Judgment Title: P. Elliot & Co Ltd -v- FCC Elliot Construction Ltd
Neutral Citation:  IEHC 361
High Court Record Number: 2012 1887 S
Date of Delivery: 28/08/2012
Court: High Court
Composition of Court:
Judgment by: Mac Eochaidh J.
Status of Judgment: Approved
NEUTRAL CITATION NUMBER  IEHC 361
THE HIGH COURT
[2012 No. 1887 S]
P. ELLIOT & COMPANY LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)
FCC ELLIOT CONSTRUCTION LIMITED
JUDGMENT of Mr. Justice Colm Mac Eochaidh delivered on the 28th day of August 2012
1. This is an application by the defendant to stay proceedings in which the plaintiff seeks judgment of approximately UK£1.2m in connection with an agreement referred as 'the consultancy contract'. The defendant's says that the plaintiffs claim is governed by an arbitration agreement pursuant to which the defendant has requested an arbitration under the auspices of the International Chamber of Commerce in Geneva, Switzerland.
2. A somewhat complicated history of commercial and legal relationships between entities connected to the parties is central to the arguments they make and so I shall first attempt to describe that before addressing the merits of the application.
3. Spanish and Irish enterprises were jointly involved in a bid to design, construct, finance, operate and maintain a new hospital in Enniskillen, County Fermanagh. An entity called 'Northern Ireland Health Group' (referred to by the parties as 'NIHG') pre-qualified in the bid process. The plaintiff (in its written submissions) says that the full name of the entity is 'NIHG South West Health Partnership' and that 5% of its shares are held by a company called Elliot Holdings Ltd. and 39% are held by FCC Construcción S.A. (apparently a Spanish corporate entity).
4. Following the successful pre-qualification of NIHG, the plaintiff and FCC Construcción S.A. ('the joint venturers') entered a joint venture agreement in February 2008. By this agreement (called the 'JVA'), "the Joint Venture" was formed and named 'FCC Elliot Healthcare Contractors'. The purpose of the joint venture, according to clause 2.2 of the JVA, was to prepare a tender for the design and construction works of the new hospital and, if selected, to carry out the works under a building contract to be entered by "P. Elliot FCC Joint Venture" and NIHG.
5. The JVA provided for what was to happen if no contract was entered with NIHG. At clause 4, the agreement stated that:
7. Approximately a year after the joint venture agreement was entered, tax advice was received which recommended that the primary construction contract for the hospital be entered, not by the joint venturers as originally envisaged, but by a new, specially formed Irish company, one share of which was to be owned by the plaintiff (one of the original joint venturers) and the other share was to be owned by another Irish company.
8. This proposed company was formed and is now the defendant in these proceedings. The corporate structure deliberately put in place by the joint venturers, following professional advice, permitted profits on the building contract - carried out in Northern Ireland- to be taxed at the relatively advantageous Irish corporate tax rate of 12.5%.
9. The JVA contained an arbitration clause for disputes arising "between the joint venturers in respect of the [building] Contract or the Joint Venture Agreement". The arbitration clause invoked the Rules of Arbitration of the International Chamber of Commerce and Geneva, Switzerland was identified as the seat of arbitration. Clause 20 provided that the JVA be construed and interpreted in accordance with the laws of Northern Ireland.
10. The parties agree that P. Elliot & Company Ltd. and FCC Construcción S.A. (the entities identified as the joint venturers in the JVA) did not enter the building contract for the hospital.
11. An unsigned and apparently draft and incomplete version of the JVA has been exhibited by the plaintiff who, for the purposes of this application only, accepts that it is the agreement entered between the joint venturers. The defendant has not exhibited the JVA in any form, much less in executed form, though it relies on its contents in seeking a stay.
The Building Contract
The Consultancy Contract
14. In the same recitals, the defendant expresses its wish to engage the plaintiff to provide services for the hospital project. Schedule 1 of the consultancy contract sets out in nine paragraphs the services to be provided by the plaintiff to the defendant and, to give a flavour of what was envisaged, the Schedule refers to attending liaison meetings with the Western Health and Social Care Trust (the public authority which awarded the hospital building project), providing management, technical and construction related advice to the defendant, providing advice on management of cash flow and construction budget related matters and providing appropriate business systems and processes for construction of the hospital. Significantly, there is no arbitration clause in the consultancy contract; instead, there is choice of law and jurisdiction clauses establishing Irish law and Ireland, respectively.
The Primary Sub-Contractor
The Present Proceedings
17. By letter of 9th December 2011, solicitors for the receivers referred to the consultancy contract and said that a sum of approximately UK£1.18m was due and that they expected the defendant to pay that amount within 15 days. Details of the services provided by the plaintiff in respect of which the monies were sought were provided by letter of 1st May 2012, and in response, the defendant, on 4th May 2012, denies, for various reasons, that the monies are due, saying:
The Request for Arbitration
20. Paragraph 13 of the request for arbitration states that:
The consultancy contract is sought to be brought within the ambit of the JVA and the defendant says, in the request for arbitration (at para. 24):
22. The Defendant's Application for a Stay
23. This application for a stay was sought by the defendant's notice of motion which also requested the court to strike out the proceedings for want of jurisdiction but this relief is not now pursued. Equally, relief related to forum non conveniens and lis pendens identified in the motion is not now pursued.
24. The defendant advances two main grounds in support of its application that the plaintiff’s action be stayed. The first argument relates to Article 8 of the Uncitral Model Law in International Commercial Arbitration (the Model Law). The second is based upon the inherent jurisdiction of the High Court to stay proceedings and, in the Commercial List of the High Court, to manage such proceedings.
The Model Law
8(2) Where an action referred to in paragraph (1) of this Article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court."
27. Reference is made by the defendant to Ahmad Alnaimi v. Islamic Press Agency  1 Lloyd's Rep. 150 (CA) in support of the proposition that where there is a valid arbitration agreement but a dispute concerning the scope of that agreement, then the matter should be referred to arbitration so that the issue of the scope of the arbitration agreement can first be determined.
28. In support of its contention that the dispute in these proceedings falls within the scope of the arbitration agreement the defendant refers to a body of case law which suggests a generous interpretation of arbitration clauses so as to embrace commercial arrangements somewhat outside the precise commercial relationship where the arbitration clause is to be found. In other words, these cases, it is said, favour a commonsense approach to relations between enterprises (see Continental Bank v. AGELAKOS  1 WLR 588, (per Balcombe LJ "it may be presumed that the parties intended to refer all disputes arising out of this particular transaction to arbitration"); Harbour Assurance Co. (UK) Ltd. v. Kansa General International Assurance Co. Ltd.  1 Lloyd's Rep. 455 at p. 470 (per Hoffman L.J. "the presumption in favour of one stop adjudication").
29. Reliance is placed by the defendant on the decision of the House of Lords in Fiona Trust & Holding Corp. v. Privalov  UK HL 40. In this case, owners of vessels entered into charters with eight charterers. The contract provided that "any dispute arising under this charter shall be decided by the English courts to whose jurisdiction the parties hereby agree" and the next clause in the agreement allowed for "any such dispute" to be referred to arbitration. The owners of the vessels sought to rescind the contracts, saying they had been procured by fraud and they commenced court proceedings for a declaration that the charters had been validly rescinded and that the arbitration agreement was rescinded also. The charterers sought a stay on the proceedings on the basis that the matter should have been arbitrated. A stay was refused at first instance but allowed by the Court of Appeal. The decision of the Court of Appeal was upheld in the House of Lords and the judgment was given by Lord Hoffman, who said 1:
31. The defendant refers to authorities addressing sequential agreements where earlier agreements contained arbitration clauses but later agreements did not. It is said that the courts have imputed the earlier arbitration agreements into the later agreements (see Emmott v. Michael Wilson (No. 2)  EWHC 1 (Comm) and El Nasharty v. J Sainsbury  1 Lloyd's Rep 309).
32. The defendant says that there is support for the proposition that in multiple contracts containing contradictory dispute resolution and/or jurisdiction clauses, the courts seek to find "the commercial centre of the overall relationship between the parties and apply the relevant jurisdiction and/or arbitration clause". Reference is made in this connection to the decision of the Court of Appeal in England and Wales in UPS AG v. HSH Nordbank AG  EWCA Civ 589. This case concerned parties to centralised debt obligations across a series of agreements containing contradictory jurisdictional clauses. Collins L.J. 2 concluded as follows:
circumstances, it was clearly the parties' intention (and therefore the plaintiff's intention) the Joint Venture Agreement remained binding and on all those entities which were incorporated for the purpose of implementing and carrying out the Joint Venture Agreement."
35. Finally, and in further anticipation of the plaintiffs case in respect of the Article 8 application for a stay, the defendant refers to the assertions by the plaintiff (in the affidavit of Mr. Wallace sworn in these proceedings on 18th May 2012) that the JVA has been terminated because clause 4 of that agreement states "if the joint venturers shall fail to enter into a contract with NIHG, then the Joint Venture Agreement 'shall automatically cease "'. The defendant replies to this complaint that this itself is a matter to be determined at arbitration. In advancing this contention, the plaintiff, like the defendant, is inferentially suggesting that the JVA was incapable of modification. My view is that the JVA was capable of modification and that the joint venturers did indeed change the original agreement.
36. The defendant has exhibited a series of minutes of Board meetings of the joint venture. The purpose of showing these minutes to the Court is to establish that prior to and after the incorporation of the defendant, the Board meetings continued and seemed to address general project management issues. The personnel remained fairly constant and one can see that the attendance notes indicate the Spanish companies and Irish companies' participation at these meetings. At best, this suggests that Board meetings of the joint venture continued after the incorporation of the defendant and the execution of the building contract and of the consultancy contract. It is understandable that the defendant would be keen to prove that the joint venture seemed to continue following the establishment of the defendant and the execution of the building contract because the plaintiff has argued, with some force, that the JVA terminated when the joint venturers themselves did not enter the building contact in the manner that had been envisaged by the JVA. My view is that whether or not the joint venture agreement and/or the joint venture itself continued after the execution of the building contract is not determinative of any of the issues on this application. Even if the plaintiff could establish that the JVA has terminated, that of course does not mean that the arbitration agreement has terminated. Arbitration agreements survive the demise of the contracts in which they are to be found so that disputes arising from the expired contract can be resolved in the manner which the parties had agreed. Article 16 of Model Law so provides.
37. The question of whether or not the JVA has terminated is not a matter that I decide on this application. Whether it has terminated or not, the arbitration agreement within it survives. That, however, does not mean that the arbitration agreement governs the building contract and/or the consultancy contract and/or the building subcontract.
The Plaintiffs Response to the Article 8 Application
(4) On an application under this section, the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed."
41. The plaintiff refers to Joint Stock Company Aeroflot Russian Airlines v. Berezovsky  EWHC 1610, which suggests (at para. 5 in the judgment) that if a stay is to be granted under s. 9 of the (UK) Arbitration Act. 1996, the court must be satisfied that there is an arbitration agreement in existence.
42. The plaintiff says that "the fact that the applicant for a stay is not a party to the arbitration agreement with the respondent is a complete answer to the application and an insurmountable barrier insofar as Article 8 of the Model Law is concerned''. 4 I disagree. There are circumstances in which a defendant seeking a stay in favour of an arbitration is not itself a party to the arbitration clause it seeks to rely upon. Thus, the question is not whether the party relying upon the arbitration clause itself agreed the clause, but rather, whether it has a sufficient connection, whether factually or by operation of law, with the party who agreed to the arbitration clause to invoke the clause and stay the proceedings in which it is a defendant. And that is one of the questions which is before this court, because it is common case that the consultancy contract, on foot of which the plaintiff sues, contains no arbitration clause and the defendant argues that the nature of the commercial dealings between the plaintiff, the defendant and the original joint venture, FCC SA, justifies either bringing the consultancy agreement under the umbrella of the JVA and thus infusing the consultancy contract with the arbitration clause or borrowing the arbitration clause from the JVA and placing it into the consultancy contract.
43. Both parties refer to case law which has evolved in England and Wales arising from s. 82(2) of the (UK) Arbitration Act, 1996 extending the definition of a party to 4 See paragraph 54 of the plaintiffs written submissions an arbitration to include "any person claiming under or through a party to an agreement". Examples of a claim 'arising under or through a party to an agreement' cited by the defendant deal with matters of assignment or corporate restructuring. The defendant's reliance on Russel-Uclafv. G.D. Searle & Co. Ltd.  1 Lloyd's Rep. 225, as authority for the proposition that in a group company situation, a subsidiary can obtain the benefit of an arbitration agreement entered by its parent company, is answered by the plaintiff, firstly by stating that the proposition is dependent upon the new entity being a wholly owned subsidiary. The defendant, according to the plaintiff, is not even a subsidiary of the FCC SA, and I agree that it is not possible on the evidence before me to determine whether or not the defendant is a subsidiary of any other entity.
44. The evidence is that the plaintiff and another Irish company (Fomento de Construcciones y Contratas, Construction Ireland Limited) ('FCC Ireland') own one share each, being an A share and a B share, respectively, in the defendant. The plaintiff (at paragraph 20 of the affidavit of Kieran Wallace, sworn on May 18th 2012) avers that FCC Ireland is related to a group of companies controlled by FCC SA- the Spanish joint venturer. This is not denied by the defendant. Indeed the defendant is at pains to establish commonality between the defendant and the Spanish arm of the joint venture.
45. In any event, the plaintiff points out that the Russel-Uclaf case, insofar as it addresses the 'claiming through another' proposition, has been overruled. In the City of London v. Sancheti  EWCA Civ 1283,  All ER (D) (204), Laurence Collins L.J., having held that it was necessary for an applicant for a stay to be a party to the arbitration agreement said:
34. Russel-Uclaf v. G.D. Searle & Co. Ltd. was a case in which the subsidiary was seeking a stay of court proceedings brought against it and claiming the benefit of an arbitration agreement to which it was not a party. Here, Mr. Sancheti seeks a stay of proceedings brought against him by the Corporation of London and thereby seeks to impose upon the corporation the burden of an arbitration agreement to which it is not a party. But even without such a distinction, I do not consider that Russel Uclaf v. G.D. Searle & Co. Ltd. assists Mr. Sancheti. In my judgment, it was wrongly decided on this point and should not be followed. A stay under s. 9 can only be obtained against a party to an arbitration agreement or a person claiming through or under such a party and a mere legal or commercial connection is not sufficient."
47. The essence of the defendant's case is that a combination of the real commercial relations between the parties to these proceedings and all of the other entities, be they corporations in three jurisdictions, partnerships, or joint ventures, permit it to invoke the terms of the original agreement on which the plaintiff and its original Spanish joint venture set out to obtain the contract to design and build the hospital in Enniskillen.
Analysis of Article 8 of the Model Law
49. The Supreme Court of British Colombia gave a decision called Pacific Erosion Control Systems Ltd. v. Western Quality Seeds  BASK 1743, in which the defendant applied for a stay of proceedings in favour of arbitration pursuant to s. 8 of the (Canadian) International Commercial Arbitration Act, and pursuant to the inherent jurisdiction of the court (s. 8 of the Canadian International Commercial Arbitration Act provides for stays on proceedings where a court has referred disputes to arbitration pursuant to Article 8 of the Model Law). The learned trial judge referred to the decision of Hinkson J. in the Court of Appeal in Gulf Canada Resources Ltd. v. Arochen International Ltd.  BCJ 500, which, in admirably clear terms, formulated a test for whether a stay of proceedings should be ordered, as follows:
50. The position in England and Wales concerning disputes as to substantive arbitral jurisdiction - such as the dispute in this case - has been set out in a number of decisions of the Court of Appeal. In Birse Construction Ltd. v. St. David Ltd.  BLR 194, the trial judge set out a clear and logical approach to resolving the question faced by the court. In Birse, a builder brought court proceedings for money due on a quantum meruit claim. The defendant applied for a stay under s. 9 of the (UK) Arbitration Act, 1996. The claimant disputed the existence of an arbitration agreement, arguing that a standard arbitration clause in building contracts had not been incorporated into the party's bargain. The trial judge said as follows:
1. To determine on the affidavit evidence that has been filed, that an arbitration agreement was made between the parties, in which case the proceedings would be stayed in accordance with s. 9 of the 1996 Act
2. To stay the proceedings, but on the basis that the arbitrator will decide the question of whether or not there is an arbitration agreement ...
3. Not to decide the question immediately, but to order an issue to be tried.
4. To decide that there is no arbitration agreement and to dismiss the application to stay."
52. The decision in Birse was appealed and the parties agreed that they had not asked the trial judge to determine any conflict of fact on affidavits alone. The Court of Appeal found that a triable issue had been raised as to whether or not the arbitration agreement had been incorporated into the contract, but that this issue was not suitable for summary determination and so should have been resolved, either by way of a preliminary issue or at the trial of the action. The matter was remitted to trial court.5
53. Unlike the trial judge in Birse, I am not faced with any conflict of facts as to whether or not an arbitration clause has been incorporated from one agreement into another. As previously stated, the parties agree that the consultancy contract contains no arbitration clause. The parties have placed on affidavit a fairly comprehensive description of their commercial history, their relationship to the original joint venturers, and the entirety of their dealings concerning the endeavour to win the contract to build the hospital in Enniskillen. The case made by the defendant for the applicability of the arbitration clause rests on an interpretation of agreed facts. Therefore, I conclude that this dispute is one which is capable of summary determination and it does not require a trial to determine the existence or otherwise of an arbitration agreement.
54. In Ahmad Al Naimi v. Islamic Press Agency Incorporated (supra), the parties agreed that the existence or non-existence of the arbitration agreement could be determined summarily on affidavit alone, and on the facts of the case, the Court of Appeal granted a stay on proceedings. Describing the effect of the judgment, David Joseph Q.C. in 'Jurisdiction and Arbitration and their Enforcement' (2nd Ed.) (para. 1130), p. 341, said:
Conclusion on Article 8 Application
58. The joint venturers were advised to abandon the originally envisaged plan to enter the building contract. Considerable financial advantages would accrue to the enterprises if this tax advice was followed. Therefore, the joint venturers decided that they would not, as had been planned, enter a building contract, nor would they execute the building contract. Instead, a new company was incorporated and this company - the defendant in these proceedings - was chosen by the joint venturers, and inferentially with the agreement of the contract-awarding party, to enter the building contract. In addition, the original plan that the hospital be built by the joint venturers was changed and this task was instead subcontracted to a partnership comprising two Northern Irish companies. Having originally envisaged that the building contract would be governed by an ICC arbitration clause, the defendant and NIHG agreed a non arbitral dispute resolution procedure and in addition conferred exclusive jurisdiction on the courts of Northern Ireland.
59. With respect to the alleged breach of the consultancy contract which has given rise to these present proceedings, it is important to emphasise that the defendant, a party to that contract, is controlled by the plaintiff and another corporate entity ('FCC Ireland") which in turn, is closely associated with and as a matter of probability, is actually controlled by the Spanish joint venturer. Had the joint venturers wished to include an international arbitration clause in the consultancy contract this was entirely within their power, but not only did they decide not to do so, but they took an opposite position by including a proper law and exclusive jurisdiction clause instead.
60. It is appropriate, at this juncture, to refer back to the decision of the Court of Appeal in UPS AG v. HSH Nordbank AG (supra). In that case, it will be recalled that a series of agreements involved contradictory jurisdiction clauses as between New York and England and Wales which seemed to have the effect of granting jurisdiction for the same dispute to both territories. The court was of the view that reasonable business women and men could not have intended such a clash. The complexity of the series of agreements at issue seems to me to have been at the heart of the decision of the Court of Appeal and I note that the identity of the parties to the agreements which gave rise to the litigation and the parties to the proceedings which followed, remained constant. Thus, the approach in that case which sought out 'the commercial centre', taking all of the agreements together, and to attach to that centre a jurisdictional clause, is simply not warranted by the relative simplicity of the agreements in this case. In addition, seeking out the commercial centre of the business relationship between the players and the parties involved with this dispute does not seem to me to assist in resolving the relatively simple question as to whether the defendant was ever party to an arbitration agreement.
61. Finally, one can readily understand why a court would say that reasonable business men and women would not have intended to create conflicting jurisdictional clauses. Such a presumption, however, is capable of rebuttal. Applying a similar presumption to the facts of this case would not result in a finding that the original joint ventures, acting reasonably, could not have intended to replace an arbitration agreement in the JVA with a proper law and exclusive jurisdiction provision in the consultancy contract. To my mind there is nothing unreasonable in such an approach where what is intended is the replacement of one provision for another and not that both are to apply simultaneously.
62. In my opinion, the feature which distinguishes this case from the authorities cited by the defendant in favour of presumptions for one stop shopping, presumptions for a reasonable business intention and presumptions for the avoidance of contradictory jurisdictional clauses, is that in all of those cases the parties remained constant. In this case, by election of the original joint venturers, the parties to the arbitration agreement are not the parties to the consultancy contract and are not now the parties in these proceedings and the defendant cannot borrow, either by operation of law or by reference to some alleged commercial connection, the arbitration clause from an agreement entered before it was incorporated and expressly excluded from a contract which it entered at the direction of the joint venturers.
63. It appears to me that Hoffman L.J. in Fiona Trust v Privalov has made most useful comments about the need to respect what emerges as the intention of the parties in an examination of the agreements that they have entered. At para. 13 of the judgment (see supra) and at p. 1060, he said:
'[I]f any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so '. "
65. In London v. Sancheti, supra. Collins L.J. comments on the effects of an express inclusion of a proper law and territorial jurisdiction clause in an agreement. He says:
67. There is no reason why parties capable of expressly including an ICC arbitration clause in one agreement could not have done so in related agreements, and the fact that they did not, but instead, put in contradictory clauses, establishes beyond doubt that this was the true intention of the parties in these proceedings and that this was also the true intention of the original joint venturers. Therefore I find that though the dispute comprised in these proceedings could possibly be within the scope of the arbitration agreement in the JVA, the defendant is not a party to the arbitration agreement and cannot invoke it.
68. Article 8 of the Model Law directs courts to respect the arbitral process and stay court proceedings not out of deference to arbitration per se but rather as an expression of the most basic concept in the law of contract-i.e., that parties who have mutually exchanged promises for value may, at the suit of each other, be kept to their promises. Where parties promise to arbitrate their disputes, courts should stay their proceedings in favour of arbitration if that promise is proved. In this case, the defendant has not proved even to the standard of arguability that it exchanged a promise to arbitrate with the plaintiff.
69. I therefore refuse to grant a stay under Article 8 of the Model Law, not as a matter of discretion but for want for want of jurisdiction. But the matter does not end there. The defendant has urged the court that it should nonetheless invoke its inherent jurisdiction to stay the proceedings and I now turn to decide this issue.
Inherent Jurisdiction to Stay Proceedings
74. The plaintiff has complained that the defendant's institution of arbitration without leave of the Court violates section 222 of the Companies Act 1963 (as amended), which requires leave to institute proceedings against a company in liquidation. Whether foreign arbitral proceedings are embraced by section 222 of the Companies Acts is a matter best left to another day. I am not required to decide this issue in view of the result of this application.
75. I refuse the defendant's application for a stay of these proceedings.