An arbitrator’s jurisdiction: a law unto itself

Often when a dispute arises the court system is what springs to mind. However, the situation is often complicated when the parties have agreed that arbitration is the appropriate means to settle any differences between opposing sides.

The lines between litigation and arbitration have been clarified by a number of recent cases. Arbitration is governed mainly by the Arbitration Act 2010. Under this Act, arbitrators are explicitly given the power to review and decide on their own jurisdiction and the Act expressly recognises the competence of an arbitral tribunal to rule on its own jurisdiction.

If the parties are at odds as to whether arbitration should take place, rather than going to court, it is the arbitrator who may rule on the existence or validity of the arbitration agreement under which he was appointed. An arbitration clause will be treated as independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void “shall not entail ipso jure the invalidity of the arbitration clause”. In other words even if the contract is found to be unenforceable that will not automatically render the arbitration clause useless as the agreed means to resolve the controversy.

One question that arises is how extensive an arbitration clause is? Does it cover only what the parties have envisaged as a potential dispute or can it cover other disputes outside of the agreement?

Guidance on that question has been helpfully provided by K&J Townmore Construction Limited v Kildare and Wicklow Education and Training Board [2018] IEHC 770. In that case the High Court held that an arbitration agreement referring to disputes "under" the contract should be interpreted as including all disputes arising in relation to that agreement unless specifically excluded by the terms of the contract. As Barniville J. is the designated arbitration judge (as required by the Act) the ruling is of paramount importance in understanding the Courts' attitude towards arbitration as a dispute resolution mechanism.

Barniville J. has previously shown the reticence the High Court should have in interfering with an arbitrator's jurisdiction. In Ryan & anor v Kevin O'Leary (Clonmel) Ltd. & anor [2018] IEHC 660 the High Court refused to set aside an arbitral award on the basis that the jurisdiction to do so is “very limited and it is a jurisdiction which the court should only exercise sparingly”. He noted that the case law stressed the importance of the finality of arbitration awards and made it clear that an application to set aside an award did not afford the Court the opportunity of second-guessing the arbitrator’s decision on the merits, whether on the facts or on the law.

In assessing the applicability of an arbitration clause the recent case of Cavanaghs of Charleville Ltd. v. Fitzpatrick [2019] IEHC 161 is instructive. In that case a refusal to direct arbitration was quashed and remitted to the Circuit Court by the High Court in judicial review proceedings. It was held that the Circuit Court must examine the applicability of an arbitration clause in light of the circumstances surrounding the case.

The dispute arose from the purchase of a motor vehicle which was allegedly defective (by allowing water ingress during wet weather). The purchaser sought to resolve the dispute by arbitration according to the terms and conditions of the contract for sale and pursuant to the provisions of the Arbitration Act 2010.The dealership and the manufacturer were the defendants to the claim and were made aware of the impending arbitration and given a number of options as to the appointment of an arbitrator. The purchaser subsequently changed his legal representation and began legal proceedings through the court system by serving a civil bill on the defendants. The defendants entered an appearance only on the basis that the proceedings would be stayed pending arbitration and accepted an arbitrator suggested in earlier correspondence.

No agreement as to the applicability of arbitration was reached between the parties so the defendants applied to the Circuit Court seeking a direction that arbitration was the appropriate course of action. When the Circuit Court refused to do so judicial review proceedings were initiated to quash the order.

Quinn J. looked at the Arbitration Act 2010 and recent jurisprudence on the applicability of arbitration clauses. The Court held that during the busy motion list before the Circuit Court the Judge failed to consider whether the arbitration clause was null and void, inoperative or incapable of being performed. The Circuit Court Judge should not have considered that the purchaser was "without a car since 2015" when assessing the potential operation of an arbitration clause. The failure to apply the correct test rendered the decision erroneous and one which must be quashed.

The Court also declined to follow the purchaser's argument that the Arbitration Act 2010 precluded judicial review proceedings by providing that there was no appeal from a stay application. Quinn J. found that it is precisely because there is no remedy by way of appeal that the court must be vigilant to ascertain whether the judge made a fundamental error which brought him outside his jurisdiction.

The High Court stated that the correct course of action (rather than make an order requiring the Circuit Court to refer the matter to arbitration) was to remit the motion to the Circuit Court to weight the evidence, apply the correct test and determine whether the arbitration clause was operative. The Court noted that there were evidential matters in dispute regarding whether the contract was actually signed and the issue of delay which would require examination before any decision could be made.

This recent jurisprudence shows a willingness to respect the jurisdiction of arbitrators and their rulings but also the importance in deciding properly whether litigation has a role to play in a dispute where arbitration is a live issue.