In a recent decision, the High Court had to interpret the dispute resolution provisions of a multimillion-euro contract that the plaintiff prepared on the basis of a template it obtained from a Google search on the internet.
Arising out of the COVID-19 pandemic, the defendant urgently required a supply of ventilators to cope with the anticipated increase in the number of people falling ill with the virus. The defendant decided to purchase 350 ventilators which the plaintiff company claimed to be able to provide.
The plaintiff was introduced to the defendant through an intermediary and furnished it with an unsigned contract and invoice for €7,485,450 for immediate payment. The plaintiff requested the defendant to sign the contract and return it as soon as possible. The defendant signed the contract later that day and advised payment would be made the next business day. The court noted that due to the urgent nature of the contract, neither party took legal advice on the terms of the contract and "it had been prepared on the basis of a template obtained by the plaintiff from a Google search on the internet".
When the invoice amount was not paid on the due date, the plaintiff queried the payment status with the defendant. The defendant advised that before it could proceed with the order it would need to carry out a due diligence exercise.
The plaintiff's solicitor threatened to commence legal proceedings unless payment was made immediately. Following this correspondence, the parties' respective solicitors engaged in a series of telephone conversations in which it was alleged that the defendant's solicitor made comments of "an extraordinarily disparaging nature" against the plaintiff and "refused when asked to substantiate the accusation that [the plaintiff] was not trustworthy".
Shortly after this interaction, the defendant confirmed it would not be purchasing any products from the plaintiff and would not be transferring any funds to it. The plaintiff commenced High Court proceedings against the defendant and the defendant brought an application to have the proceedings referred to arbitration as the contract between the parties contained an arbitration clause.
The court had to analyse the terms of the contract to ascertain whether the dispute came under the terms of the contract or not. The court noted that the "contract contained a number of very unusual provisions and bears all the hallmarks of a document agreed to by the parties without the benefit of legal advice".
The contract contained a Resolution of Disputes section which provided:
“Both Parties, by mutual consent, resolve to refer any dispute to:
The Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules. The place of arbitration shall be Dublin, Ireland and the proceedings shall be carried out in the English language.”
One of the questions to be determined was whether the defendant could rely on this clause as constituting an arbitration agreement in circumstances where it was maintaining that no contractual relationship came into existence at all.
Application under Article 8 of the Model Law
Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) which has force in Ireland by virtue of section 6 of the Arbitration Act 2010 provides as follows:
“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his 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.”
While the parties were agreed that the court has a mandatory obligation to refer the parties to arbitration if the requirement of Article 8 are satisfied, they disagreed on whether Article 8 applied at all. The main issue the court had to consider was (1) Whether the arbitration clause amounted to an arbitration agreement under the Model Law; and (2) Whether the claims made by the plaintiff in the proceedings (and any additional claims it may make) fall within the scope of the arbitration clause.
Is the Arbitration Clause an Arbitration Agreement
The defendant's position was that the arbitration clause constitutes an arbitration agreement for the purposes of the Model Law and that the parties agreed to refer any dispute between them to arbitration. On the other hand, the plaintiff's position was that the arbitration clause was merely an agreement to agree, or not, to refer a dispute to arbitration and that any such reference to arbitration would have to be by mutual consent.
The court noted that for an arbitration clause to constitute an arbitration agreement it must satisfy the following three criteria:
- It must be an agreement by the parties to submit to arbitration all or certain disputes which either have already arisen or which may arise between them in respect of a defined legal relationship, whether arising under a contract or not;
- It may be in the form of an arbitration clause in a contract or in the form of a separate agreement between the parties (but it must obviously be one of those); and
- It must be in writing.
The court was satisfied that all these criteria were present which meant the clause was an effective arbitration clause. However, the court had to determine the meaning of the phrase "both parties, by mutual consent, resolve to refer any dispute to.." contained in the arbitration clause. The defendant argued that this meant the parties have already reached agreement or “mutual consent” and have already resolved, by means of the contract which they have entered into, to refer “any dispute” which may arise between them to arbitration. It believed the “mutual consent” had already been provided by the parties in entering into the contract which contained an arbitration clause. The plaintiff’s position was that the arbitration clause was merely an agreement to agree or not. It contended that before any dispute can be referred to arbitration, there must be a further “mutual consent” by the parties which must be reached when the relevant dispute arises before the dispute can be referred to that dispute resolution process. It believed the precondition required for such reference is the “mutual consent” of the parties which was not forthcoming in respect of the disputes the subject of these proceedings.
The court found the clear meaning of the words used in the arbitration clause meant the parties had resolved, at the time they entered into the agreement, to refer any dispute between them to the dispute resolution process referred to. They were not agreeing that a “mutual consent” to “resolve” in the future to refer such disputes to that process would have to be reached before the reference could take place. The “mutual consent” and the decision to “resolve” was achieved and made at the time the contract was entered into. The clause was not an agreement to agree, or not, in the future when a dispute arises. The agreement was made, the mutual consent provided, and the resolve made at the time of the signing of the contract.
Does the plaintiff's claim fall within the scope of the arbitration agreement?
In its claim, the plaintiff sought damages for breach of contract. It also claimed the defendant had made egregious and unwarranted allegations intended to damage its commercial and economic interests and claimed that it would expand the proceedings to include a claim for defamation.
Following an analysis of the leading authorities, the court was satisfied that a presumption arises that where the parties incorporate an arbitration clause, it is presumed they intend all their substantive disputes to be determined by arbitration. The court found that the arbitration clause provides that "any dispute" will be referred to arbitration and that it was wide enough to cover all of the issues raised between the parties in the proceedings as they currently stand. If the parties had intended that certain disputes would be referred to arbitration, but others would be the subject of court proceedings, they would have said so in the contract.
While the arbitration clause in these proceedings gave rise to confusion, the decision demonstrates the significant support the Irish courts show for the arbitral process. Since the adoption of the Model Law, the Irish courts have shown a broad or liberal approach to the construction of arbitration agreements. That said, to avoid any unnecessary disagreement on the interpretation of an arbitration clause, the parties should ensure it is clearly drafted to reflect their intentions and eliminate any ambiguity.
For more information please contact Thomas O'Dwyer or your usual Beauchamps contact.