could have been referred to
arbitration at the outset. In my view, this is a fundamental requirement of procedural
fairness for a claimant.
140.       Akenhead J. returned to this theme in Allied P&L (an adjudication case), where having set
out some further statements of principle, he reiterated what he had said earlier that the
court should not adopt an “overly legalistic analysis” of what the dispute between the
parties is and should instead “determine in broad terms what the disputed claim,
assertion or position is” (para. 30(c)). He continued:-
“It follows from the above that if a basic claim, assertion or position has been put
forward by one party and the other disputes it, the dispute referred to adjudication
will or may include claims for relief which are consequential upon and incidental to
it and which enable the dispute effectively to be resolved…” (para. 30(d))
141.       It seems to me that these observations apply equally in an arbitration context and I do
not accept the argument advanced on behalf of the respondent that they must be
confined to adjudication in the context of the particular statutory scheme applicable to
that procedure in England and Wales. As I pointed out earlier, Akenhead J. made clear
that the statements of principle which he was setting out applied equally to arbitration.
142.       The main reason why the respondent contended that the principles set out in these
English cases had to be seen in their proper context, being cases involving adjudication
under a particular statutory regime is that the governing statute precluded a multiplicity
of disputes being referred to adjudication. It is possible under that regime only to refer a
single dispute to adjudication. The respondent contended that, bearing that context in
mind, the court should be cautious about directly applying the propositions contained in
the adjudication cases to arbitration. The respondent is undoubtedly correct that the
statutory adjudication procedure in England and Wales differs in a number of respects
from arbitration. However, as I observed earlier, many of the propositions seen in the
cases are expressly stated to refer both to adjudication and arbitration. That is why I am
satisfied that the principles and propositions seen in those cases are applicable to
arbitration and correctly represent the position under Irish law.
143.       In that regard Akenhead J. returned to the issue of the scope of a dispute referred to
adjudication and the adjudicator’s jurisdiction in Whitney Town Council v. Beam
Construction (Cheltenham) Limited [2011] EWHC 2332 (TCC). In comments expressly
applicable to adjudication and arbitration, Akenhead J. observed that:-
It is almost impossible to give a definition which will work in every case as to what
a dispute is. It will usually involve a claim or assertion which is expressly or by
implication challenged or not accepted. It may be broad or narrow. It may be a one
or a multiple issue dispute.” (para. 32)
144.       Having discussed the particular issue which arises in adjudication (namely, that a single
dispute only may be referred to adjudication), the judge went on to discuss how a dispute
can generate issues and sub issues as it proceeds. He said:-
A particular dispute, somewhat like a snowball rolling downhill gathering snow as it
goes, may attract more issues and nuances as time goes on; the typical example in
a construction contract is the ever increasing dispute about what is due to the
contractor as each monthly valuation and certificate is issued; a later certificate
may accept amounts in issue previously not certified but then reject some more
items of work. One may in the alternative have a dispute, like the proverbial rolling
stone gathering no moss, which remains the same and unaffected by later events…”
(para. 33)
145.       The rolling snowball is a useful metaphor for present purposes as it vividly demonstrates
that many issues or sub issues may arise in the context of a particular dispute which may
arise or develop as time goes on.
146.       Akenhead J. referred to many of the cases which I have just mentioned including
Cantillon and Fastrack and then sought to draw together the various threads of principle
arising in those cases. Having done so, he drew the following conclusions:-
“(i) A dispute arises generally when and in circumstances in which a claim or assertion
is made by one party and expressly or implicitly challenged or not accepted.
(ii) A dispute in existence at one time can in time metamorphose into something
different to that which it was originally.
(iii) A dispute can comprise a single issue or any number of issues within it. However, a
dispute between parties does not necessarily comprise everything which is in issue
between them at the time that one party initiates adjudication; put another way,
everything in issue at that time does not necessarily comprise one dispute,
although it may do so.
(iv) What a dispute in any given case is will be a question of fact albeit that the facts
may require to be interpreted. Courts should not adopt an overly legalistic analysis
of what the dispute between the parties is, bearing in mind that almost every
construction contract is a commercial transaction and parties cannot broadly have
contemplated that every issue between the parties would necessarily have to
attract a separate reference to adjudication.
(v) The Notice of Adjudication and the Referral Notice are not necessarily determinative
of what the true dispute is or as to whether there is more than one dispute. One
looks at them but also at the background facts.
(vi) 
(vii) …” (para. 38)
147.       Leaving aside the issue arising in adjudication under the statutory scheme in England and
Wales and the prohibition on referring more than one dispute to an adjudicator, it seems
to me that the conclusions expressed by Akenhead J. in Whitney are applicable to
arbitration and should be applied in the assessment of whether the respondent is correct
in its contention that issues in relation to clause 12 of the main contract as applied to the
subcontract, including issues concerning the validity of the determinations made by the
respondent as to termination value and termination amount are within the scope of the
reference to arbitration in the present case. I intend to apply those principles and
propositions as well as the others I have identified from the case law.
Summary of Guiding Principles
148.       The following seem to me to be the guiding principles in the construction of a reference to
arbitration and in the ascertainment of the scope or ambit of the dispute referred to
arbitration:-
(1) The words of the notice to refer should not be construed as if they were contained
in a statute. The words used should not be analysed in an over legalistic manner.
(2) The relevant point in time for the purpose of ascertaining the scope of the dispute
referred to is the time of the reference to arbitration itself.
(3) In determining whether a particular dispute or claim has been referred, it is
necessary to look objectively at what has passed between the parties to the
reference up to the date of the reference. The words used must be given their
natural meaning in their context applying an objective test. The court can and
should have regard to the factual background or matrix of fact leading up to the
reference to arbitration.
(4) The focus should be on the essential claim which has been made and the fact that it
has been challenged as opposed to the precise grounds on which the claim has
been rejected or not accepted.
(5) The disputed claim or assertion is not necessarily defined or limited by the evidence
or arguments submitted by either side to each other before the reference to
arbitration.
(6) It is not necessary to set out in a reference to arbitration all of the grounds or
points of defence or response which the respondent may wish to rely upon in
resisting the claim. It is open to a respondent to raise any point or argument by
way of defence to the claim being made in the arbitration notwithstanding that the
point is not referred to in the reference to arbitration. This is a matter of procedural
fairness for a respondent.
(7) Procedural fairness works both ways. If it is open to a respondent to raise any
defence to the claim notwithstanding that it is not referred to in the reference to
arbitration as a matter of procedural fairness, so too should it be open to the
claimant to respond to any such defence sought to be relied upon by the
respondent. That too is a matter of procedural fairness for the claimant. Provided
such response directly arises from the defence raised and concerns an issue which
falls within the scope of the arbitration agreement.
(8) A particular dispute may comprise one issue or several issues. Or there may be
several disputes between the parties. A dispute or disputes may attract more issues
and may become more nuanced as time goes on. In order to identify the dispute or
disputes and the issue or issues arising, it is appropriate to consider the exchanges
between the parties prior to and up to the point of the notice to refer. It is not
necessary for the words used in the notice to refer to be ambiguous before the
arbitrator or a court can consider these exceptions.
(9) The court will also have to consider whether the terms of the contract between the
parties on its proper construction disapplies any principles or propositions.
149.       I will now proceed to apply these principles to the particular facts and circumstances of
this case.
Application of Principles
Findings on Construction of Notice to Refer and Scope of Dispute Referred
150.       There is no dispute between the parties on the relevant facts. I set out earlier the
relevant factual background on the basis of the facts set out in the affidavits sworn by the
parties for the purposes of the respondent’s application.
151.       As the relevant legal principles require, it is necessary to look not only at the notice to
refer itself but also to the factual background or matrix of fact leading up to the date of
the notice to refer, including the correspondence and other interactions between the
parties up to that point in time. While I referred to these exchanges earlier in the
judgment, it is necessary to return to them now in order to ascertain what was referred to
the arbitrator in the notice to refer.
152.       The claimant submitted the 9th March, 2011 claim seeking payment of €13,798,995.00.
That claim sought to recover sums allegedly unpaid from previous applications and also
claimed for an extension of time and additional costs which the claimant alleged had been
incurred as a result of delays to the works under the subcontract which were beyond its
control. Four folders of documents were enclosed with that claim. The 9th March, 2011
claim was rejected by the respondent by means of the 23rd March, 2011 rejection. As
explained earlier, in its rejection letter, the respondent noted that the claim was being
advanced by the claimant more than two years after some of the alleged events occurred.
It was further asserted by the respondent that clause 10(a)(1) of the subcontract
contained a condition precedent which required that notice be given by the claimant
within a particular period of time in circumstances where the claimant considered that it
was entitled to an adjustment to the subcontract sum or that it had any other entitlement
under or in relation to the subcontract. The respondent maintained that the claimant had
not complied with that condition precedent. In those circumstances, the respondent
rejected the 9th March, 2011 claim in its totality.
153.       Thereafter, following the appointment of a receiver to the claimant, the respondent
terminated the subcontract in accordance with clause 12(a) by letter dated 12th April,
2011. As pointed out earlier, the provisions of clause 12.2 of the main contract as applied
to the subcontract then came into effect. The respondent wrote to the claimant on 3rd
June, 2011 informing it that the respondent had determined that the termination value
was nil. The claimant did not respond to that letter and did not, at that stage, expressly
dispute the respondent’s determination as to termination value.
154.       The respondent wrote to the claimant on 21st October, 2011 informing it that the
respondent had determined the termination amount at €768,911.27 and provided a
breakdown of that sum. The respondent demanded the payment of that sum and
informed it that a claim would be made on foot of the performance bond provided by the
claimant. The claimant did not respond to that letter either and did not, at that stage,
expressly dispute the respondent’s determination as to the termination amount.
155.       The respondent then made a claim under the performance bond. The bondsman was
Hiscox. Prior to the determination by the respondent of the termination amount, the
bondsman informed the respondent’s solicitors on 5th October, 2011 that the bondsman
did not accept that the termination value was nil and further stated that the bondsman
would not be bound by any agreement which might be reached with the receiver to the
claimant in that regard. That letter made express reference to a letter from the
respondent’s solicitors to the receiver dated 16th September, 2011 which referred back to
the respondent’s letter of 3rd June, 2011 informing the claimant of the determination of
the termination value and indicated that the respondent was in the process of
determining the termination amount. While the bondsman responded to that letter (which
was copied to it), the receiver to the claimant did not. The respondent proceeded to
determine the termination amount and so informed the claimant in the letter of 21st
October, 2011 (which was copied to the bondsman).
156.       The respondent called on the bondsman to pay the sum of €768,911.27 (being the
termination amount) and advised that additional defects in the subcontract works had
been discovered which had not been taken into account in the determination of the
termination amount. Thereafter, the bondsman appointed Andrew P. Nugent & Associates,
Chartered Quantity Surveyors, to liaise with Anthony Kelly, the claimant’s managing
director, in order to obtain information in relation to the claim and for the purpose of
liaising directly with the respondent and subsequently with the quantity surveyors
appointed by the respondent. The bondsman’s quantity surveyors worked closely with Mr.
Kelly. The respondent had put forward a statement of account which purported to confirm
an overpayment to the claimant of €9,426.94. That claim was challenged by the
bondsman’s quantity surveyors. In a final claim submission dated 3rd October, 2012, the
respondent purported to disallow entirely the sum previously allowed for variations in the
amount of €849,891.20 (including €742,528.79 for variations which were paid by the
respondent on foot of issued payment certificates). The respondent advanced a claim in
that submission for overpayment in the sum of €653,037.29.
157.       There followed further engagement between the respective quantity surveyors for the
bondsman and for the respondent. No agreement was reached in relation to the value of
the claim or as to the amount allegedly due to the respondent by way of set off.
Thereafter, the respondent commenced proceedings against the bondsman in 2013. I was
provided with a set of the pleadings in the bondsman proceedings where, as noted earlier,
the respondent in its statement of claim pleaded the fact of the determination of the
termination value and the termination amount. In its defence to the bondsman
proceedings, the bondsman disputed the determination of the termination value and of
the termination amount. The bondsman expressly pleaded in its defence that the
termination amount determined by the respondent did not take into account all sums
properly due, or which might become due, to the claimant under the subcontract and
contended that the termination amount had not been properly calculated in accordance
with the terms of the agreement. It is clear from my review of the pleadings in the
bondsman proceedings that the bondsman (working with Mr. Kelly of the claimant
company) was disputing that any monies were owing by the claimant to the respondent
and was disputing the determinations made by the respondent under clause 12. In my
view, this is relevant as part of the background or matrix of fact. I accept of course that
these points were being agitated by the bondsman in the proceedings brought against it
rather than, at that point, at least, by the claimant.
158.       That brings me to the correspondence between the claimant’s solicitors and the
respondent’s solicitors in November and December, 2014. This correspondence forms an
important part of the relevant factual matrix. I am satisfied that I am required to have
regard to this correspondence, notwithstanding the respondent’s contention to the
contrary. It is precisely the sort of material which the authorities indicate must be
considered when seeking to determine what was the scope of the dispute between the
parties in order to ascertain what was referred to arbitration.
159.       The respondent’s fallback position was that the correspondence discloses that the
claimant was not maintaining any claim under clause 12 or disputing the validity of the
determinations made by the respondent under that provision. I do not agree with that
contention. In my view, it is based on an unduly narrow and legalistic reading of the letter
which runs counter to the approach which a court is required to take in considering
exchanges of this sort with a view to ascertaining what was in dispute between the
parties and what was referred to arbitration.
160.       While it has to be acknowledged that the Hussey Fraser letter of 13th November, 2014
could have been clearer, it seems to me that the respondent could have been in no doubt
from that letter that the claimant was disputing the determinations made by the
respondent under clause 12 in relation to the termination value and the termination
amount. It must, of course, also be acknowledged that the letter was sent some three
and a half years ago after the respondent determined the termination value at nil and,
more than three after it determined the termination amount at €768,911.27. That delay,
while most unfortunate, does not detract from the fact that, notwithstanding the failure
expressly to challenge those determinations when they were made, the Hussey Fraser
letter of 13th November, 2014 was conveying to the respondent that the claimant did not
accept those determinations and was maintaining claims for additional monies from the
respondent under the subcontract.
161.       While the respondent is correct in stating that the Hussy Fraser letter of 13th November,
2014 records the claim being made by the respondent against the bondsman based on
certain contentions, including contentions which relied upon the determinations as to the
termination value and the termination amount. However, it is, in my view, a misreading
of the letter to suggest that what follows in the first three and a half pages of the letter
relates exclusively to the claim being made by the respondent against the bondsman.
That contention by the respondent was based on the following statement at p. 4 of the
letter under the heading “KOF’s Claims Against BSJV”, namely:
“The above comments relate to the claim being made against Hiscox. We do not act
for that company. Our remarks are made on behalf of KOF and not on behalf of
Hiscox. We now turn to the claims against your client.”
162.       It would, in my view, be an incorrect and excessively narrow reading of the letter to
ignore what was said by the claimant’s solicitors in the previous three pages of the letter,
albeit that those comments were stated to relate to the claim being made by the
respondent against Hiscox. What is, however, relevant is the information contained in
those pages rather the heading under which that information appears. It is clear on my
reading of the letter, that the information contained under the heading “Valuation of the
Works to Completion” on pages 1 and 2 of the letter is directed to the contention that the
claimant was not accepting that the termination value was nil or that the claimant had
been overpaid by any amount. The letter further makes clear that the claimant did not
accept the respondent’s attempt to reverse variations that had allegedly previously been
agreed (and for the most part paid) or the deductions of “unsubstantiated contra-
charges” by the respondent. The letter contained an explanation on behalf of the claimant
as to why the purported deduction of the variations which had been agreed was not
accepted and an assertion was made that the respondent had waived the notice of
requirements in clause 10 of the subcontract by reason of the manner in which the
subcontract had been operated from the outset. The letter went on to observe that the
contra-charges put forward by the respondent would be considered in more detail “in due
course”. However, some explanation was given as to why it was said on behalf of the
claimant that those contra-charges were not correctly applied by the respondent and were
wrongly based on the supposition that the claimant was contractually liable for them. The
letter made clear that the claimant did not accept that it had any such contractual liability
for those contra-charges stating:-
“Suffice it to say, for the purpose of this letter, that the [contra-charges] will be
vehemently defended”.
163.       Those comments were made in a part of the letter which was said by the respondent only
to concern the respondent’s claim and proceedings against the bondsman.
164.       The letter then went on to comment, under the heading “The Cost of Completion
(€768,911)”, on the claim by the respondent that the claimant was liable for such cost.
This, of course, is the amount which the respondent determined as the termination
amount. The letter contains the claimant’s response to the contention that the claimant is
liable for that sum. The claimant made the point that the works carried out by it were
completed by November, 2010, that it understood that the amount claimed by the
respondent was referable to works carried out by Roadstone (although further details
were awaited by the claimant), that the claimant’s understanding was that there were no
works outstanding on its part and that Roadstone may have been employed to carry out
additional works which were never part of the claimant’s duties under the subcontract. My
reading of this part of the letter is that the claimant was clearly indicating that it did not
agree with the termination amount as determined by the respondent. The claimant had,
earlier in the letter, signaled its disagreement with the termination value determined by
the respondent.
165.       The letter then commented on the alleged defects in the claimant’s works. In that part of
the letter, there was a clear denial on behalf of the claimant that works which it carried
out were in any way defective or that there was breach of contract on the part of the
claimant. It was asserted that the works were carried out in accordance with the required
specification and that while the works were damaged by the respondent and its
subcontractors, both prior to and subsequent to completion by the claimant, that was not
the responsibility of the claimant. Some further detail was set out in support of the
claimant’s position on that point.
166.       The letter then addressed the claimant’s claims against the respondent and contained the
words which I quoted above and on which the respondent relies in support of its assertion
that the comments contained in the first three pages or so of the letter were purely by
way of commentary on the respondent’s claim against the bondsman. However, much too
much emphasis, and excessive weight, has been placed by the respondent on those
words. In doing so, the respondent has sought effectively to airbrush out of the letter the
comments contained in the first three pages. From those comments, it is quite clear, in
my view, that the claimant was disputing the determinations made by the respondent
under clause 12 and was setting out some reasons why it did not accept that those
determinations were correct.
167.       Having made those comments in the letter, the claimant’s solicitors then turned to
consider the claims being made by the claimant against the respondent. The comments
on that claim commenced with an assertion that a sum allegedly agreed as being due to
the claimant (€1,329,670.00), remained due for payment and an assertion that that sum
did not include additional compensation payable to the claimant in respect of certain other
matters which were then set out. Those other matters included sums in respect of tack
coat, accommodation works, additional movements, delay, and disruption. Under a
heading “Further Claims”, the claimant’s solicitors noted that the items just mentioned
appeared to be the main headings of the claim but that there might be additional claims.
The letter then stated:-
“You will be aware that our client submitted a claim on 9th March, 2011 in the sum
of €13,798,995. We have yet to examine that claim in detail but to the extent that
elements of that claim may not be covered by the above, we reserve the right to
include such elements in the process hereinafter discussed. The client also reserves
the right to claim for VAT, interest and costs.”
168.       The letter concluded by referring to the dispute resolution provisions contained in clause
13(a) of the subcontract and requested confirmation as to whether the respondent’s
solicitors had authority to accept service of a notice to refer to arbitration and mentioned
the conciliation process under the subcontract.
169.       In my view, an objective reading of that letter demonstrates that not only did the
claimant not accept the determinations made by the respondent under clause 12 as to the
termination value and the termination amount, but that the claimant was advancing
additional claims under various headings including, potentially, the claims made in the 9th
March, 2011 claim which the claimant’s solicitors had not by that time examined in detail.
170.       Another important part of the background or matrix of fact is the Maples 1st December,
2014 letter in response. I quoted extensively from that letter earlier in the judgment and
it is unnecessary to do so again here. On any reading, the letter was somewhat
intemperate in its terms and accused the claimant’s solicitors of attempting to “leverage
nuisance money out of our client by attempting to interfere with and/or stall High Court
litigation in which our client is engaged”. This was a reference to the bondsman
proceedings. Notwithstanding its intemperate tone, the letter does rightly complain about
the delay on the part of the claimant in seeking to advance its claim and about the
apparent failure by the claimant’s advisers fully to examine the 9th March, 2011 claim by
that stage. It is clear, however, from the letter that the respondent’s solicitors were
aware that the claimant did not accept the respondent’s position in relation to the
claimant’s account and did not accept the respondent’s determinations in relation to that
account. At point 6 of the letter, the respondent contended that the lack of merit of the
claimant’s claim was evidenced by:-
“The fact that your letter is littered with various factual inaccuracies regarding the
works performed and not performed by your client, the status of your client’s
account at the time that our client terminated its obligation to complete the works,
and the manner in which the subcontract was performed by the parties. These
inaccuracies further evidence the abject lack of bona fide inquiry by your client to
date in the matters that it purports to justify an entitlement on its behalf to be paid
nearly €16m by our client.”
171.       For reasons mentioned earlier in the judgment, the respondent’s solicitors declined to
comment further on the matters set out in the Hussey Fraser letter of 13th November,
2011. They did, however, confirm that they had authority to accept service of a notice of
any dispute resolution proceedings commenced by the claimant under the subcontract.
172.       I regard the Maples letter of 1st December, 2014 as another significant part of the matrix
of fact to which the court is required to have regard in considering the state of affairs
between the parties as of the date of the notice to refer. Leaving aside the indignant and
somewhat intemperate tone of the letter and the decision by the respondent not to
engage in the detail as set out in the Hussey Fraser letter of 13th November, 2014, it is
clear from the terms of their letter that the respondent’s solicitors had read and
considered the letter to which they were replying. The respondent and their solicitors
were, therefore, aware of the fact that the claimant was not accepting the position taken
by the respondent and was not accepting the respondent’s determinations as to the
termination value and the termination amount. The respondent’s position, as is evident
from point 6 of the letter, was that the Hussey Fraser letter contained factual inaccuracies
about various matters including the status of the claimant’s account when the respondent
terminated the subcontract. The respondent, therefore, could not but have been aware of
the fact that the claimant did not accept that it was precluded from maintaining its claim
by reason of the steps taken or determinations made by the respondent under clause 12.
173.       The position is made even more clear in the Hussey Fraser letter of 19th December, 2014
in response to the Maples letter of 1st December, 2014. At the very outset of that letter,
the claimant’s solicitors stated:
“Our client does not intend to interfere with the High Court proceedings as
suggested by you. Insofar as your client maintains in those proceedings that our
client is indebted to it, we thought it appropriate to start with that alleged debt by
demonstrating that far from our client being indebted to yours, substantial monies
are due by your client to ours.”
174.       This could not be clearer. The claimant was disputing the assertion that monies were due
by the claimant to the respondent. Since the respondent’s contention that such monies
were due by the claimant to the respondent was based, in part at least, on clause 12 and
on the steps taken by the respondent under that provision, it must have been clear to the
respondent that the claimant was not accepting the respondent’s contention and, on the
contrary, was continuing to assert that substantial monies were due by the respondent to
the claimant. The respondent must have understood, therefore, that the steps which it
had taken under clause 12, including the determinations made by it, were being put in
issue, at least in the correspondence emanating from the claimant’s side at that stage.
Again, it seems to me that this is a significant part of the matrix of fact to which the court
must have regard in assessing the state of affairs between the parties as of the date of
the notice to refer.
175.       The correspondence between the parties ended with the Hussey Fraser letter of 19th
December, 2014. The notice to refer dated 13th March, 2015 then followed.
176.       I have referred earlier to the notice to refer which contains four recitals. For present
purposes, the two critical recitals are:-
“III. The claimant submitted a claim for payment to the respondent on or about the 9th
March, 2011 for a total sum of €13,798,955.
IV. The respondent disputes said claim.”
177.       Having set out the four recitals, the notice to refer then stated that the claimant was
referring the “said dispute” to arbitration pursuant to clause 13(a) of the subcontract. The
notice then set out the “issues in dispute”. A series of ten issues were then identified. The
first issue referred to was:-
“The balance due to the claimant on foot of the contract without reference to
variations, extras, contra-charges or additional sums.”
Several further issues were identified including the sum due on the variation account, the
amount due in respect of additional moves, sums in respect of delay and disruption,
standing time and inefficiencies identified in a particular annex and so on.
178.       The respondent claimed that recitals III and IV identify the dispute between the parties
which arose by the submission by the claimant of the 9th March, 2011 claim and by the
rejection by the respondent of that claim by means of the 23rd March, 2011 rejection.
That, the respondent said, is the dispute between the parties and that is the dispute (i.e.
the “said dispute” referred to in the notice to refer) which the claimant referred to
arbitration under clause 13(a) of the subcontract by means of the notice to refer. The
respondent understandably pointed out that the notice to refer does not make any
reference to clause 12 of the main contract as applied and adapted to the subcontract or
to the determinations made by the respondent as to the termination value and the
termination amount under that clause. The respondent did, however, maintain that all
defences which the respondent could rely on in order to resist the claimant’s claim also
travel with the reference so that the arbitrator would have jurisdiction to entertain all
such defences. The claimant accepted that that is the case and it is certainly supported by
the authorities discussed earlier. Among the defences which the respondent has sought to
rely upon before the arbitrator, as appears from the respondent’s statement of defence, is
the preliminary defence based on want of jurisdiction in reliance on clause 12 and the
non-disputation by the claimant of the termination value and the termination amount. In
addition, the respondent has sought to rely on another preliminary defence based on the
undisputed, and unreviewable herein, determinations of the termination value and
termination amounts” which it contended amounts to a full and complete defence to all of
the claimant’s claims, in the event that it were to fail on the preliminary defence based on
a want of jurisdiction having regard to clause 12 (paras. 82 to 85 of, and schedule C to,
the respondent’s statement of defence). Schedule C contains the legal submissions
advanced by the respondent as part of its statement of defence on the “undisputed and
unreviewable determinations of the termination value and termination amount as a
complete defence to the claimant’s claims”. The respondent, therefore, has sought to rely,
as a fallback position, on this defence and it is accepted by the claimant that it is entitled
to do so before the arbitrator (the merits of that defence being a matter for the
arbitrator). The basis upon which the respondent contended (and the claimant accepted)
that it is entitled to rely upon these defences even though they are not expressly referred
in the notice to refer is that procedural fairness requires that it be so entitled. Where the
parties differ, however, is as to what the claimant can then do in response to such
defences which the parties have agreed are before the arbitrator.
179.       It seems to me that the respondent’s suggested interpretation of the notice to refer in
terms of the scope of the dispute referred by that notice to arbitration is far too narrow. It
ignores, or at least gives insufficient weight to, the guiding principles on the construction
of a reference to arbitration and on the ascertainment of the scope or ambit of the dispute
referred to arbitration, which I considered and summarised earlier in my judgment. In my
view, the respondent’s suggested interpretation seeks to apply a construction of the
notice to refer as if it were a statute and to construe the words used in the notice in an
overly legalistic manner. It ignores the requirement that the relevant point in time to
ascertain the scope of the dispute referred to arbitration is the time of the reference to
arbitration itself and that, in determining whether a particular dispute or claim has been
referred, it is necessary to look objectively at what has passed between the parties to the
reference up to that point. I have referred earlier to the exchanges between the parties
up to the point of the notice to refer and have set out my conclusions as to what ought to
have been understood by the respondent from what passed between the parties. While,
as just observed, it is open to the respondent to raise any point or argument by way of
defence to the claim being made notwithstanding that that point or argument is not
referred to in the notice to refer, as a matter of procedural fairness for the respondent,
however, the respondent’s proposed interpretation overlooks the requirement for
procedural fairness for the claimant also. It seems to me that if the respondent is entitled
to raise clause 12 and the determinations as to termination value and termination amount
under that provision by way of defence to the claim, then, having regard to the guiding
principles discussed and summarized earlier, so to as a matter of procedural fairness
should the claimant be entitled to seek to address those defences in whatever way it
considers appropriate. That must include an entitlement to challenge the validity of the
determinations made by the respondent under clause 12. To permit the respondent to
rely upon these defences by way of defence but to preclude the claimant from dealing
with them in response would itself, in my judgment, be contrary to procedural fairness.
180.       It seems to me that the notice to refer should be construed, and the scope of the dispute
referred by that notice ascertained, by reference to these guiding principles, the most
relevant of which, for present purposes, are, first, the requirement to construe the notice
to refer by reference to the state of the dispute as of the date of the reference and taking
into account the exchanges between the parties up to that point and, second, the
principle that the reference to arbitration carries with it all defences which the respondent
wishes to raise and, in my view, any responses which the claimant may wish to raise in
response, subject to the limitations referred to earlier.
181.       I have concluded by reference to the exchanges between the parties culminating in the
exchange of correspondence in November and December, 2014 (which represent the
state of the parties’ respective positions up to the date of the notice to refer on 13th
March, 2015), that it was clear that the claimant was not accepting the position taken by
the respondent and was not accepting its determinations as to the termination value and
the termination amount. The respondent could not but have been aware that the claimant
was not accepting that it was precluded from maintaining its claim by reason of clause 12
or by reason of any of the determinations made by the respondent under that provision.
It must also have been clear to the respondent that the claimant was disputing that any
monies were due by it to the respondent and that steps which the respondent had taken
under clause 12 (including the two relevant determinations) were being put it issue by the
claimant. All of that represented the position, and the state of affairs between the parties,
at the time the notice to refer was sent by the claimant’s solicitors on 13th March, 2015.
182.       In my view, applying the guiding principles discussed and summarised earlier, it would be
an excessively narrow interpretation of the notice to refer, and would ignore the position
adopted by the parties in correspondence up to the date of that notice, to confine the
claimant to the claims expressly set out in the 9th March, 2011 claim and to preclude the
claimant from attempting to deal with the points of defence raised by the respondent in
its statement of defence in reliance on clause 12 and on the determinations made by it
under that provision.
183.       While the claimant confirmed in the course of the submissions at the hearing that the
dispute referred to arbitration was the claim set out in the 9th March, 2011 claim, I did
not understand the claimant to make the case that it was not open to the arbitrator, or to
a court, to examine the exchanges between the parties in order to determine what was in
issue between the parties as of the date of the reference to arbitration. Indeed, the
claimant strongly urged the arbitrator, and the court, to consider the exchanges between
the parties including the Hussey Fraser letters of 13th November, 2014 and 19th
December, 2014 and the Maples letter of 1st December, 2014. It made submissions on its
suggested interpretation of that correspondence in response to those advanced by the
respondent. I have, for the most part, accepted the submissions advanced by the
claimant as to the interpretation of that correspondence. I do not believe, therefore, that
the claimant’s submission that the claim sought to be made by the claimant was as set
out in the 9th March, 2011 claim undermines the case which it was making as to the
entitlement of the court to look at the exchanges between the parties in order to
determine the scope of the dispute actually referred to arbitration.
184.       The respondent also argued that if the arbitrator had jurisdiction to consider the
claimant’s responses to the defences raised by the respondent in reliance on clause 12
and on the determinations made by it under that provision, whether by challenging those
determinations or otherwise, it would never be possible to challenge jurisdiction before an
arbitrator. I do not accept that that is so. I am, of course, dealing with the particular
jurisdiction challenge made by the respondent on the facts of this case. In my view, the
arbitrator does have jurisdiction to deal with the points which the claimant seeks to make
in response to the preliminary defences on jurisdiction and otherwise advanced by the
respondent in reliance on clause 12 and on its determinations under that provision. Those
responses fall squarely within the wide provisions of clause 13(a) of the subcontract in
terms of the disputes which may be referred to arbitration under that provision (namely
disputes “in connection with or arising out of the subcontract”). Furthermore, the case
which the claimant seeks to make is in response to the defences asserted by the
respondent (which points of defence, it is agreed, do not expressly have to be referred to
in the notice to refer). If a claimant sought to advance a case which fell outside the scope
of the arbitration clause or agreement and was not in response to a point or argument
relied upon by a respondent by way of defence to a claim, then an arbitrator, and a court,
may well find that the arbitrator has no jurisdiction in relation to the points sought to be
raised by the claimant. However, that is not the position in the present case.
185.       While it is perhaps surprising that the claimant did not make express reference to clause
12 and to the determinations made by the respondent under that provision in the notice
to refer, I have concluded that on a proper construction of that notice in accordance with
the guiding principles derived from the authorities, those issues do fall within the scope of
the arbitration initiated by the notice to refer. It is also surprising that the claimant did
not make reference to those issues in its statement of case. It sought to do so for the first
time in its statement of reply on 8th November, 2017 in response to the respondent’s
statement of defence of 7th September, 2017 which sought to rely, both by way of a
preliminary defence on jurisdiction and by way of a substantive preliminary defence on
clause 12 and on the determinations. However, as those issues were properly before the
arbitrator (for the reasons just outlined), it was a matter for the arbitrator to decide
whether she would permit the claimant to amend its statement of case expressly to
impugn the validity of the respondent’s determinations under clause 12. The arbitrator
permitted the respondent to deliver an amended statement of claim on 29th March, 2018
in directions given by her following her ruling on jurisdiction of 9th March, 2018. In my
judgment it was entirely a matter for the arbitrator as to whether she could permit those
amendments and it was within her jurisdiction to do so.
186.       I should make clear that in holding that the arbitrator has jurisdiction in relation to the
issues concerning clause 12 which have now been expressly raised by the applicant in the
amended statement of case, I am not commenting in any way on the substantive merits
of the respective contentions of the claimant and of the respondent on those issues. That
is exclusively a matter for the arbitrator.
Clause 13(a)
187.       Having set out my conclusions on the question of jurisdiction by applying the guiding
principles to the construction of a reference to arbitration, I should now consider whether
there is anything in clause 13(a) of the subcontract which would require me to alter those
conclusions. In this context, I must consider the express provisions of clause 13(a) and
the provisions of clause 13(c) and the 2000 Procedure which the parties agreed would
apply to any arbitration under clause 13 of the subcontract.
188.       The respondent contended that the notice to refer did not comply with the provisions of
clause 13(a) of the subcontract in that it did not set out any issues between the parties
concerning clause 12 or the determinations made by the respondent and did not,
therefore, “state the issues in dispute” as required by clause 13(a). The respondent
contended that the requirement to “state the issues in dispute” is a jurisdictional
requirement which, if not complied with, means that the arbitrator does not have
jurisdiction in relation to any issues not stated in the notice. The claimant’s position was
that the notice did adequately refer to the dispute and state the issues between the
parties. It relied on the 13 issues set out in the notice as amounting to the various
different bases on which the claimant was asserting a right to be paid the amounts
claimed. The claimant maintained that the construction of clause 13(a) urged by the
respondent is too strict and goes too far.
189.       In my view, the notice to refer does comply with the provisions of clause 13(a) of the
subcontract. It specifies the dispute (and must be interpreted by reference to the guiding
principles discussed earlier). It then refers to several issues in dispute including a claim
for the balance due by the respondent to the claimant. Since it was agreed between the
parties that notice does not have to specify the points of defence on which the respondent
will seek to rely in resisting the claimant’s claim and the failure to specify those points of
defence in the notice does not amount to a breach of clause 13(a) or render the notice
ineffective in respect of those issues raised by way of defence, it would indeed be a very
harsh interpretation and application of the requirement in clause 13(a) to “state the
issues in dispute” to find that the failure to specify the points which the claimant wishes
to rely upon in response to those points of defence renders the notice ineffective and
derives the arbitrator of jurisdiction in relation to those issues. That would not, in my
view, be a reasonable or sensible interpretation of clause 13(a). I do not accept that the
notice to refer fails to comply with the requirement to “state the issues in dispute” under
clause 13(a) of the subcontract. However, even if it did, I am not at all convinced that a
failure to comply with that provision would go to the jurisdiction of the arbitrator to deal
with issues not expressly stated in the notice, provided they arose by way of a response
to a point or argument raised by way of defence by a respondent which itself was not
stated in the notice. A failure to state an issue sought to be raised by a claimant in
response to a point or argument raised by way of defence would not, in my view, amount
to a breach of clause 13(a) and would not deprive the arbitrator of jurisdiction to deal
with that issue. Even if it did amount to a breach of clause 13 (a), I am not satisfied that
such a breach would go to the jurisdiction of the arbitrator or preclude her from dealing
with the particular issue or issues.
190.       In my view, there is nothing in clause 13(a) of the subcontract which would affect or
undermine the conclusion which I have reached that the arbitrator does have jurisdiction
to deal with the points which the claimant wishes to advance in response to the points of
defence raised by the respondent in reliance upon clause 12.
Clause 13 (c) and 2000 Procedure
191.       I now turn to clause 13(c) which provided that the 2000 Procedure was to govern the
arbitration. As I have already explained, the arbitrator directed (with the agreement of
the parties) that the 2000 Procedure would apply up to the date of the preliminary
meeting held by the arbitrator on 7th April, 2016 but that, thereafter, the 2011 Procedure
would apply. Since the notice to refer was dated 13th March, 2015, the relevant
provisions of the 2000 Procedure applied to the notice to refer. As a fallback argument,
the claimant sought to rely on certain provisions of the 2000 Procedure in order to defeat
the respondent’s jurisdictional challenge. The claimant relied in particular on Rules 2.1,
2.3 and 5.2. I have set out those provisions earlier in this judgment.
192.       Having considered the rules relied upon and the respective arguments of the parties in
relation to the interpretation and application of those rules, I have reached the conclusion
that there is nothing in the 2000 Procedure which undermines the conclusions I have
already reached in relation to the jurisdiction of the arbitrator to deal with the issues
which the claimant wishes to raise in relation to clause 12 and the determinations made
by the respondent under that provision.
193.       It might be argued that Rule 2.1 assists the claimant in that that provision deems a
dispute or difference to arise between the parties where a claim is made by one party and
not responded to by the other within a period of 28 days thereby entitling either party to
proceed to arbitration by serving a notice to refer on the other party, subject to the
observance of any condition precedent in the relevant contract. However, I do not see
how this provision in any way affects the conclusions I have already reached in relation to
the state of the dispute or the issues in dispute between the parties as of the date of the
notice to refer. While it could be argued that the failure by the claimant to respond to the
determinations as to termination value and termination amount when those
determinations were made meant that a dispute or difference was deemed to arise within
28 days of those determinations being provided to the claimant, I have in any event
concluded that those determinations were in dispute between the parties at the time of
the reference in light of the correspondence exchanged between their respective solicitors
in 2014 and in light of the involvement of the claimant’s personnel in assisting the
bondsman in defence of the bondsman proceedings. Furthermore, there is no issue
between the parties as to the entitlement of the claimant to serve a notice to refer on the
respondent. It did so as it was entitled to do under clause 13(a). The issue between the
parties concerns the ambit of the dispute and the issues or sub-issues within that dispute
which were referred to arbitration. In my view, Rule 2.1 does not advance matters at all.
194.       Nor, in my view, does Rule 2.3, which provides that the notice to refer must list the
matters which the referring party wishes to be referred to arbitration and that nothing in
the notice to refer restricts the referring party as to the manner in which it presents its
case. It seems to me that the first part of Rule 2.3 mirrors the provisions of clause 13(a)
in terms of the requirement to state the issues in the notice to refer. The second part of
Rule 2.3 adds nothing, in the context of the issues between the parties on this
application. It has not been suggested that the notice to refer restricts the claimant “as to
the manner in which it subsequently presents its case”. The dispute between the parties
which has led to this application does not concern the “manner” in which the claimant
presents its case. It concerns the scope or ambit of the dispute referred and the issues
(and sub-issues) which the arbitrator has jurisdiction to consider. I have addressed those
already without reference to Rule 2.3 of the 2000 Procedure. In my view, Rule 2.3 does
not advance matters at all.
195.       It might be argued that Rule 5.2 confers an arbitrator with jurisdiction over an issue not
expressly set out in the notice to refer as it provides that the arbitrator has jurisdiction
over any issue connected with and necessary to the determination of any dispute or
difference already referred” to him or her “whether or not any condition precedent to
referring the matter to arbitration had been complied with”. While this might be of
assistance to the claimant in conferring jurisdiction on the arbitrator to deal with issues
which are “connected with and necessary to” a dispute or difference already referred to
the arbitrator even though those issues may not have been expressly set out in the notice
to refer (assuming the requirement to do so is a condition precedent), it is unnecessary to
reach a concluded view on that question in light of the conclusions which I have already
reached without reference to clause 5.2. The important point is that clause 5.2 is an
enabling rather than a restricting provision and does not, therefore, assist the respondent
in its contention that the arbitrator does not have jurisdiction over the disputed issues.
196.       In summary, therefore, I do not believe that the provisions of the 2000 Procedure relied
upon by the claimant advance matters at all. They do not in any way undermine or
detract from the conclusions I have already reached in relation to the jurisdiction of the
arbitrator to deal with the disputed issues.
Other Observations
197.       While not determinative in any way of this application, I cannot conclude this judgment
without observing that it would be surprising if I had reached a different conclusion on the
scope of the arbitrator’s jurisdiction in light of the approach which the Irish courts have
taken to the interpretation and enforcement of arbitration agreements. The Irish courts
have consistently applied the principles derived from the decision of the House of Lords in
Fiona Trust & Holding Corporation & ors v. Privalov & ors [2007] 4 All ER 951. The Irish
decisions which applied those principles and the principles themselves were discussed by
me in a number of judgment including K & J Townmore Construction Limited v. Kildare
and Wicklow Education and Training Board [2018] IEHC 770 (‘Townmore (No. 1)’), K & J
Townmore Construction Limited v. Kildare and Wicklow Education and Training Board
[2019] IEHC [insert] (‘Townmore (No. 2)’) and XPL Engineering Limited v. K & J
Townmore Construction Limited [2019] IEHC [665].
198.       One of the principles discussed in those cases is that, when construing an arbitration
agreement, the court should start from an assumption or presumption that the parties are
likely to have intended any dispute arising out of the relationship between them to be
decided by the same body or tribunal. In other words, there is an assumption or
presumption that the parties intended a “onestop shop” for adjudicating their disputes.
While not directly relevant to the matters in dispute on this application, as the respondent
accepted that the disputed issues could have been referred to arbitration but were not,
the principles discussed and applied in these cases are instructive. It would be a
surprising (but not impossible) outcome if the respondent were permitted to rely on
points or arguments by way of defence but that the claimant was not permitted to
respond to those points of defence by raising issues which both parties accept fall within
the scope of the arbitration agreement. As it happens, I have concluded that, properly
construed, the notice to refer did refer all of the issues which the respondent has sought
to raise by way of defence and also those points which the claimant has sought to raise
by way of response to those defences.
Arbitrator’s Ruling
199.       I have reached these conclusions without reference to the arbitrator’s ruling on
jurisdiction. The arbitrator and I have reached the same conclusion, namely, that the
arbitrator does have jurisdiction in relation to the issues concerning clause 12 of the
subcontract and the determinations made by the respondent under that provision. We
have done so for similar but not identical reasons. The main point of departure, I think, is
the route adopted by the arbitrator in examining the exchanges between the parties after
the 9th March, 2011 claim. The arbitrator came to the view that the description of the
“said dispute” in the notice to refer was ambiguous and that she was entitled, therefore,
to look at the subsequent exchanges between the parties. I have concluded that it is not
necessary to find an ambiguity in order to consider the exchanges between the parties as
to the reference to arbitration and that such exchanges form part of the background or
matrix of fact to which regard may be had in the construction of the reference,
irrespective of any ambiguity. This is a minor point of difference between the approach
taken by the arbitrator and the approach taken by me. We have reached the same
conclusion but by a slightly different route. There is no doubt that the route taken by me
took considerably longer than the route taken by the arbitrator, with commendable
expedition and efficiency on her part.
Summary of Conclusions
200.       In summary, I have reached the following conclusions:-
201.       In deciding an application in relation to jurisdiction under Article 16(3) of the Model Law,
the court is exercising an original and not an appellate jurisdiction. It is not conducting an
appeal or a review but a complete de novo rehearing on the question of jurisdiction. The
court’s function under Article 16(3) is “to decide the matter”. In doing so, the court
applies the “full judicial consideration” approach. The standard to be applied by the court
in deciding the question of jurisdiction is the normal standard applied in civil cases,
namely, the court must decide the question of jurisdiction on the balance of probabilities.
The court may consider such evidence as it sees fit and is not bound by the submissions
made to the arbitrator or the evidence before him or her. The court does not exercise any
deference to the decision of the arbitrator. The court may have regard to the reasoning
and findings of the arbitrator, if they are helpful, but the court is neither bound nor
restricted by them.
202.       In deciding the question of jurisdiction, I have considered a large number of authorities
and have set out in this judgment what appeared to me to be the guiding legal principles
applicable to the construction of a notice referring a dispute to arbitration and to the
ascertainment of the scope or ambit of the dispute referred.
203.       I have applied these guiding principles to the facts of this case. Having done so, I have
concluded that, on the correct construction of the notice to refer, the contested issues
were referred to arbitration by the claimant and that the arbitrator does have jurisdiction
to consider the issues which are now set out in the amended statement of case delivered
on 29th March, 2018 on foot of the further directions given by the arbitrator that day
following her ruling on jurisdiction.
204.       I have concluded that the arbitrator was correct in ruling that she had jurisdiction in
relation to those contested issues and that the arbitrator has jurisdiction in relation to
those issues, albeit on slightly different grounds to those relied upon by the arbitrator.
205.       For these reasons, I reject the respondent’s application for an order deciding that the
arbitrator does not have jurisdiction over the contested issues.
206.       Finally, I wish to thank counsel and solicitors for the parties for the excellent written and
oral submissions which I received in this case for which I am very grateful.Result:     It was held that the arbitrator did have jurisdiction.

VTB Commodities Trading DAC v JSC Antipinsky Refinery [2019] EWHC 3292 (Comm)

Neutral Citation Number: [2019] EWHC 3292 (Comm)
Case No: CL 2019 000666

IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF AN ARBITRATION CLAIM

Royal Courts of Justice
Strand, London, WC2A 2LL
03/12/2019

B e f o r e :

MR. JUSTICE TEARE
____________________

Between:

VTB COMMODITIES TRADING DAC
Claimant
– and –
 
JSC ANTIPINSKY REFINERY
Defendant

____________________

Stephen Cogley QC, Alexander Wright and Christopher Jay (instructed by Fieldfisher LLP) for the Claimant
Muhammed Haque QC and Alexander Cook (instructed by Candey Limited) for the Defendant

Hearing dates: 27-28 November 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

Mr. Justice Teare :

    1. On 25 October 2019 the Claimant, VTB Commodities (VTB), issued an application for an order pursuant to section 32 of the Arbitration Act 1996 determining whether an arbitral tribunal had jurisdiction to determine the disputes which have been referred to it. The application was made with the permission of the arbitral tribunal.
    2. The court was also asked, by an application notice dated 25 October 2019 and the accompanying draft order, to permit service out of the jurisdiction on the Defendant, JSC Antipinsky Refinery (Refinery), to permit alternative service on the Refinery’s solicitor in the arbitration, Candey Limited (Candey), and to order an expedited hearing and to give directions. Section 32 expressly requires that notice of an application under section 32 is given to the other parties to the arbitration. CPR 62.6(3) provides that where such notice is required to be given to another party to the arbitration it is given by making the other party a defendant to the arbitration application. That was done and in addition notice of the application was given to the Refinery by providing its solicitors in the arbitration, Candey, with copies of the application by email on 25 October 2019.
    3. By letter dated 31 October 2019 Candey informed the court that it acted for the Refinery in the proceedings commenced by VTB by way of an arbitration claim. At the same time Candey said that it did not accept that there had been valid service. Without prejudice to that position it made a submission that the one day requested by VTB for the hearing of the section 32 application was insufficient and that two days should be allowed for the hearing.
    4. On 1 November 2019 I made an order, without a hearing, permitting service out of the jurisdiction and alternative service on Candey and ordering an expedited hearing (with directions) in the “window” of 25-29 November 2019. CPR 62 PD provides that the court may exercise its powers under rule 6.15 (alternative service) to permit service on a party’s solicitor in the arbitration. The application has variously been described as “ex parte”, “without notice”, “ex parte” on notice and on notice. It was certainly without a hearing but notice of it had been given to the solicitor acting for the Refinery in the arbitration.
    5. The Refinery acknowledged service on 12 November 2019 and indicated that it intended to contest the claim and to dispute the court’s jurisdiction. On the same day a witness statement of some 24 pages was made in support of an application to set aside the order of 1 November 2019 on several grounds. There was an exchange of correspondence as to how and when the court should deal with the application to set aside and whether the arbitration application should be listed for hearing. By this time the court had identified 27 and 28 November 2019 as being the date when the arbitration application could be heard on an expedited basis. The court called the parties into court on 19 November 2019 to discuss these matters. Since all parties were present (though the Refinery was represented by junior counsel only) the court offered to consider the application to set aside at that time or on the next day, 20 November 2019. That was not acceptable to the Refinery who wished their leading counsel to be present. It was therefore decided, with the reluctant consent of the Refinery, that the application to set aside be heard on the morning of 27 November 2019 with the arbitration application to be heard thereafter if the application to set aside was dismissed.
    6. The application to set aside the order of 1 November 2019 was therefore heard on the morning of 27 November 2019. It was dismissed by me for the reasons given on that day after the short adjournment. The section 32 application was then heard in the afternoon of 27 November 2019 and on the morning of 28 November 2019. There is a need for a prompt determination of the section 32 application and so this judgment will be shorter than it might otherwise have been.

The chronology

    1. Before dealing with the issues which arose for determination on the section 32 application it is necessary to give a short summary of the dispute between the parties, the proceedings in this court, the proceedings in arbitration and further proceedings in Russia.
    2. The Claimant, VTB, agreed to buy quantities of gasoil from the Defendant, Antipinsky, a refinery in Russia. The agreement between the parties is in three pairs of contracts, the Offtake Contract and the Prepayment Agreement, dated 19 October 2018, 15 March 2019 and 8 April 2019. VTB pre-paid for the gas up to 120 days in advance. The Refinery was to deliver the products to VTB FOB Murmansk (ex a floating storage facility, MT POLAR ROCK). In the event that the Refinery made insufficient deliveries to amortise the pre-payments it was to pay the difference in cash. The contracts were all subject to English law and provided for London arbitration.
    3. As at 29 April 2019 VTB claims that it had paid substantial pre-payments but that the Refinery was behind in its deliveries. VTB alleges that the Refinery sold the gasoil to a third party, Petraco. So on 29 April VTB, on the basis of alleged events of default, accelerated repayment of outstanding prepayments and commenced arbitration in London. At the same time a Worldwide Freezing Order (“WFO”) was sought pursuant to section 44 of the Arbitration Act 1996.
    4. The WFO was granted by me on 30 April 2019. In addition, an injunction was issued restraining the Refinery from selling oil to third parties. The order permitted VTB to seek injunctive relief in Russia in respect of the sums or assets covered by the WFO.
    5. VTB has since learnt and now alleges that the Refinery had agreed to sell the gasoil intended for VTB to MachinoImport who had purported to sell the cargo to Petraco.
    6. VTB sought injunctive relief in Murmansk against the Refinery and MachinoImport but on 8 May 2019 that application failed on “territorial” grounds; the court ordered that the claim be brought “before the commercial court for the place where one of the defendants is located”.
    7. So on 13 May 2019 VTB sought injunctive relief in Moscow. The claim for injunctive relief was based upon a claim which sought to impugn or invalidate the agreement between the Refinery and MachinoImport.
    8. On 15 May 2019, the first return date for the WFO, Sir William Blair sitting in this court continued the WFO and ordered the sale of the cargo in the storage facility.
    9. On 17 May 2019 the Moscow court listed a preliminary hearing of VTB’s claim to impugn or invalidate the agreement between the Refinery and MachinoImport but refused to grant injunctive relief.
    10. On 28 May 2019 Knowles J. made a further order facilitating the sale of the cargo ordered by Sir William Blair. A further order to that effect was made on 31 May by Moulder J.
    11. On 7 June 2019 most of the cargo in the storage facility was delivered to the order of VTB.
    12. On 11 June 2019 the Refinery responded to the request for arbitration. It was said that by reason of the proceedings in Russia VTB had submitted to the jurisdiction of the Russian courts and that the tribunal therefore had no jurisdiction to determine the issues referred to it.
    13. On 18 June 2019 VTB applied to withdraw the claim before the Moscow court which sought to impugn or invalidate the agreement between the Refinery and MachinoImport. On 20 June 2019 both the Refinery and MachinoImport filed defences to the claim. But on that day the Moscow court permitted VTB to withdraw its claim.
    14. On 1 July 2019 the London arbitral tribunal was constituted.
    15. On 16 July 2019 Sir Jeremy Cooke sitting in this court dismissed a challenge by the Refinery to the jurisdiction of the court and adjourned the application to discharge the WFO.
    16. On 2 August 2019 VTB served its Statement of Case in the arbitration.
    17. On 19 September 2019 the Refinery served its Defence and identified the three grounds on which it challenged the jurisdiction of the arbitral tribunal.
    18. On 23 September 2019 the tribunal held its first procedural meeting. VTB raised the question whether, in the light of the risk that on 10 December 2019 the Refinery might be placed into bankruptcy there should be an urgent Partial Final Award (“PFA”) dealing with certain of VTB’s claims.
    19. On 14 October 2019 VTB issued an application for an urgent PFA and for the tribunal to consent to the court determining the jurisdiction of the tribunal pursuant to section 32 of the Arbitration Act.
    20. On 20 October 2019 the tribunal agreed that there should be an urgent PFA and consented to a section 32 application. Hence it was that on 25 October 2019 the application was made to this court for an order determining the questions raised as to the jurisdiction of the arbitral tribunal.

The conditions to be satisfied

    1. The arbitrators having given their consent, section 32 requires the court to be satisfied, first, that determination of the question is likely to produce substantial savings in costs, second, that the application was made without delay and, third, that there is good reason why the matter should be decided by the court.
    2. Costs. Counsel for VTB submitted that there was likely to be a substantial savings in costs because, if the arbitral tribunal determined jurisdiction, it was likely that there would be a challenge to that determination pursuant to section 67 of the Act. Thus costs would be incurred in having, not one, but two hearings of the jurisdiction issue. This approach was criticised by counsel for the Refinery on the grounds that, if it were legitimate to take a challenge into account, that could be said in every case and yet there is authority for the proposition that recourse to section 32 should be “very much the exception”; see Vale Do Rio Doce Navegacao SA v Shanghai Bao Steel Ocean Shipping Co. Ltd. [2000] 2 AER (Comm) 70 at paragraph 45 per Thomas J. However, taking a challenge under section 67 into account when that is a likely event will not lead to recourse to section 32 in every case because of the third requirement that there must be good reason for the court to determine the question of jurisdiction. Further, the availability of a challenge under section 67 has been taken into account by this court in the past; see Toyota Tsusho Sugar Trading Ltd. v Prolat SRL [2014] EWHC 3649 (Comm) at paragraph 2 per Cooke J. The present case justifies the description “hard fought litigation” and it is likely that whoever lost the question of jurisdiction before the tribunal would challenge the decision under section 67. Thus there is likely to be a substantial saving in costs albeit that the saving would be reduced by what has been described as the “the bifurcation” of the merits and jurisdiction issues which might lead to additional costs being incurred.
    3. Delay. Counsel for VTB submitted that “the application” which had to be made without delay was the application to the court and since that application could only be made once the tribunal had given consent on 20 October 2019 there was obviously no delay in making the application on 25 October 2019. Counsel for the Refinery submitted that VTB had known of the challenge to the jurisdiction since 11 June 2019 and did not take steps to obtain an order under section 32 until 14 October 2019 when the tribunal’s consent to such an application was sought. This was said to be a material delay.
    4. I accept that “the application” is the application to the court. But it does not follow that delay before the tribunal has given its permission is irrelevant in determining whether “the application” has been made without delay.
    5. It is true that notice of an objection to the jurisdiction of the tribunal was given in June 2019. But the first stage in the arbitral process (following the constitution of the tribunal on 1 July 2019) was the service of VTB’s Statement of Case. That was a formidable document of some 56 pages (ignoring the exhibits). It would, I think, be premature to address the question of jurisdiction before the claims to be advanced by VTB had been articulated in the Statement of Case. The next step was the Refinery’s Defence. That was served on 19 September 2019. It was a slightly less formidable document of 35 pages. Two further objections were taken to the jurisdiction of the arbitral tribunal in the Defence. Less than a month later VTB raised the question of a section 32 application with the tribunal on 14 October 2019. The tribunal gave its consent on 20 October 2019 and “the application” was issued on 25 October 2019. It was submitted that it was only when the Defence had been served that VTB could reasonably have been expected to consider how best to deal with the question of jurisdiction. Since it was necessary to know how the Refinery would respond to the detailed Statement of Case I accept that submission. I do not consider that there was any material delay between 19 September 2019 (when the Defence was served) and 25 October 2019 (when the application was issued).
    6. Good reason. As I said when dismissing the application to set aside the order for an expedited hearing there is a risk that on 10 December 2019 the Refinery will be placed into bankruptcy. It is not certain that that will happen; the bankruptcy proceedings may be adjourned. But if the Refinery were to be placed into bankruptcy and an order of this court were granted recognising that order then, pursuant to the Cross Border Insolvency Regulations, this section 32 application would, or might, be stayed. In circumstances where the arbitral tribunal has now issued its award in favour of VTB that would, at the very least, be a most unsatisfactory situation. There is therefore good reason for the court to decide the question of jurisdiction with expedition. In the light of my ruling when dismissing the application to set aside the order for an expedited hearing counsel for the Refinery accepted that there was good reason.
    7. Indeed, the circumstance that the arbitral tribunal has permitted VTB to apply for an order determining the question of jurisdiction “based on efficiency and resulting finality” is itself a good and cogent reason for the court to decide the question of jurisdiction.

The challenge to the jurisdiction

    1. The agreements between the Refinery and VTB provided as follows:

19.1 This Contract and all non-contractual obligations and all claims and disputes arising out of in relation thereto shall be governed by and construed in accordance with English law.

19.2 Any dispute arising out of in connection with this Contract (including a dispute relating to its existence, validity or termination or any non-contractual obligations arising out of or in connection with it) (a Dispute) shall be referred to and finally resolved by arbitration under the Arbitration Rules (the Rules) of the London Court of International Arbitration (LCIA) (such arbitration to also be administered by the LCIA in accordance with the Rules), which Rules are deemed incorporated by reference into this Contract, as amended herein.

The Russian proceedings

    1. The argument advanced on behalf of the Refinery was that by commencing proceedings in Russia which sought relief against the Refinery and MachinoImport on the basis that the allegations being made in the London arbitration were true, VTB had submitted those allegations to the jurisdiction of the Russian courts.
    2. In considering this submission it is necessary to bear in mind the reason for the Russian proceedings, namely, VTB wished to obtain an injunction from the Russian court to the same effect as the injunction granted by this court. It had sought and obtained permission to commence proceedings in Russia for that purpose. The English proceedings had been brought pursuant to section 44 of the Arbitration Act 1996 in support of the claims to be advanced in the arbitration. The attempt to obtain an injunction in Russia was also in support of the claims to be advanced in the arbitration. That is not a promising background from which to advance an argument that VTB had, by seeking injunctive relief in support of the arbitration, in fact deprived the arbitral tribunal to decide the underlying claim.
    3. After the court in Moscow had rejected the claim for injunctive relief on 17 May 2019 the substantive claim which sought to impugn or invalidate the agreement between the Refinery and MachinoImport remained in existence. But on 18 June 2019 VTB applied to withdraw the claim and was permitted to do so on 20 June 2019. That conduct is consistent with the aim of the Russian proceedings being to obtain injunctive relief. Once that had failed there was no purpose in the Russian proceedings continuing.
    4. There does not appear to be any doubt that VTB submitted to the jurisdiction of the Russian courts for the purposes of seeking injunctive relief. That submission encompassed the allegations to be made in the London arbitration because it was on the basis of those allegations that it was sought to impugn or invalidate the agreement between the Refinery and MachinoImport. However, an observer of all of the proceedings (the request for arbitration on 29 April 2019, the application for relief from the English court on 30 April 2019 and the commencement of proceedings in Murmansk and Moscow on 8 and 13 May 2019) would not conclude that VTB had any intention, by submitting to the jurisdiction of the Russian courts, to deprive the arbitral tribunal jurisdiction of jurisdiction.
    5. The Refinery had intended to contend that by commencing proceedings in Russia VTB had committed a repudiatory breach of the arbitration agreement, which breach had been accepted by the Refinery, with the result that the arbitration agreement had come to an end. However, at the hearing before me counsel for the Refinery accepted that that argument could not be advanced. It is however instructive to see why that argument could not be advanced.
    6. In BEA Hotels v Bellway [2007] 2 Lloyd’s rep. 493 Cooke J. explained what is required to establish a repudiation of an agreement to refer disputes to arbitration.

“13. In order to show a repudiation of that agreement to refer, it was not disputed that BEA would have to show that Bellway evinced an intention no longer to be bound by that agreement and that Bellway’s conduct would have to be such that a reasonable person, in BEA’s shoes, would understand Bellway to be saying that it was not prepared to continue with the reference. It was common ground that it was not repudiatory merely to bring proceedings in breach of an arbitration agreement, even if the claims pursued in those proceedings were plainly ones which were subject to the arbitration agreement. It was undisputed that a breach of an arbitration agreement by bringing other proceedings was only repudiatory if it was done in circumstances that showed that the party in question no longer intended to be bound to arbitrate. It was also agreed that such an intention could not lightly be inferred and could only be inferred from conduct which was clear and unequivocal. If there was some other reason for the breaching of proceedings it would be hard to infer that the party bringing them intended to renounce its obligation to arbitrate.

14. Thus, if the conduct of that party in all the surrounding circumstances did not reveal a clear intention not to be bound by the agreement to refer the claims in question to arbitration, it could not be said that the arbitration agreement or reference had been repudiated. If it was clear that the party intended to pursue the arbitration, again there could be no repudiation. Whilst Mr McGrath for BEA contended that, if Bellway was seeking to run the same claims against BEA in both the arbitration and in Tel Aviv 2, this would amount to repudiation, because running the claims in Tel Aviv was inconsistent with arbitrating them, it is clear that this could not amount to renunciation or repudiation of the agreement to refer, since the intention expressed was to continue with the arbitration, albeit, alongside other litigation.

15. Whilst a number of authorities were referred to in the skeleton arguments, in the end I was referred only to the decisions of Lloyd J (as he then was) in Rederi Kommanditselskaabet MercScandia IV v Couninatis SA (The Mercanaut) [1980] 2 Lloyd’s Rep 183 and World Pride Shippng Ltd v Daiichi Chuo Kisen Kaisha (The Golden Anne) [1984] 2 Lloyd’s Rep 489 where the arbitration agreements were breached but the court concluded that the breach was not repudiatory because there was some explanation for bringing the court proceedings which in turn meant that the court could not infer an intention to repudiate.”

    1. Applying that test to the present case it is not possible to infer that VTB evinced an intention to no longer be bound by the agreement to refer disputes to the London arbitral tribunal by seeking injunctive relief in Russia based upon the allegations to be made in the London arbitration. It may well be that the agreement to refer had been breached by seeking relief from the Russian courts on a basis which invited the Russian courts to consider the very allegations to be advanced in the London arbitration. But there was a reason for that; it was the basis upon which the application for injunctive relief had to be based.
    2. That this was so was noted by Sir Jeremy Cooke when this case was before him on 16 July 2019; see [2019] EWHC 1936 (Comm). One issue before Sir Jeremy Cooke was whether the Russian proceedings against the Refinery and MachinoImport were a breach of the liberty given to VTB by this court to seek injunctive relief in Russia. Sir Jeremy Cooke noted at paragraph 39 that:

“Russian proceedings were brought in which the allegation was made under Articles 10 and 168 of the Russian Code that the contract between Antipinsky and MachinoImport was invalid. The reason for bringing that cause of action was to establish that it was the misdoings of those parties which had made performance of the obligations to the claimant impossible. Injunctions were sought in support of that in order to “secure” the assets in question, namely, the cargo which was the subject of the order made in this country. …”

    1. The question which arose was described in this way at paragraph 40:

“The question arises as to whether or not that is, in truth, a breach of the court’s order. There is no doubt that there was a substantive element to the proceedings because of the allegations in relation to Articles 10 and 168 of the Russian Code. Looking at the wording of the order made by the court, the question is whether or not such proceedings constitute proceedings for injunctive relief against the respondent in respect of the sums or assets set out in the order. Mr. King says that the proceedings go well beyond what was envisaged by Teare J. and, in particular, one can see that from the fact that it is not just the respondent, Antipinsky, that was the subject of the action, but also MachinoImport.”

    1. Sir Jeremy Cooke answered that question as follows at paragraph 41:

“I do not think the matter is quite as straightforward as that, because a cause of action was needed in order to seek security in respect of the asset, but I am entirely satisfied that even if there was a breach, it is not a breach of sufficient seriousness in the context for me to be troubled by the prospect of giving retrospective permission for use of the documents in that context. It is true that following dismissal of the injunction application, the proceedings remained in being until withdrawn by VTB, but by then the documents had been used for the collateral purpose in question, whether or not covered by the qualification to the undertaking.

    1. Thus, to the extent that the underlying substantive claim was a breach of the agreement to refer disputes to the London arbitration, there was a reason for it, namely, a cause of action was necessary in order to seek the desired injunctive relief. In those circumstances it would have been impossible to suggest, as counsel for the Refinery correctly accepted, that there had been a repudiatory breach of the agreement to refer disputes to the London arbitration. Considered objectively there was no scope for saying that VTB had evinced an intention no longer to be bound by the agreement to refer disputes to the London arbitration. For those very reasons it is equally impossible to suggest that VTB had, by seeking injunctive relief based upon a substantive claim and thereby submitting the allegations to be made in the London arbitration to the jurisdiction of the Russian courts, somehow deprived the London arbitration of jurisdiction to hear the disputes in question. Counsel for the Refinery did not explain how or why the submission to the Russian jurisdiction in the present case, which extended to the allegations to be made in the London arbitration, but for a limited and identifiable purpose consistent with the arbitral tribunal retaining jurisdiction, had the effect that the London arbitral tribunal had lost its jurisdiction.
    2. I therefore dismiss the first jurisdictional challenge.

The Letter of Assurance

    1. By a letter of assurance (“the LOA”) dated 11 April 2019 the Refinery gave certain assurances to VTB. In particular the Refinery stated that it was in compliance with its obligations under “the Facility”, which was defined as being the prepayment agreement and offtake contract, each dated 15 March 2019. The LOA “and any non-contractual obligations arising in connection herewith” were stated to be governed by and construed in accordance with English law.
    2. In its Statement of Case in the arbitration, between paragraphs 127 and 131, VTB made reference to certain warranties or representations in the LOA. In so far as they were warranties it was alleged that the Refinery was in breach of them. In so far as they were representations it was alleged that they were false misrepresentations such that the Refinery was liable in deceit.
    3. The Refinery says that such claims had not been referred to arbitration. The LOA did not contain an arbitration clause. VTB says that the claims advanced were referred to arbitration by the arbitration clause in the prepayment agreements and offtake contracts.
    4. The question is whether the arbitration clause is sufficiently widely drafted so as to catch claims for breach of the LOA and for deceit based upon the statements made in the LOA. The relevant words are:

“Any dispute arising out of in connection with this Contract (including a dispute relating to its existence, validity or termination or any non-contractual obligations arising out of or in connection with it) (a Dispute) shall be referred to and finally resolved by arbitration under the Arbitration Rules (the Rules) of the London Court of International Arbitration (LCIA)”

    1. Counsel for VTB submitted that disputes based upon the representations or warranties in the LOA arise “in connection with” the March 2019 prepayment agreement or offtake contract. Counsel said there was a very clear connection. Clause 17.5 of the pre-payment agreement provided that the events of default included:

“Misrepresentation

Any representation or statement made or deemed to be made to or for the benefit of the Buyer by the Seller in any Trade Document or any other document delivered by or on behalf of the Seller, as applicable, under or in connection with any Trade Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.”

    1. In support of its claim for repayment VTB has relied upon misrepresentations in the LOA; see paragraph 116(3) of the Statement of Case. Thus there is a very clear connection between the LOA and claims for repayment under the March pre-payment agreement and offtake contract.
    2. However, the question is whether the claims for damages for breach of the LOA or for deceit in relation to representations made in the LOA arise in connection with the March pre-payment agreement or offtake contract. In considering that question the correct approach is that explained by Lord Hoffman in Fiona Trust v Privalov [2008] 1 Lloyd’s Rep 254 at paragraph 13:

“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with the presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

    1. With that approach in mind it is to be noted that the LOA is said in its title to relate to the pre-payment agreement and the offtake contract each dated 15 March 2019. Moreover the representations made concern the Refinery’s compliance with those agreements. Thus there is a very obvious connection between the LOA and those agreements. Given that connection rational businessmen would surely intend that any dispute in connection with the LOA would be determined by the same tribunal which determined disputes under the pre-payment agreement and off-take contract. It would make no sense, would be causative of extra expense and would give rise to the risk of inconsistent decisions were it to be otherwise.
    2. Counsel for the Refinery submitted that this was not the right approach. First, it was said that the LOA is a free-standing document. I do not consider that it is. In order to understand the scope of the representations made in the LOA it is necessary to read it with the March pre-payment agreement and off-take contract. Second, it is said that if the disputes in relation to it were referred to arbitration by the arbitration clause in the March pre-payment agreement and off-take contract then there would have been no need for the parties to include an English law clause in the LOA. But surplus terms are often found in commercial contracts and so little can be inferred from that. Third, it was said that there was no commercial reason why claims for misrepresentation should not be dealt with separately from the arbitration clause in the March pre-payment and off-take contract. But there is a good commercial reason for that. It was explained by Lord Hoffman in Fiona Trust.
    3. I therefore dismiss the second jurisdictional challenge.

The unlawful means conspiracy

    1. In the Statement of Case VTB has pleaded that the Refinery, MachinoImport and Sberbank have conspired together with the effect of preventing the Refinery from being able to deliver gasoil to VTB. Although the arbitration clause refers to arbitration “any non-contractual obligation arising out of or in connection with” the pre-payment agreements and offtake contracts the Refinery suggested that the non-contractual obligation brought against it to pay damages for the loss caused by the alleged unlawful means conspiracy was not referred to arbitration by the clause. It is very difficult to see what the basis of that suggestion was. Counsel referred to the fact that MachinoImport and Sberbank were not party to the arbitration agreement and so any claim against them would have to be advanced elsewhere. That is true but the tortious, non-contractual claim brought against the Refinery for being party to an unlawful means conspiracy clearly arises out of or in connection with the pre-payment agreements and off-take contracts. The claim is therefore very clearly caught by the arbitration clause.
    2. A “timing point” was made, suggesting that since the conspiracy was said to be inferred from a meeting on 15 January 2019 (see paragraph 139(1) of the Statement of Case) it could not give rise to a claim in respect of the March or April contracts. I am not sure why that should be the case. Any conspiracy entered into on 15 January 2019 could affect not only the prior contracts dated October 2018 but also the later contracts dated March and April 2019. Further, reliance was placed on events in March, April and May 2019 which would cover the period of the March and April contracts (see paragraphs 136 and 139 of the Statement of Case). In any event this is a point which would appear to go to the merits of the claim rather than to the question of jurisdiction.
    3. I therefore dismiss the third jurisdictional challenge.

Conclusion

  1. The arbitral tribunal has jurisdiction, pursuant to the arbitration clause in the pre-payment agreements and off-take contracts, to hear and determine the disputes brought before it and particularised in the Statement of Case.

Minister of Finance (Incorporated) v 1Malaysia Development Berhad & Ors [2019] EWCA Civ 2080

Neutral Citation Number: [2019] EWCA Civ 2080
Claim No. CL-2018-000704

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
The Honourable Mr Justice Knowles CBE

Royal Courts of Justice
The Rolls Building
London, EC4A 1NL
26/11/2019

B e f o r e :

SIR GEOFFREY VOS, CHANCELLOR OF THE HIGH COURT
LORD JUSTICE NEWEY
and
LORD JUSTICE MALES

____________________

MINISTER OF FINANCE (INCORPORATED)
1MALAYSIA DEVELOPMENT BERHAD Claimants/Appellants
and
INTERNATIONAL PETROLEUM INVESTMENT COMPANY
AABAR INVESTMENTS PJS Defendants/Respondents

____________________

Mr Toby Landau QC, Mr Peter Webster and Mr Joseph Sullivan (instructed by Eversheds Sutherland (International) LLP) for the Appellants
Mr Mark Howard QC, Mr Craig Morrison and Mr Nathaniel Bird (instructed by Clifford Chance LLP) for the Respondents
Hearing date: 29th October 2019

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Sir Geoffrey Vos, Chancellor of the High Court (delivering the judgment of the court):

Introduction

    1. This appeal raises an important legal issue as to the primacy of the powers of the court contained in sections 67 and 68 (“sections 67 and 68”) of the Arbitration Act 1996 (the “1996 Act”). The judge, Mr Justice Knowles, used case management powers to stay the applications under sections 67 and 68 (the “court applications”) made by the claimants, Minister of Finance (Incorporated) of Malaysia (“MoF”) and 1Malaysia Development Berhad (“1MDB”). That case management order had the effect of allowing two arbitrations (the “second arbitrations”) commenced subsequently by the defendants, International Petroleum Investment Company (“IPIC”) and Aabar Investment PJS (“Aabar”), to proceed to decide factual issues relating to the circumstances in which a consent award (the “consent award”) was entered into in a first and prior arbitration between the parties (the “first arbitration”). Those factual issues also arise in the court applications. The judge also refused to restrain the defendants under section 37(1) of the Senior Courts Act 1981 (“section 37(1)”) from continuing the second arbitrations.
    2. The claimants appeal both the grant of a case management stay and the refusal of an injunction.
    3. In relation to the stay, the claimants contend that the judge only identified one positive justification for granting the stay of the proceedings under sections 67 and 68, namely to avoid unnecessary duplication. The court process was not of equal status with the subsequent second arbitrations. The judge should have placed greater weight on the structure of the 1996 Act and the provisions of section 4 and schedule 1 of the 1996 Act, which make sections 67 and 68 mandatory “notwithstanding any agreement to the contrary”. Had he done so, he would have realised that he was either required to allow the court applications to go first or he ought to have done so as a matter of discretion. The defendants submit that the judge made an entirely proper exercise of discretion, and that there is no legal requirement that the issues raised by applications under sections 67 and 68 should be determined entirely by the court. The various possible outcomes of the second arbitrations going first would all result in the issues being decided by the tribunal that the parties had agreed. Moreover, the judge’s conclusion was coherent and elegant; it preserved all parties’ rights and minimised prejudice.
    4. In relation to the refusal of the injunction to restrain the second arbitrations, the claimants contend that the judge failed to apply the correct two-stage legal test adumbrated in Claxton Engineering Services Ltd v. TXM Olaj-es Gazkutato Kft (No 2) [2011] EWHC 345 (Comm), [2011] 2 All ER (Comm) 128 at [34] (“Claxton“). He did not ask first whether the claimants’ legal or equitable rights had been infringed or threatened by a continuation of the second arbitrations, or whether their continuation would be vexatious, oppressive or unconscionable, before considering, secondly, whether the injunction should be granted as a matter of discretion. Had he done so, the judge would have concluded that the claimants’ right to have the proceedings under sections 67 and 68 determined first was indeed infringed by the prosecution of the second arbitrations, which were themselves vexatious, and that an injunction ought to be granted. The defendants submit that the judge did indeed cite and correctly apply the two-stage approach adumbrated by the claimants.
    5. The factual background to these issues is complex and hotly contested between the parties. We take the view, however, that only a limited amount of factual context is necessary to allow this court fairly to decide the legal issues arising from the judge’s decision. Before the hearing, the court rejected the defendants’ application for the appeal to be heard in private. A public judgment was under appeal, and a private hearing had not been shown to be necessary for the proper administration of justice. The court nonetheless invited the parties not to refer in open court to sensitive commercial documents.

Essential factual background

    1. We have tried to take our summary of the essential factual background so far as possible from the judge’s judgment.
    2. MoF is and was wholly owned by the Malaysian Government. 1MDB is a state-owned investment entity, which is a wholly-owned subsidiary of MoF. IPIC is an investment entity indirectly owned by the Government of Abu Dhabi. Aabar is wholly owned by IPIC.
    3. Mr Najib Razak (“Mr Najib”) was the Prime Minister of Malaysia from 3rd April 2009 to 9th May 2018. The claimants’ case is that Mr Najib conspired with others to misappropriate in excess of US$3.5 billion, and that he has sought to conceal and prevent investigation of the conspiracy. They also allege that 1MDB, IPIC and Aabar were victims of that conspiracy.
    4. On 28th May 2015, the parties entered into a binding term sheet (the “binding term sheet”) containing a London arbitration clause. The claimants allege that the binding term sheet was grossly disadvantageous to them, and that it was, to the defendants’ knowledge, procured by Mr Najib to further his interests and to damage their interests.
    5. On 13th June 2016, the defendants commenced the first arbitration with its seat in London under the arbitration clause in the binding term sheet.
    6. On 22nd April 2017, the parties entered into a settlement deed and a supplemental deed compromising the issues raised in the first arbitration (together the “settlement deeds”). The settlement deeds provided for the issue of a consent award. The claimants contend that the settlement deeds were grossly unfair to them and that they too were, to the defendants’ knowledge, procured by Mr Najib to further his interests and to damage their interests.  The settlement deeds contained arbitration agreements providing that “[a]ny dispute arising from or in connection with [the settlement deed] (including a dispute relating to the existence, validity or termination of [the settlement deed] or any non-contractual obligation arising out of or in connection with [the settlement deed] or the consequences of its nullity …) shall be finally resolved by arbitration under the LCIA Rules which are deemed to be incorporated by reference into this clause … The seat of arbitration shall be London, England and the language of the arbitration shall be English. The governing law of this arbitration clause shall be the substantive law of England”. The settlement deeds also contained a series of events of default and provided that the parties waived any right to challenge the consent award “on grounds of jurisdiction or for any other reason”. The making or commencement of any “demand, action, claim or proceeding whatsoever” by the claimants before 31st December 2020 (which would seemingly include a challenge to the consent award under sections 67 or 68) was one of the events of default. The settlement deeds provided that, if the defendants certified that an event of default had occurred, interest under the bonds and a US$481 million receivable (totalling just less than US$1.2 billion) would become immediately payable by the claimants to the defendants.
    7. On 9th May 2017, the arbitral tribunal in the first arbitration made the consent award, which terminated the first arbitration, stated that the binding term sheet was valid and binding on the parties until terminated by the settlement deeds, provided for the claimants to pay IPIC over US$1·2 billion plus interest by 31st December 2017, and made certain provisions in respect of deeds of guarantee executed in 2012 by IPIC (the “guarantees”) and in respect of certain bonds (the “bonds”).
    8. The defendants contend that, for more than 12 months after May 2017, the claimants complied with their obligations under the settlement deeds and the consent award, including the payment of over US$1.2 billion plus interest.
    9. After the departure of Mr Najib as Prime Minister of Malaysia on 9th May 2018, the claimants issued the court applications. Their claim form was dated 30th October 2018, and sought (a) to set aside the consent award on the basis that the arbitral tribunal in the first arbitration did not have substantive jurisdiction to make it because, to the defendants’ knowledge, Mr Najib lacked authority (under section 67) and (b) determinations that the consent award was procured by fraud or in a way that was contrary to public policy and should be set aside or declared non-binding (under section 68). The claim form was served on the defendants on 20th November 2018. Mr Richard Little’s statement dated 30th October 2018 in support of the claim form described the court applications in paragraph 12 as follows:-

“12. I understand that this Consent Award should be set aside because:

a. The Consent Award was procured by fraud or the way it was procured was contrary to public policy. The Award formed part of an attempt by Mr Najib to cover up his and his fellow conspirators’ fraud (including former senior officers of IPIC and Aabar PJS), contrary to the interests of MOFI, 1MDB and the Malaysian people, in whose interests he was constitutionally bound to act. Moreover, IPIC and Aabar PJS knew that he was acting in this way and were complicit in his fraud: their agents colluded with him in the original fraud, and then both IPIC and Aabar PJS colluded with him again in seeking to cover the fraud up by means of the Award and other agreements. I consider that this was a continuation of the fraud and that the way in which the Award was procured was clearly contrary to public policy. In addition, the settlement agreements upon which the Consent Award is based are void and would, if they were not void, be unenforceable on grounds of illegality.

b. In any event, the Tribunal only had jurisdiction to grant a Consent Award if it was jointly requested to do so by all of the parties to the arbitration. Mr Najib was acting in a way that was profoundly contrary to MOFI and 1MDB’s best interests and therefore was not acting with MOFI or 1MDB’s authority. As a result, MOFI and 1MDB did not, in fact, request the Consent Award and IPIC/Aabar PJS was aware of this”.

    1. The claim form was issued outside the time limits provided by the 1996 Act, but the judge declined to strike it out on 11th March 2019. An application to extend time will need to be determined in due course.
    2. On 21st November 2018, the defendants requested the commencement of the second arbitrations, and the claimants responded on 16th January 2019. The defendants alleged that there had been events of default under the settlement deeds entitling the defendants to demand immediate payments. Those events of default included an alleged public statement by the Attorney General of Malaysia on 30th October 2018 about the Government of Malaysia’s intention to apply to the English court for an order to set aside the consent award and to recover some US$1.46 billion already paid under the consent award, as well as the claimants’ sections 67 and 68 applications themselves. The events of default in the settlement deeds relied upon by the defendants related to the claimants’ public challenges to the validity of the binding term sheet, the settlement deeds and the consent award, and to the claimants having reclaimed monies paid under them. The second arbitrations seek declarations that the settlement deeds were valid and binding and not liable to be set aside, and interest under the bonds of some US$714,474,561, together with payment of a receivable of some US$481 million.
    3. On 13th December 2018, the defendants applied to strike out the claim form, alternatively for a stay of the court applications under section 9 of the 1996 Act or on case management grounds. On 11th January 2019, the claimants applied for an order under section 37(1) restraining the defendants from pursuing the second arbitrations pending the final determination of the court applications.
    4. The hearing of these two applications took place before the judge on 11th and 12th March 2019. On 11th March 2019, the judge delivered an ex tempore judgment refusing the defendants’ application to strike out the claim form, which had been brought on the basis that the claimants had not applied to extend time in their claim form. The claimants’ application to extend time (made in Mr Little’s witness statement) was at that stage due to be heard in May 2019, and the judge kept in mind that it was an open question whether time would be extended.
    5. The judge delivered his reserved judgment on the two applications identified at [17] above on 8th May 2019. His order was dated 21st May 2019. In broad terms, he refused the defendants’ application for a stay of the court applications under section 9, but granted a stay of the court applications on case management grounds until further order. He refused the claimants’ application to restrain the second arbitrations. Simon LJ refused the defendants permission to appeal the judge’s ruling under section 9. Simon LJ did, however, on 31st July 2019, grant the claimants permission to bring this appeal.

The judge’s judgment

    1. The judge said that the questions of whether the consent award should be set aside or declared to be non-binding were ultimately for the court under its supervisory jurisdiction over the first arbitration. The central issue that he had to decide was whether the court or the second arbitrations should decide whether the settlement deeds were void and/or not binding on the claimants (which he called the “underlying question”). He said that both the court and the second arbitrations had jurisdictions “for which the answer to the underlying question [was] material”.
    2. The judge then dealt with the salient provisions of the 1996 Act on party autonomy and the supervisory jurisdiction of the court. Then, having mentioned section 4(1) of the 1996 Act and the waiver of rights to challenge the jurisdiction of the first arbitration in paragraph 5(4) of the settlement deed, the judge turned to the question of overlapping and concurrent jurisdiction between the court proceedings and the second arbitrations. He said that, where there was concurrent jurisdiction, the questions of a stay or an injunction of one or other forum might be of high importance.
    3. The judge refused a stay under section 9 first. He did not do so because he thought that the court’s supervisory jurisdiction over the first arbitration took precedence over the second arbitrations; he thought both had equal priority since both were founded on the parties’ agreement to arbitrate under the supervision of the English court. Instead, he founded his decision on the basis that the presence of two concurrent jurisdictions prevented the engagement of section 9 in the first place.
    4. In relation to the case management stay, the judge began by saying that the presence of concurrent jurisdiction did not mean that there had to be unnecessary duplication. A case management stay of court proceedings was an available discretionary tool which could be used flexibly. He made clear that a rare and compelling case was required for a stay to be granted, referring to Lord Bingham’s dicta at page 186 in Reichhold Norway ASA v. Goldman Sachs International [2000] 1 WLR 173 (“Reichhold“), ultimately concluding that such a case had been made out. The alternative, he thought, was duplication in the investigation and decision on whether the settlement deeds were void or not binding, which invited delay, cost, disorder, and uncertainty, referring to the approach of Blair J at [165] in Autoridad del Canal de Panamá v Sacyr SA [2017] EWHC 2228 (Comm), [2018] 1 All ER (Comm) 916.
    5. The judge rejected the submission that it was for the court supervising the arbitration to deal with all factual matters raised by the challenges under sections 67 and 68, including the attack on the settlement deeds. He held that that approach was not consistent with the discretionary nature of the stay sought, and elevated the supervisory jurisdiction above the concurrent jurisdiction of the second arbitrations, when both derived from party autonomy. He noted that the public interest of which Mance LJ had spoken at [34] in Department of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co [2004] EWCA Civ 314, [2005] QB 207 (“City of Moscow“) was “to facilitate the fairness and well-being of a consensual method of dispute resolution”.
    6. The judge considered what a stay would involve, noting that the second arbitral tribunals were composed of distinguished members, had been chosen after Mr Najib had lost control, and that they would consider the facts of the claim that the settlement deeds were void and/or not binding. There was no unfairness about their deciding some issues up to the point of an issue estoppel, because the challenges under sections 67 and 68 remained live, and the court could decide all issues and remedies.  The second arbitrations too would be subject to the court’s supervisory jurisdiction. He did not think that the court’s power to order third party disclosure was a compelling consideration.
    7. In relation to the claimants’ application for an injunction under section 37(1), the judge said that the court could only act where it appeared just and convenient to do so, and that the power had to be exercised sensitively (see Lord Mance at [60] in AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, [2013] Bus LR 1357).  He cited Hamblen J’s judgment at [34] in Claxton, to the effect that it would “usually be necessary, as a minimum, to establish that the applicant’s legal or equitable rights have been infringed or threatened by a continuation of the arbitration, or that its continuation will be vexatious, oppressive or unconscionable … However this may not be sufficient …”. He concluded for seven composite reasons that it would not be just and convenient to grant the injunction.
    8. The reasons the judge gave were (i) the court retained jurisdiction over the consent award, (ii) the two proceedings shared the same underlying question, and the claimants could not complain if the second arbitrations decided that question against them, (iii) the second arbitral tribunals would be vigilant over their jurisdiction, and (iv) were an independent forum, (v) the defendants alleged that the claimants’ commencement of the court applications gave them the right to commence the second arbitrations, and therefore the financial consequences of having done so are consequences of agreements that the parties either have or have not made, (vi) the case management stay would appropriately manage the risks of parallel proceedings, and the claimants had no right to have the court applications under sections 67 and 68 determined first, and (vii) the question of whether proceedings were in private or not was a separate one.
    9. The judge concluded by noting that the dispute was of great importance to the parties and, according to the claimants, to the people of Malaysia. He ordered a case management stay of the court applications, allowing the second arbitrations to proceed first, and saying that he would monitor their progress by receiving regular reports.

The issues for determination

    1. Against this background, there are, as it seems to us, the following four issues for determination:-

i) Whether the judge exercised his case management power to stay the court applications on the correct legal basis?ii) If not, ought this court to exercise a case management power to stay the court applications?

iii) Whether the judge exercised his discretion to refuse an injunction under section 37(1) on the correct legal basis?

iv) If not, ought this court to exercise its discretion to grant an injunction to restrain the second arbitrations under section 37(1)?

    1. Before dealing with these issues, it is necessary to set out the essential statutory provisions and to summarise some of the applicable authority.

Relevant statutory background

    1. Section 1 of the 1996 Act provides as follows under the heading “General principles”:

“The provisions of this Part are founded on the following principles, and shall be construed accordingly—

(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

(b) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;

(c) in matters governed by this Part the court should not intervene except as provided by this Part”.

    1. Section 4 of the 1996 Act provides as follows under the heading “Mandatory and non-mandatory provisions”:

“(1) The mandatory provisions of this Part are listed in Schedule 1 and have effect notwithstanding any agreement to the contrary.

(2) The other provisions of this Part (the “non-mandatory provisions”) allow the parties to make their own arrangements by agreement but provide rules which apply in the absence of such agreement”.

    1. Section 67 of the 1996 Act provides as follows under the heading “Challenging the award: substantive jurisdiction”:

“(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—

a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending in relation to an award as to jurisdiction.

(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order—

a) confirm the award,

b) vary the award, or

c) set aside the award in whole or in part.

(4) The leave of the court is required for any appeal from a decision of the court under this section”.

    1. Section 68 of the 1996 Act provides as follows under the heading “Challenging the award: serious irregularity”:

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

a) failure by the tribunal to comply with section 33 (general duty of tribunal);

b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67); …

g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy; …

(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may—

a) remit the award to the tribunal, in whole or in part, for reconsideration,

b) set the award aside in whole or in part, or

c) declare the award to be of no effect, in whole or in part.

The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

(4) The leave of the court is required for any appeal from a decision of the court under this section”.

    1. Sections 70(1) and (2) of the 1996 Act provide as follows under the heading “Challenge or appeal: supplemental provisions”:

“(1) The following provisions apply to an application or appeal under section 67, 68 or 69.

(2) An application or appeal may not be brought if the applicant or appellant has not first exhausted—

(a) any available arbitral process of appeal or review, and

(b) any available recourse under section 57 (correction of award or additional award)”.

Authorities and relevant principles

    1. In C v. D [2007] EWHC 1541 (Comm), [2007] 2 Lloyd’s Rep 367, Cooke J explained the significance of agreeing to the seat of an arbitration, and to an arbitration governed by English law and the 1996 Act, as follows:

“27. As a matter of construction of the policy and the arbitration provision within it, with its express reference to English law and the 1996 Arbitration Act, I consider that the parties have incorporated the framework of that Act and agreed that it should apply to any arbitration between them with all its mandatory provisions and with its nonmandatory provisions, save to the extent that there is agreement to the contrary. The agreement to the seat and the curial law necessarily imports that, with the result that challenges to any award are governed by the relevant sections of the Act, as amended by the parties’ agreement where the Act itself allows it. …

29. The significance of the “seat of arbitration” has been considered in a number of recent authorities. The effect of them is that the agreement as to the seat of an arbitration is akin to agreement to an exclusive jurisdiction clause. Not only is there agreement to the arbitration itself but also to the courts of the seat having supervisory jurisdiction over that arbitration. By agreeing to the seat, the parties agree that any challenge to an interim or final award is to be made only in the courts of the place designated as the seat of the arbitration”.

    1. This reasoning was expressly approved by this court on appeal in C v. D [2007] EWCA Civ 1282, [2008] 1 Lloyd’s Rep 239, where Longmore LJ said:

“17.  It follows from this that a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award. As the judge said in paragraph 27 of his judgment, as a matter of construction of the insurance contract with its reference to the English statutory law of arbitration, the parties incorporated the framework of the 1996 Act. He added that their agreement on the seat and the “curial law” necessarily meant that any challenges to any award had to be only those permitted by that Act. In so holding he was following the decisions of Colman J in A v B [2007] 1 Lloyds Rep 237 and A v B (No. 2) [2007] 1 Lloyds Rep 358 in the first of which that learned judge said (para. 111):—

‘… an agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy going to the existence or scope of the arbitrator’s jurisdiction or as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of the arbitration.’

That is, in my view, a correct statement of the law”.

    1. The jurisdiction of the court under sections 67 and 68 is therefore founded on the agreement of the parties to an arbitration with a London seat. It is, however, also founded on wider considerations of the public interest.
    2. The 1996 Act strikes a balance. On the one hand, court intervention in arbitration proceedings is carefully limited so that the only permitted intervention in matters governed by Part 1 of the 1996 Act is that for which the 1996 Act expressly provides, as section 1(c) of the 1996 Act, in effect, says. Paragraph 19 of the DAC report indicated that the intention was “to support and assist the arbitral process and the stated object of arbitration”, which was “to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”, as provided for in section 1(a) of the 1996 Act. On the other hand, the 1996 Act includes mandatory provisions, described in section 1(b) as “such safeguards as are necessary in the public interest”, which according to section 4(1) “have effect notwithstanding any agreement to the contrary”.
    3. The mandatory provisions include, of course, sections 67 and 68. Accordingly, in this case, the claimants had a right, which the defendants had agreed they should have, and which had effect notwithstanding any agreement to the contrary, to challenge the consent award by making court applications under section 67 for lack of substantive jurisdiction and under section 68 for serious irregularity.
    4. Not infrequently such challenges lack merit and are nothing more than an attempt by the losing party to put off the day of reckoning. When that is the case the court has adequate powers to bring the challenge to a prompt end, including in the case of section 68 dismissing the application on paper. However, it has not been suggested that the claimants’ challenge to the consent award in this case falls into that category. The claimants’ allegations are firmly denied, but they appear to raise issues which will need careful consideration in the light of what will no doubt be highly controversial factual evidence.
    5. In addition, it was not disputed that the grounds of challenge, at least potentially, undermine the arbitration agreement as well as the deeds of settlement in which they were contained. As Lord Hoffmann said in Fiona Trust & Holding Corporation v. Privalov [2007] UKHL 40, [2008] 1 Lloyd’s Rep 254 at [17]: “if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement”.
    6. When an application to challenge an award is made under sections 67 or 68, it is prima facie the duty of the court to determine that challenge and to do so as promptly as possible. In so doing the court is not merely giving effect to the agreement of the parties but is performing an important public function, as Mance LJ explained at [34] in City of Moscow:

“The consideration that parties have elected to arbitrate confidentially and privately cannot dictate the position in respect of arbitration claims brought to court under rule 62.10. Rule 62.10 therefore only represents a starting point. Such proceedings are no longer consensual. The possibility of pursuing them exists in the public interest. The courts, when called upon to exercise the supervisory role assigned to them under the Arbitration Act 1996, are acting as a branch of the state, not as a mere extension of the consensual arbitration process. Nevertheless, they are acting in the public interest to facilitate the fairness and well-being of a consensual method of dispute resolution, and both the Rule Committee and the courts can still take into account the parties’ expectations regarding privacy and confidentiality when agreeing to arbitrate.”

    1. It is noteworthy that the judge mentioned this paragraph of Mance LJ’s judgment in City of Moscow, but cited it only in support of the proposition that the public interest of which he had spoken was “to facilitate the fairness and well-being of a consensual method of dispute resolution”. He did not mention that (a) the election to arbitrate could not dictate the position in respect of arbitration claims brought to court under 1996 Act, where the proceedings were no longer consensual, or that (b) the courts exercising their supervisory role under the 1996 Act are acting as a branch of the state, not as a mere extension of the consensual arbitration process. These are, in our view, crucial features of the court’s approach to resolution of arbitration claims.
    2. It is worth exploring a little further the public interest which is engaged when an award is challenged. It is in the public interest that a valid arbitration award should be recognised and enforced and, in this jurisdiction, such an award may be enforced by making use of the coercive powers of the state to enforce a court judgment.[ Internationally, an award which is valid in accordance with the law of the seat can be enforced pursuant to the 1958 New York Convention (the “NY Convention”), with only limited grounds on which recognition or enforcement may be refused by the enforcing court.[ Conversely, it is against the public interest for the powers of the state to be utilised to enforce an award in a case where the arbitrators had no jurisdiction or which is the result of a “serious irregularity”. In the latter case, it is as well to bear particularly in mind the high hurdle which an applicant must overcome in order to demonstrate that there has been a serious irregularity, which includes proof of substantial injustice. Thus, when the court is exercising its supervisory jurisdiction under sections 67 or 68, it is deciding whether the award is one which should benefit from the coercive power of the state both in this country and worldwide for its recognition and enforcement.
    3. Until a challenge under section 67 or 68 is determined by the court of the seat of the arbitration, the status of the award is uncertain. Some jurisdictions may enforce such an award; others may not. Article VI of the NY Convention gives the court hearing an application to enforce an award a discretion to adjourn its decision when a challenge to the award is pending before the courts of the seat. Evidently, therefore, a decision by the court of the seat to postpone a decision on a court challenge prolongs the period within which the status of the award will be uncertain and gives rise to a risk of injustice, either because an award which is ultimately set aside is enforced or because enforcement of an award which is ultimately held to be valid may be refused or delayed. The scheme of the NY Convention is that it is the court of the seat which will determine the validity of the award. For so long as a challenge remains unresolved, there is a risk that the same issue will be litigated in a number of jurisdictions, wherever enforcement is sought. The need for promptness and finality in dealing with challenges under sections 67 and 68 is underlined by the provision in each of those sections that an appeal may only be brought with the permission of the court hearing that challenge.
    4. These authorities and matters suggest that a stay of court applications under sections 67 and 68 on case management grounds should only rarely be granted, and that there should be compelling grounds for the grant of such a stay. That was what this court held in comparable circumstances in Reichhold, but it applies with particular force in circumstances such as the present case.
    5. Moreover, in Hashwani v. OMV Maurice Energy Ltd [2015] EWCA Civ 1171, [2015] 2 CLC 800 (“Hashwani“) at [31], Moore-Bick LJ suggested that it was the court’s responsibility to decide a challenge to the jurisdiction of arbitrators. Whilst that was an application under section 72 of the 1996 Act, another of the mandatory provisions, his reasoning is equally applicable to a challenge under sections 67 and 68. He said this:-

“31. A party who makes an application under section 72(1) of the Arbitration Act 1996 is asking the court to determine whether the tribunal in question has jurisdiction to hear and determine the matters submitted to it. That is a question of law which ultimately admits of only one answer, however difficult it may be to ascertain it, and it is the court’s responsibility to decide the question on the basis of the evidence the parties have chosen to put before it, unless there is some justification for not doing so. There is a good reason for that. Although arbitrators have jurisdiction to decide their own jurisdiction, they do not have the final word on the subject, because it is open to the parties to challenge their award under section 67 of the Act on the grounds that they lacked substantive jurisdiction. In simple terms, a party is not bound by the award of a tribunal on a matter that he did not agree to refer to it. It may be that in a few cases there may be practical reasons for allowing the tribunal to reach a decision on its own jurisdiction before the court finally rules on the matter, but such cases are likely to be rare. In the present case a decision by the tribunal might have had some persuasive authority, but could not finally determine the matter before the court. …

33. … I agree with the views expressed by Lightman J in Albon v Naza Motor Trading Sdn Bhd [2007] EWHC 665 (Ch) that it will only be in exceptional cases that a court faced with proceedings which require it to determine the jurisdiction of arbitrators will be justified in exercising its inherent power to stay those proceedings to enable the arbitrators themselves to decide the question”.

    1. In our judgment, this appeal needs to be determined in the light of these principles.

First issue: Did the judge exercise his case management power to stay the court applications on the correct legal basis?

    1. The claimants put the matter in alternative ways. First, they say that the mandatory nature of sections 67 and 68 mean that the judge had no discretion to stay the court applications in favour of the second arbitrations. Alternatively, they submit that, even if the defendants are right to submit that there is no rule requiring facts raised by court applications under section 67 and 68 to be determined by the court, the judge ought to have taken the mandatory nature of the provisions into account, so that his decision on case management grounds was affected by a legal error.
    2. The claimants’ second main submission was based on a graphical representation of the chronological events demonstrating that, for these purposes, the relevant time at which the parties had agreed to arbitration and to the mandatory provisions of the 1996 Act was when they entered into the binding term sheet, not when they entered into the settlement deeds. Section 4 had the effect that they could not subsequently contract out of those mandatory provisions when they later concluded the settlement deeds.
    3. Mr Mark Howard QC, counsel for the defendants, conversely placed great emphasis on the arbitration clauses in the settlement deeds and the importance of the court giving effect to them, notwithstanding the court applications under sections 67 and 68. He submitted that the effect of the judge’s decision was that all the issues would be resolved in the forum that the parties had agreed; the underlying fraud and the validity of the arbitration agreement in the settlement deeds would be decided first by the agreed tribunal. If the tribunal decided that there was a fraud, the claimants would have no complaint. If the tribunal decided it had no jurisdiction, then equally neither side could complain. If the tribunal decided it did have jurisdiction and resolved the dispute in the defendants’ favour, then the claimants could challenge that decision under sections 67 and 68 on the ground of fraud affecting the arbitration agreements in the settlement deeds. If that challenge failed, then the correct tribunal had decided it; if it succeeded, the decision in the second arbitrations would be set aside, but either way, the correct tribunal would decide the issues that it had been agreed they should decide.
    4. The role of an appellate court was explained by Lord Neuberger in BPP Holdings Ltd v. Revenue & Customs Commissioners [2017] UKSC 55, [2017] 1 WLR 2945 at [33]:

“… an appellate judge should only interfere where the decision is not merely different from that which the appellate judge would have made, but is a decision which the appellate judge considers cannot be justified. In the words of Lawrence Collins LJ in Walbrook Trustee (Jersey) Ltd v Fattal [2008] EWCA Civ 427 at [33]:

‘an appellate court should not interfere with case management decisions by a judge who has applied the correct principles and who has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge’.

In other words, before they can interfere, appellate judges must not merely disagree with the decision; they must consider that it is unjustifiable”.

    1. This court must then apply that test to the judge’s case management decision to stay the court applications. In our judgment, the judge’s decision proceeded on a false premise. He held that the claimants’ court applications elevated the supervisory jurisdiction above the concurrent jurisdiction of the second arbitrations, when both derived from party autonomy. But he failed to recognise, as we have sought already to explain, that: (a) the claimants had a right, which the defendants had agreed they should have, and which had effect notwithstanding any agreement to the contrary, to challenge the consent award under sections 67 and 68, (b) the grounds of challenge affected Mr Najib’s authority to enter into the deeds of settlement at all and would, therefore, undermine the arbitration agreement contained within them, (c) it is the responsibility of the court to determine challenges under sections 67 and 68, and to do so as promptly as possible, (d) the election to arbitrate could not dictate the position in respect of challenges under sections 67 and 68, which were no longer consensual, (e) courts exercising their supervisory role under the 1996 Act do so as a branch of the state, not as a mere extension of the consensual arbitration process, and (f) the court exercising its supervisory jurisdiction under sections 67 and 68 must do so quickly to avoid uncertainty and injustice in the enforcement process.
    2. Accordingly, we are satisfied that the judge exercised his case management power to stay the court applications under sections 67 and 68 on the wrong legal basis. He viewed the application from the wrong starting point and this court can and should reconsider whether a stay is appropriate.

Second issue: If not, ought this court to exercise a case management power to stay the court applications?

    1. The judge correctly identified the test that had to be applied, namely whether this was one of the rare cases where a compelling case had been shown for a stay to be granted.
    2. It is important first, in our judgment, to consider precisely what the defendants are seeking to stay. The parties contracted for the limited supervisory jurisdiction of the English court for which the 1996 Act provided, when they entered into the binding term sheet, which included an agreement to arbitration with an English seat. The defendants were asking the court to stay the court applications challenging under sections 67 and 68 the consent award made in the first arbitration. Those challenges were, first, as to the first arbitral tribunal’s jurisdiction to make the consent award, because of Mr Najib’s alleged lack of authority to enter into the settlement deeds at all. It is alleged that the defendants were fully aware of that lack of authority. Secondly, there was a challenge under section 68(2)(g) to the effect there was a serious irregularity in the consent award, because it was procured by fraud or in a way that was contrary to public policy. It is alleged that the defendants were fully aware of that fraud and were complicit in it.
    3. The defendants were, therefore, seeking to bring a halt to the court applications challenging the consent award in the first arbitration on the basis that the settlement deeds had included further exclusive arbitration agreements. The defendants had, however, already submitted to the supervisory jurisdiction of the English court in relation to the first arbitration when they entered into the binding term sheet, and before the settlement deeds were themselves entered into. There are, therefore, no circumstances in which the court will not need to determine the court applications under sections 67 and 68. Mr Howard can point, as he has, to a number of possible outcomes that would accord with the parties’ agreement in the settlement deeds. He cannot, however, deny that if the second arbitrations decide the underlying facts as to Mr Najib’s authority and as to the alleged fraud against the claimants, they will have been, at least partially, deprived of what they undoubtedly contracted for under the binding term sheet, namely the English court’s supervision of the first arbitration. There might or might not be questions of issue estoppel at that stage, but, if the court applications are stayed, the court’s determination will have been delayed and possibly made much more complicated. Allowing the court proceedings to take their normal course would, on the other hand, allow the parties’ original expectations under the undisputed first arbitration agreement to be completely fulfilled.
    4. Against that background, this court has to consider whether there should be a stay of the claimants’ court applications to allow the second arbitrations to determine the facts upon which those court applications are founded. There are, in our judgment, no compelling reasons to grant such a stay.
    5. First, the principles of the 1996 Act make it clear in section 1(b) that the parties should be free to agree how their disputes are resolved, subject to the safeguards that are necessary in the public interest. As we have explained, however, the right to commence and progress properly brought court applications under sections 67 and 68 is necessary in the public interest. The court is performing an important public function in resolving such disputes. The principles explained above militate against the grant of a stay in this case.
    6. Secondly, it is clear from the requests for arbitration in the second arbitrations that the defendants’ commencement of the arbitrations was a reaction to the claimants’ court applications. That is not a matter of simple timing, but one of substance. Even though the requests for arbitration were made one day after service of the claimants’ court applications, they were clearly prepared earlier. The events of default in the settlement deeds, on which the defendants rely, are mostly founded on the claimants’ own court proceedings. The principal relief sought by the defendants is the mirror image of the claimants’ case in their challenge to the consent award. Moreover, the claimants’ alleged liability for very substantial sums is said to have been triggered by the making of their court applications. In circumstances where the second arbitrations are a reaction to the claimants’ court proceedings, and where the claimants have a statutory right to bring those proceedings, which cannot be ousted by contract, it would be illogical to give precedence to the second arbitrations unless there were other strong reasons to do so.
    7. Thirdly, we do not accept that the judge was right to think that a stay would avoid unnecessary duplication. The question of duplication will depend on whether decisions in the secondarbitration give rise to issue estoppels which are determinative of the court applications. If they do not, and if the decision in the second arbitrations is adverse to the claimants, nothing will have been achieved except for delay. The court applications will have to proceed with at least the risk of conflicting decisions by the court and the arbitrators. Moreover, as the arbitrators in the second arbitrations cannot conclusively determine their own jurisdiction, there would at least be the possibility of further court proceedings challenging the awards in the second arbitrations. On the other hand, if the second arbitrations do give rise to issue estoppels, and assuming that those awards successfully withstand further court challenge under sections 67 and 68, the result will be that the court’s decision on the existing court applications will in effect have been delegated to the arbitrators in the second arbitrations. A powerful justification would be needed for the court to allow such a possible outcome.
    8. Fourthly, the principle of party autonomy, relied upon by the defendants, also points against the grant of a stay. It is true that the wide arbitration clauses in the settlement deeds expressly extend to “a dispute relating to the existence, validity or termination of” the settlement deeds themselves. But, as Moore-Bick LJ pointed out in Hashwani, the arbitrators cannot finally determine their own jurisdiction. Accordingly, the choice which confronted the judge was between (a) a case management stay which would enable the arbitrators to reach what could be no more than a provisional decision under the doctrine of kometenz-kompetenz, and (b) allowing the court applications to continue so that the court could reach a binding decision which would finally determine the status of the consent award. As we have said, the claimants can properly invoke the parties’ agreement in the binding term sheet to the supervisory jurisdiction of the English court under sections 67 and 68. In such circumstances, and bearing in mind the heavy burden on the defendants to justify a case management stay, we regard it as clear that the proceedings should have been allowed to continue.
    9. Fifthly, the result of imposing a stay is that, in order to continue their court applications challenging the consent award, the claimants must first defend themselves against large financial claims in the second arbitrations. If those claims were to succeed, the defendants would no doubt seek to enforce the awards in their favour in any jurisdiction where the claimants may have assets, and would seek to do so before the determination of either (a) the claimants’ existing court applications, or (b) any applications which they might make to challenge the awards in the second arbitrations. That possible outcome would be inappropriately burdensome for the claimants. It is a factor that should be taken into account in exercising the court’s discretion.
    10. In the circumstances, it is not necessary for us to say much more about the judge’s exercise of his discretion. We should, however, mention that the judge imposed a stay on the basis that the court would exercise a form of continuous supervision over the second arbitrations by means of regular reports on their progress. The court does not, however, have any such jurisdiction under the 1996 Act. Its powers to intervene are strictly limited in accordance with the provisions of the 1996 Act and, in these circumstances, arise only in relation to the issue of the consent award. Moreover, the claimants have invoked the court’s jurisdiction over the first arbitration, whilst the continuous supervision for which the judge opted purported to exercise jurisdiction over the second arbitrations. He was not, we think, justified on any basis in adopting that course.
    11. For the reasons we have given, we would not exercise a case management power to stay the court applications.

Third issue: Did the judge exercise his discretion to refuse an injunction under section 37(1) on the correct legal basis?

    1. It is common ground that the court has jurisdiction to grant an injunction to restrain the pursuit of arbitration proceedings, but that such an injunction will only be granted in exceptional circumstances, the relevant test being that set out by Hamblen J in Claxton at [34] as follows:

“In order to establish exceptional circumstances, it will usually be necessary, as a minimum, to establish that the applicant’s legal or equitable rights have been infringed or threatened by a continuation of the arbitration, or that its continuation will be vexatious, oppressive or unconscionable, these being the principles which govern the grant of injunctions to restrain proceedings in a foreign court: see the Elektrim case [2007] 2 Lloyd’s Rep 8 at [56]. However this may not be sufficient as the Elektrim decision illustrates: see [74] and [75]”.

    1. The claimants contend that, although the judge cited that test, he did not properly apply it, whilst the defendants say that, on a proper analysis, he did just that. We confess that we find paragraphs 96-109 of the judge’s judgment somewhat hard to follow, because he seems to deal with three separate questions in an integrated manner. The three questions are (a) whether the claimants’ rights have been infringed or threatened by a continuation of the second arbitrations, (b) whether continuation of the second arbitrations would be vexatious, oppressive or unconscionable, and (c) whether it would be just and convenient under section 37(1) to grant an injunction restraining the continuation of the second arbitrations.
    2. We do not think that we need to decide whether the judge properly addressed his mind to the first two of these three questions, since he certainly seems to have thought he was exercising his discretion in answering the third question on the mistaken basis that it had been appropriate to grant a case management stay of the court applications, which we have decided was the wrong course.
    3. It seems most likely that the judge thought that the answer to the first two questions we have set out was in the negative, though he never expressly said so. If that was his answer, of course, he did not need to address the question of discretion, which he undoubtedly purported to answer in paragraph 109 where he said that it did not appear to be “just and convenient to grant the injunction sought”. In any event, even if the judge did decide that the first two questions should be answered in the defendants’ favour, for reasons that we explain in the next section of this judgment, we do not agree with that conclusion.
    4. Accordingly, in our judgment, the judge exercised his discretion to refuse an injunction under section 37(1) on the wrong legal basis. He should have directly answered the first two questions we have set out in order to determine whether there was a basis for holding that the necessary exceptional circumstances existed for the grant of such an injunction. He should then, if exercising a discretion, not have done so on the basis that a case management stay was being granted.
    5. We, therefore, hold that it is open to this court to reconsider whether an injunction should be granted to restrain the pursuit of the second arbitrations.

Fourth issue: If not, ought this court to exercise its discretion to grant an injunction to restrain the second arbitrations under section 37(1)?

    1. In order to determine whether the required exceptional circumstances exist, the first and second questions are whether either the claimants’ rights have been infringed or threatened by a continuation of the second arbitrations and/or whether continuation of the second arbitrations would be vexatious, oppressive or unconscionable. In our judgment, both these conditions are satisfied in this case because the defendants are pursuing the second arbitrations in which they contend (a) that the pursuit of the court applications are themselves events of default under the settlement deeds, and (b) that the events of default in question trigger the claimants’ substantial and immediate financial liability. Those claims infringe and threaten the claimants’ undoubted legal right to pursue the court applications under sections 67 and 68, and are vexatious and oppressive. We refer in this regard to the principles explained above as to the public interest in allowing parties that have agreed to an English seat of arbitration to pursue the limited supervisory remedies permitted under the 1996 Act. It is not legitimate for the defendants to seek to enforce the clauses of the settlement deeds that attempt to suppress the court’s review of the consent award, to which the parties specifically agreed in the binding term sheet. Mr Howard was prepared to accept that there may be arguments as to whether the terms of the settlement deeds which have this effect are void as being penal or otherwise contrary to public policy. We are sure that such arguments could be advanced, but what matters for present purposes is that the defendants are contending vigorously in the second arbitrations that the terms in question are valid and enforceable. They cannot in such circumstances sensibly say to this court that no harm may be done because the arbitrators may rule that the terms are unenforceable. The defendants will, on their own case, be seeking to persuade the arbitrators that the terms are enforceable. If they succeed, the defendants will no doubt contend that the decision is not subject to review by the court because, even if the arbitrators are wrong, any error is one of law and the parties have excluded an appeal under section 69 of the 1996 Act which would be the only means of putting the error right.
    2. As matters stand, therefore, the terms of the settlement deeds represent a clear attempt to fetter the claimants’ exercise of their statutory right to challenge the consent award in the first arbitration under sections 67 and 68. The pursuit of the second arbitrations seeks in terrorem to impose a large financial penalty on the claimants for having sought to exercise their agreed legal rights.
    3. Once these conclusions on the first and second questions are reached, it is necessary to address the third question set out above as to the court’s discretion. In the circumstances of this case, however, the only appropriate exercise of discretion is to grant an injunction to restrain the pursuit of the second arbitrations. The court applications will proceed to determine the validity of the consent award, and it is just and convenient that the second arbitrations should not proceed until that has been determined. The injunction will bring the defendants’ vexatious conduct to an end. It will also ensure the objective which the defendants and the judge have sought to achieve, namely to avoid what the judge described as “the risk of parallel proceedings and costs and [a] possible ‘rush to judgment'”.

Conclusions

  1. For the reasons we have given, therefore, we will allow the appeal. We will remove the stay on the claimants’ court applications under sections 67 and 68, and grant an injunction to restrain the pursuit of the second arbitrations until the final determination of those applications. The decision as to the continuation of that injunction thereafter will, if necessary, need to be considered by a judge of the Commercial Court at that stage in the light of the circumstances prevailing at that time.

Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [No 3] [2019] WASC 469

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : NU-FORTUNE GOLD LTD -v- ROXBURY TRADING PTY LTD [No 3] [2019] WASC 469

CORAM : ALLANSON J

HEARD : 17 DECEMBER 2019

DELIVERED : 20 DECEMBER 2019

FILE NO/S : CIV 2354 of 2019

BETWEEN : NU-FORTUNE GOLD LTD

First Plaintiff

ECO MINERALS RESEARCH LTD

Second Plaintiff

AND

ROXBURY TRADING PTY LTD

First Defendant

PAUL JAMES KENNEDY

Second Defendant

Arbitration – Where applicants seek stay of counterclaim and referral of part of dispute to arbitration – Where applicants filed affidavit and submission in response to application for summary judgment – Whether action brought in a matter the subject of an arbitration agreement – Whether stay of proceedings and referral requested before applicant’s first statement on the substance of the dispute

ALLANSON J:

Background

  1. In about March 2016, Paul Richard Hanna, Paul James Kennedy, Roslyn May Kennedy, Nu-Fortune Gold Ltd and Robert Alan Jacobs, as administrator of Roxbury Trading Pty Ltd, entered into Heads of Agreement. The effect of the agreement was that Roxbury would come out of administration and Nu-Fortune would acquire various mineral tenements.
  2. Clause 15 of the Heads of Agreement provided for dispute resolution. Relevantly it applied ‘if a dispute should arise between Kennedy, [Nu‑Fortune] and or Hanna’. The dispute resolution procedure required notice of dispute, with a meeting for the purpose of resolving the issue. By cl 15(c), if resolution could not be achieved, ‘an independent arbitrator shall be appointed to determine a fair and reasonable outcome in the matter’. Further provision was made for the appointment of an arbitrator.
  3. Nu‑Fortune and Eco Minerals Research Ltd brought an action against Mr Kennedy and Roxbury for breach of the terms of a sublease of land described as the Menzies State Battery.
  4. Roxbury and Mr Kennedy have counterclaimed against Nu‑Fortune, Eco Minerals and Mr Hanna.
  5. By summons filed 19 November 2019, the Nu‑Fortune parties sought orders that the parties be referred to arbitration pursuant to cl 15 of the Heads of Agreement and the Commercial Arbitration Act 2012 (WA), and the proceedings be stayed.
  6. On 20 November 2019, Nu‑Fortune filed a form 14 summons for referral to arbitration pursuant to s 8 of the Commercial Arbitration Act and r 16(1) of the Supreme Court (Arbitration) Rules 2016 (WA).
  7. On 21 November 2019, I programmed the application through to a hearing.

The history of the proceedings

  1. On 1 August 2019, the Nu‑Fortune parties brought an action pursuant to a Deed of Sublease entered into between Western Australian Mint as landlord, Roxbury as tenant and the plaintiffs as subtenants over the Menzies State Battery. On 21 August 2019, an interim injunction was granted, giving the Nu‑Fortune parties possession of the Menzies State Battery and restraining the Kennedy parties from interfering with possession.
  2. On 4 September 2019, the Kennedy parties filed a defence and counterclaim.
  3. On 12 September 2019, after a contested hearing, the injunction was continued until further order of the court.
  4. By the counterclaim, the Kennedy parties pleaded terms of the Heads of Agreement, including that, by cl 6, Nu-Fortune agreed to engage Mr Kennedy on an annual salary of $150,000 and reimburse him for all reasonable personal expenses incurred by him in the course of his engagement. The Kennedy parties further pleaded a variation to the agreement by which Mr Kennedy’s services would be provided by Roxbury, and Nu‑Fortune would pay Roxbury.
  5. The defence and counterclaim have since been amended three times, but the substance of the dispute has not changed.
  6. On 10 October 2019, Roxbury and Mr Kennedy applied by summons for summary judgment on part of the counterclaim for the payment of money owing by Nu‑Fortune to either Roxbury or Mr Kennedy for his services.
  7. In response, Nu‑Fortune filed two affidavits: an affidavit of Wayne Alan Sims, filed 28 October 2019, as to steps taken by Nu‑Fortune to have the dispute referred to arbitration under cl 15 of the Heads of Agreement; and an affidavit of Mr Hanna, filed on 29 October 2019, setting out a factual response and deposing that Nu‑Fortune has a good defence to the claim. Nu‑Fortune also filed submissions in opposition to the application for summary judgment.
  8. On 19 November 2019, the Nu‑Fortune parties filed a chamber summons for a stay of proceedings and for an order that the parties be referred to arbitration pursuant to cl 15 of the Heads of Agreement and the Commercial Arbitration Act.

The Commercial Arbitration Act 2012 (WA)

  1. The present application requires consideration of s 8(1) of the Commercial Arbitration Act.

A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s 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.

  1. It is not in dispute that the Nu‑Fortune parties first requested the court to refer the parties to arbitration by the summons of 19 November 2019. Relevantly, the section raises these questions: is the Kennedy parties’ action brought in a matter which is the subject of the arbitration agreement in cl 15 of the Heads of Agreement; and when did the Nu‑Fortune parties first submit a statement on the substance of the dispute?
  2. In Four Colour Graphics Australia Pty Ltd v Gravitas Communications Pty Ltd [2017] FCA 224 [17] ‑ [19], Gleeson J considered the question of what matter was the subject of the proceedings before the court. Her Honour said (citations omitted):

A ‘matter’ for the purposes of s 8(1) means some right or liability in dispute which is susceptible of settlement as a discrete controversy… or a claim for relief of a kind proper for determination in a court.

A ‘matter’ for the purposes of s 8(1) may or may not comprise the whole dispute in any given court proceeding… ‘there may, of course, be more than one “matter” [in the proceeding], and some only of these may be capable of settlement by arbitration’.

Ordinarily, the nature and extent of the ‘matters’ involved in a court proceeding are to be ascertained from the pleadings and from the underlying subject matter upon which the pleadings, including any defence, are based.

  1. With respect I adopt that statement.

The counterclaim

  1. At counterclaim [17], the Kennedy parties plead the making of the Heads of Agreement, and at [18] the following material terms:

(a) By clause 2 that upon Nu-Fortune giving notice as required by clause 3, Hanna cause the issued capital of Nu-Fortune to be held 30% by a nominee of Kennedy and Mrs Kennedy (Nominee) and 70% by Hanna;

(b) By clause 3 that Nu-Fortune carry out the work specified therein to ascertain whether it wished to commence mining on Called Bank and Oakley or either of them;

(c) By clauses 3 and 4 that if Nu-Fortune was satisfied with the results of the said work and thereby wished to mine the mining leases or either of them:

(i) Nu-Fortune give notice as specified therein and carry out mining operations thereon as set out in clauses 5 to 13 (stage 3);

(ii) Hanna use his shares in Nu-Fortune to fund the work contemplated and required by clauses 3 and 4 and thereby enable Nu-Fortune to fulfil its obligations under the heads of agreement, without affecting the percentage of the issued capital held by the Nominee;

(iii) By cl 4(a) Nu-Fortune cause Roxbury to be released from administration, whereupon inter alia Roxbury transfer Oakley to Nu-Fortune and Kennedy transfer Called Back to Nu-Fortune.

(iv) Nu-Fortune purchase mining equipment pursuant to cl 4(b).

(v) by clause 6 Nu-Fortune engage Kennedy as therein specified for an annual salary of $150,000 and reimburse him for all reasonable personal expenses incurred by him in the course of his engagement.

(vi) By clause 8:

(A) Nu-Fortune have an option to treat the Tailings (on the Battery Land) (Option);

(B) After payment of the costs of any upgrade or modification to the gold processing plant on the Battery Land and operating costs, the proceeds from such treatment be shared equally between Roxbury and Nu-Fortune.

(vii) By clause10 that Kalchoice be paid a [Royalty] of 4% of the gross proceeds from mining of inter alia the mining leases (Royalty).

(viii) By cl 11 the board of directors of Nu-Fortune be comprised of Hanna, Kennedy and an independent director to be determined.

  1. Kalchoice Pty Ltd is the trustee of a superannuation fund of which Kennedy and Mrs Kennedy are beneficiaries, and appears to be the entity referred to in the Heads of Agreement as ‘Kennedy Entity’. References to ‘Kennedy’ in the Heads of Agreement mean any, all of or any two of Mr Kennedy, Mrs Kennedy and Kennedy Entity: cl 1.
  2. At [27], the Kennedy parties plead a variation to the Heads of Agreement by which Mr Kennedy’s services were to be provided by Roxbury.
  3. At [29], the Kennedy parties plead a further term that ‘in effect by clause 4(a)(iii)’ Nu-Fortune have the exclusive right to mining certain other tenements owned by Mr and Mrs Kennedy, and Roxbury for so long as Nu-Fortune met all expenditure required thereon.
  4. The Kennedy parties plead matters arising out of an arrangement between Nu‑Fortune and CSIRO to enable Nu‑Fortune to treat the tailings pursuant to cl 8 of the Heads of Agreement: [32] – [43].
  5. The Kennedy parties also plead a case in misleading or deceptive conduct causing them to execute the sub-lease of the Menzies State Battery: [44] ‑ [50].
  6. The Kennedy parties claim damages for breach of the Heads of Agreement ([52] ‑ [58]); damages for conversion of a quantity of the tailings and specified equipment from the Menzies State Battery ([59] ‑ [62]); and relief pursuant to the Australian Consumer Law.

The submissions of Nu‑Fortune

  1. Significantly, the Nu‑Fortune parties accepted that this is not a case where a stay would be granted as a matter of discretion. The court should only refer the parties to arbitration if the matter comes within s 8 of the Commercial Arbitration Act.
  2. The Nu‑Fortune parties’ oral submissions departed substantially from their written submissions.
  3. In written submissions, it was argued that all of the matters raised by the counterclaimants arise out of the Heads of Agreement, except for the challenge to the sublease of the Menzies State Battery. Further, the Nu‑Fortune parties submitted that Roxbury was a party to the Heads of Agreement and bound by the terms of cl 15; alternatively, Roxbury’s claim for payment was derived from a claim originally held by Mr Kennedy and was pleaded in the alternative to his claim. In summary, all of the claims in the counterclaim were subject to the arbitration provision.
  4. At the hearing of the application, however, the Nu‑Fortune parties submitted, in effect, that the only parts of the dispute that were subject to the arbitration agreement in cl 15 were in counterclaim [52] ‑ [53] and [56] ‑ [58]. That is:

(1) failure to continue to mine one or both of the Called Bank and Oakley mining tenements: [52] ‑ [53];

(2) failure to treat the tailings at the Menzies State Battery: [56] ‑ [57];

(3) allowing Kalchoice’s share of the issued capital of Nu‑Fortune to fall below 30%: [58(a)];

(4) failing to account for the gold recovered from its mining operations or tailings: [58(b)];

(5) failure to pay royalty or account to Kalchoice: [58(c)]; and

(6) causing Mr Kennedy to be removed from the board of Nu‑Fortune and failing to appoint an independent third director: [58(d)].

  1. The Nu‑Fortune parties further conceded that the part of the counterclaim on which the Kennedy parties had applied for summary judgment was not within the arbitration agreement. I doubt that concession was correctly made, and it is not how I understood the position initially put in the summary judgment application, but it is immaterial to my decision on the application for referral.
  2. The Nu‑Fortune parties submitted that the affidavit of Mr Hanna, filed in opposition to the summary judgement application, was not a statement on the substance of the dispute and that they had made no statement on the substance of the dispute.
  3. The Nu‑Fortune parties also submitted that, while they had filed an affidavit and submissions in the summary judgment application, they had, in effect, reserved their position with regard to s 8 of the Commercial Arbitration Act.

Analysis

  1. The arbitration agreement in cl 15(a) of the Heads of Agreement provides for the resolution of ‘a dispute … between Kennedy, [Nu‑Fortune] and or Hanna’. As a matter of construction I would read cl 15 as confined to a dispute related to the Heads of Agreement.
  2. The counterclaim should be regarded as the action for the purposes of s 8. By reference to the counterclaim, that action includes the disputes pleaded in [52] to [58], being disputes as to alleged breaches by the Nu‑Fortune parties of the terms of the Heads of Agreement.
  3. The chamber summons seeking summary judgment on part of the counterclaim is limited to only part of the action: the liability of the Nu‑Fortune parties to pay amounts owing under the Heads of Agreement, or a variation of it, to Roxbury, alternatively to Mr Kennedy.
  4. The affidavit of Mr Hanna in opposition to the application for summary judgment was sworn 24 October 2019 and filed on 29 October 2019. The substance of Mr Hanna’s answer to the summary judgment application was that Nu‑Fortune entered into the Heads of Agreement in reliance on representations made by Mr Kennedy about what capital and working capital was required for Nu‑Fortune to generate a profit. The Heads of Agreement did not contain all of the matters agreed, and did not include a term that the payment to Mr Kennedy or Roxbury would only continue beyond the amount budgeted if the company was at that time generating profits from the treatment of ore through the Menzies State Battery. Mr Kennedy was not able to arrange for the gold bearing ore that he claimed was on the tenements to be treated profitably.
  5. Mr Hanna deposed that Nu‑Fortune expended considerable amounts of money at the direction of Mr Kennedy and Roxbury endeavouring to explore, mine and treat the claimed gold bearing ore at the tenements and the tailings at the Menzies State Battery, but was not able to generate a profit and generated significant losses. In about February 2019, Mr Kennedy ceased to provide services and commenced taking steps that were detrimental to the interests of Nu‑Fortune; in particular he sought to prevent the transfer of tenements to Nu‑Fortune.
  6. Mr Hanna stated that, as a result of false and misleading conduct of Mr Kennedy or Roxbury, Nu‑Fortune had suffered significant loss and damage. Mr Hanna stated his belief that Nu‑Fortune has a counterclaim against Mr Kennedy and Roxbury for engaging in false and misleading conduct, breach of contract, and negligence, and that the Nu‑Fortune parties have a good defence to the claim.
  7. The Nu‑Fortune parties filed submissions in opposition to the application for summary judgment on 5 November 2019. The submissions were consistent with Mr Hanna’s affidavit including submissions that the Heads of Agreement did not set out all of the terms and conditions, and that Nu‑Fortune had suffered loss and damage in excess of the claim now made by the Kennedy parties in reliance upon misleading representations. The Nu‑Fortune parties submitted that they had an equitable set off against any claim, exceeding the amount of the claim, and ‘such that it is bound up with and impeaches the claim’.
  8. Section 8 of the Commercial Arbitration Act requires the court to consider whether Nu‑Fortune has submitted its first statement on the substance of the dispute, that is, a statement about how the substantive dispute in the primary proceedings should be determined: see Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 [92] ‑ [93]; CPB Contractors Pty Limited v Celsus Pty Limited (formerly known as SA Health Partnership Nominees Pty Ltd) [2017] FCA 1620; (2017) 353 ALR 84 [91] ‑ [94].
  9. The affidavit of Mr Hanna, together with the submissions filed on the application for summary judgment, in my view, go well beyond the limited basis on which summary judgment was sought and set out what the Nu‑Fortune parties have to say on the substance of the dispute.
  10. Although the Nu‑Fortune parties submitted that they had reserved their position regarding arbitration at the time of their response to the summary judgment application, the affidavit of Mr Sims and the letter attached to it cannot be properly construed as a reservation of rights. In any event, the terms of s 8 do not, in my opinion, allow for a party to reserve its rights. A party that wishes for a dispute to be referred to arbitration, should seek a stay or protest jurisdiction in respect of the dispute.
  11. If there is a discretion to stay, in circumstances where a party has submitted its first statement and cannot rely on the mandatory terms of s 8, the Nu‑Fortune parties conceded at the outset that a stay should not be ordered on that basis.
  12. The application for an order staying the proceedings and referring the matter to arbitration should be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CG

Associate to the Honourable Justice Allanson

20 DECEMBER 2019