Beware of Not Progressing Arbitration

A recent High Court case has addressed the circumstance where a claimant in an arbitration returned to court to seek to resume the court proceedings they had originally commenced. The respondent in the arbitration had previously obtained an order to defer those court proceedings in favour of arbitration. However, they had not conducted the arbitration in a timely and efficient fashion. As a result, the Court was prepared to lift the deferral and allow the litigation proceed. Commercial Disputes partners, Gearoid Carey and Gerard Kelly examine this decision.

The High Court has recently[1] decided an usual application to have a stay on the court proceedings lifted. The parties had originally been ordered to arbitrate their dispute rather than litigate it. In obtaining the order originally, the respondent in the arbitration indicated it would progress the arbitration is a “timely and efficient fashion”. However, frustrated by the respondent’s failure to do so, the claimants successfully went back to court to lift the stay. In granting the order, the Court highlighed that a respondent who asks the Court to enforce arbitration and who undertook to progress it cannot subsequently cause delays to the arbitral process.

Background

The case related to damage to property in Waterford in 2010. An insurance claim was made for this damage. The claim was ultimately denied by the insurers and High Court proceedings issued in 2017. However, the insurance company brought an application in 2019 to refer the matter to arbitration. Historically, under the previously applicable legislation, these applications formally sought the stay of the court proceedings in favour of arbitration. That terminology was used by the Court in this case even though the new statutory relief is described as ‘referring the parties to arbitration’. The application came before the Court in January 2020. An agreed order was presented for approval at that time. The order was ultimately made on the basis that, amongst other things, the dispute was to be referred to arbitration. The insurance company’s solicitor committed to participating in the arbitration in a timely and efficient fashion. If they failed to do so, the order allowed for the stay to be lifted. However, there were delays surrounding the insurance company’s discovery. In addition, a preliminary issue raised by the insurance company had also not been put before the arbitrator. Frustrated by these delays, which were claimed to be a breach of the commitment given, the claimant issued a motion in February 2022. This was over two years after the original order was made. The claimant sought to lift the stay with directions for progressing the litigation.

Decision

The Court had to consider the jurisdiction it had to grant the order sought. Since the original order was sought under Article 8 of the UNCITRAL Model Law, the question arose whether the claimant had to address the same test when seeking to lift the stay. Although the original order did expressly state that it was made under that Article, it referenced that it was made on consent. Despite that, Mr Justice Sanfey noted that the insurance company now sought to oblige the claimant to demonstrate that the Article 8 criteria for referrals had to be met. The Court felt this was a more exacting standard which was contrary to the intention of the parties and the express order of the Court and he declined to apply it. In light of the basis for the consent order, Mr Justice Sanfey concluded that it was “absolutely clear” that the agreed referral was subject to compliance with the commitments given.

Mr Justice Sanfey was also unsurprisingly faced with the argument that the claimants could – and should - have progressed the arbitration with regard to both matters themselves by raising them with the arbitrator. Although he accepted that they could have done so, he noted that the claimants had given the insurance company the opportunity to do so but, arising from the respondent’s “unacceptable foot dragging”, the claimant had eventually applied to lift the stay. This was something which Mr Justice Sanfey felt the claimants were entitled to do. Relatedly, in response to the respondent’s contention that the claimants had an obligation to apply to the arbitrator to progress matters where the respondent was causing delay, he noted it was:

“somewhat ironic that the respondent calls in aid those comments [from Bremer Vulkan Schiffbau v South India Shipping Corp [1981] AC 909] in circumstances where it had been the source of serious delay in the proceedings, agreed to mend its ways for the purpose of the arbitration, and then entirely failed to do so.”

Critical to his reasoning in making the order sought permitting the progression of litigation was the fact that the referral to arbitration was subject to the commitment given regarding the conduct of the arbitration. Further, the original order was clear on its face that the consequence of non-compliance with it would be the lifting of the stay. Mr Justice Sanfey also observed that, with the consent of the parties, the Court had originally exercised its inherent jurisdiction to facilitate the referral. This was specifically based on the assurances given regarding the conduct of the arbitration. In this regard, he commented that:

“it is axiomatic that, if the court can exercise its inherent jurisdiction to grant a stay, it must equally have inherent jurisdiction to lift the stay… Where the circumstances in which it might do so are agreed by the parties, its jurisdiction to lift the stay when those circumstances occur cannot be doubted.”

Conclusion

There is a substantial body of case law on the entitlement to request a court to refer a dispute to arbitration under Article 8 of the UNCITRAL Model Law. However, the application in this case, which involved the Court being asked to revisit such an order, is very much a novelty. The fact that the original order was made on an agreed basis which set out a commitment to deal with the arbitration in a timely fashion is also an unusual feature. However, it is apparent from the decision that, in appropriate cases, the Court will not tolerate a respondent who has committed to the expeditious conduct of an arbitration to delay its progression. The party advancing their claim is entitled to have it determined. This decision has shown that, despite an initial referral to arbitration, the courts will in appropriate circumstances accommodate the progression of litigation as an alternative.

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[1] Jephson & Jephson v Aviva Insurance Ireland DAC [2024] IEHC 309