High Court of Ireland Decisions

THE HIGH COURT

Record Number: 2004 No. 73 S

[2004] IEHC 346

Between:

McCrory Scaffolding Limited

Plaintiff

And

McInerney Construction Limited

Defendant

Judgment of Mr Justice Michael Peart delivered the 5^th day of November 2004:

This is an application by the defendant pursuant to the provisions of s. 5 of the Arbitration Act, 1980 to stay these summary proceedings in which the plaintiff claims the liquidated sum of €70,360.12 against the defendant for services provided to the defendant under a scaffolding sub-contract dated 3^rd April 2001. The basis on which this stay is sought is what is alleged by the defendant to be a binding arbitration clause. The plaintiff in circumstances which will become clear in due course, submits that there is in fact no such clause within the contractual arrangements entered into by the parties, and that accordingly it should be able to pursue the defendant by means of the proceedings commenced herein.

The defendant's application for a stay pending arbitration is grounded on an affidavit of Jim Duggan sworn on the 10^th May 2004. He describes himself as an employee of the defendant company. From this affidavit it is clear that the plaintiff's claim to these monies is being hotly resisted. An appearance has been entered, but no step has been taken by the defendant apart from issuing the instant Notice of Motion, thus entitling the defendant to move the present application.

Following the entry of appearance by the defendant's solicitors, the plaintiff has brought the necessary application to the Master of the High Court seeking leave to enter final judgment for the amount claimed. That motion awaits the determination of the present application.

Mr Duggan refers to the fact that the sum claimed to be due to the plaintiff is claimed as being in respect of the hiring of scaffolding units to the defendant by the plaintiff and for the erection of these units by the plaintiff, all such services and work being, as claimed by the plaintiff, pursuant to a letter of appointment issued by the defendant to the plaintiff dated 3^rd April 2001.That letter is in excess of four pages in length, and contains many conditions and provisions which are not relevant to the application. However, the following is relevant:

"We are pleased to inform you that we intend to enter into a signed contract with you for the SCAFFOLDING (sic) contract at the above project [Santry Avenue, Ballymun – Scaffolding Contract] in accordance with:

i. This letter of intent

ii. Specification

iii. Approved drawings

iv. Summary of Contract

v. Codes of Practice and relevant British Standards and Irish Standards

vi. Your agreed tender

vii. Conditions of Contract, GDLA 82 where quantities form part with amendments

viii. Agreements/Commitments received at pre-award meeting." (my emphasis)

It will be noticed from the emphasised phrases above, firstly that this letter was intended to be followed up by a written agreement in which all the terms outlined in the letter were to be incorporated, and secondly, that part of the terms were by reference to what is known as the GDLA 82 Contract conditions. It is not in dispute that no follow-up written contract was entered into, and also that the GDLA 82 Conditions of Contract contains an arbitration clause in the usual terms. It is contended by the defendant that the meaning of clause vii above is that there is in place between the parties a valid and subsisting arbitration agreement within the meaning of the Arbitration Acts (as amended). That being the case, it is submitted that the dispute between the parties is clearly covered by the terms of the arbitration clause and the stay ought to be granted. I should add for the moment that the basis on which the defendant wishes to dispute the plaintiff's claim for the amount claimed is that the plaintiff has overcharged in some instances; that the plaintiff has raised invoices in circumstances where it was not entitled to claim any payment; and finally that because of the negligence and breach of duty by the plaintiff in the erection of the scaffolding units, the defendant has suffered losses, the latter being in respect of certain personal injury claims which have been brought against the defendant in respect of personal injuries suffered by persons injured when scaffolding collapsed and which also led to the closure of the site for a period of time.

The plaintiff company has filed a replying affidavit of Stephen McCrory, a Director of the plaintiff company, which was sworn on the 16^th June 2004. First of all he gives detail of how the plaintiff contends the sum claimed is due by the defendant. He also refers to the fact that most of the grounds of defence referred to by the defendant relate to an incident on the 16^th November 2001 in which a number of persons became injured. Mr McCrory submits that any question of the plaintiff being required to indemnify the defendant in respect of the personal injury claims and the other losses to the defendant, depend upon a number of matters which must still be resolved – for example the precise circumstances of the accident, the possible apportionment of liability, and thereafter whether the defendant is entitled to any indemnity from the plaintiff. He submits that these matters are all matters which the defendant has already agreed to have determined in the High Court proceedings which have been instituted by the various persons making personal injury claims, and that they cannot now have these matters made the subject of determination by an arbitrator. Mr McCrory states that the liability in respect of these personal injury claims is being contested by his company. He also submits that such a situation also places the arbitrator in the difficult situation of perhaps having to make a determination in respect of matters which will be determined later in High Court proceedings.

It is as far as I am concerned a question of whether or not the arbitration clause which is contained in the GDLA 82 Contract conditions are properly to be regarded as part of the contractual arrangements entered into between these parties, or whether the absence of a written contract being entered into following the letter dated 3^rd April 2001 means that the GDLA 82 Contract conditions do not apply. If the latter is the true position, it begs the question as to the basis upon which the plaintiff claims to be owed the money claimed in the proceedings and what other contractual terms apply generally.

Interesting submissions have been made by Counsel on each side of this debate. Andrew Fitzpatrick BL on behalf of the defendant has referred the Court to the judgment of Morris P. in Lynch Roofing Systems Ltd. V. Bennett & Son Ltd [1999] 2 IR 450 the facts of which bear a striking resemblance to the facts in the present case. In that case also the plaintiff and defendant met and agreed terms and that a letter was sent subsequently which included a reference to the fact that "it was subject to a written receipt of the conditions and terms detailed on form CBS/ACC (which form incorporated the standard conditions of contract R.I.A.I.". One of those standard conditions was an arbitration clause upon which the defendant was relying.

In that case the letter stipulated that a failure to respond would be taken as acceptance of the conditions referred to, and the fact was that the plaintiff did not respond, but did attend at the site and commenced work. That is a slight distinction to the present case, but not in my view a determinative distinction.

Morris P. considered the question of whether the absence of a written response to the letter meant that the arbitration clause could be deemed to be incorporated into the terms operating between the parties. In finding that the clause was deemed to be part of the terms operating, he referred to a judgment of Lord Denning in British Crane Hire v. Ipswich Plant Hire [1975] 1 Q.B. 303 in which that learned judge had held that:-

"Where parties to a contract of hire were both in the trade and of equal bargaining power the conditions habitually imposed in such contracts would be incorporated into the contract on the basis of the common understanding of the parties that the usual conditions would apply; and that since the conditions set out in the plaintiff's printed form formed part of the contract, the plaintiffs were entitled under those conditions to the cost of recovering the crane…"

Morris P. agreed with this statement, and went on:

"… two issues therefore appear to me to arise in this case. Firstly, did the parties habitually trade under contracts which incorporated arbitration clauses so that a court would be forced to conclude that the parties expected and knew that this clause would govern their contract………In the present case I am satisfied that each party was sufficiently familiar with the trade so as to lead a court to conclude that, as Denning L.J. put it in British Crane Hire v. Ipswich Plant Hire [1975] 1 Q.B. 303, the defendants would be understood and presumed to say "of course that is quite understood". I would find it hard to believe that a large roofing contractor would undertake this contract without the benefit of a building contract."

The learned judge was also of the view that the contract had in fact been agreed on the occasion of a meeting which had taken place between the plaintiff and the defendant when the price had been agreed for the job and the terms on which the roofing subcontract would be awarded. He also found it very unlikely that experienced contractors would have contemplated a contract of that kind without being governed by the appropriate building contract.

The similarities to the present case are evident from the passages which I have quoted. Counsel for the defendant has submitted that in the present case the parties were both experienced contractors, and the fact that the plaintiff and defendant companies may be unequal in terms of financial resources or size does not mean that the defendant can be regarded as having any sort of commercial negotiating advantage vis a vis the plaintiff.

This submission is relevant to the submission of the plaintiff that the Lynch Roofing case proceeds on the basis of equality existing between the parties, and that the defendant in the present case is a company of considerably greater size than the plaintiff company. I shall return to that submission shortly.

Mr Barry O'Donnell BL on behalf of the plaintiff made the following submissions on behalf of the plaintiff in resisting the defendant's motion. He referred the Court to the judgment of the Supreme Court in O'Dwyer v. Boyd [2003] 1 ILRM 112 where at p.116, Geoghegan J. stated that the Court's jurisdiction in relation to the granting of a stay was a limited one in the sense that unless the application for such a stay was made at "the right time", being before the delivery of any pleadings or taking any further step in the in the proceedings, the Court would have no jurisdiction to grant a stay. Counsel suggested that in the present case the fact that the defendant company had taken steps in relation to defending the personal injury litigation in which related issues were being canvassed, now precludes this Court from keeping jurisdiction in relation to a stay.

Counsel submitted also that the question really was whether the arbitration clause appearing in the standard GDLA 82 is effectively incorporated into the contractual arrangements between the parties by virtue of the letter dated 3^rd April 2001, even though that letter was to be followed up by the signed contract referred to therein. He has submitted also that this question must be addressed by reference to what is stated by the Court of Appeal in England in Smith & Gordon v. John Lewis Building Ltd 44 ConL.R. 11, which held that there was an onus on the applicant seeking to rely on an arbitration clause, to first establish an arbitration agreement on a firm foundation. The facts in the case are similar to those in the present application, though not of course identical. There is certainly sufficient similarity for it to be a case on which the plaintiffs would certainly seek to rely, in as much as the judgment of Mann LJ, with whom Steyn and Dillon LJJ concurred, runs contrary to the judgment of Lord Denning MR in British Crane Hire v. Ipswich Plant Hire to which I have already referred. It is strange that in the report of the decision in the Construction Law Reports there is no reference even to the British Crane Hire decision. Neither is there other than brief reference to the submissions of Counsel.

In the report, the facts are stated to be that the plaintiff sub-contractor submitted to the defendant main contractor a tender for certain electrical works to a London Department store, following which the defendant sent to the plaintiff:

"…our letter of intent to carry out all the electrical works with regards to the fire alarm system and public address system, in accordance with the specification and drawings… Note: This instruction shall be followed up by the completion of the NSC/1 forms." (my emphasis)

The defendant main contractor commenced work on the site, and in due course sent to the plaintiff sub-contractor an order which itemised matters "…all in accordance with your tender as set out in the NSC/1 documentation." That order was apparently stamped by the plaintiff company, and then was stamped by the defendant company and returned to the plaintiff company. Later the defendant's architect sent a letter to the plaintiff sub-contractor enclosing "the JCT Standard Form of Nominated Sub-Contract Tender and Agreement NSC/1 together with form NSC/2. The plaintiff company never in fact signed these forms. Disputes broke out in due course, and it appears that a meeting was held between the parties, the minutes of which state that the plaintiff sub-contractor indicated its acceptance of the terms and conditions of contract, and also confirmed that "the return of the NSC/2 form was in hand". Significantly there was no reference to the NSC/1, which incorporates another document NSC/4 into the relationship. It was NSC/4 which contains the arbitration clause.

The plaintiff eventually sued for money due under the sub-contract, but the defendant applied for a stay of the proceedings on the basis of the alleged arbitration clause resulting from the NSC/1 form which in turn incorporated the arbitration clause by reference to the NSC/4 document. Mann LJ considered the three ways in which the defendant company contended for the existence of the arbitration clause but rejected them, concluding that there was no contract incorporation NSC/1, and therefore no incorporation of NSC/4 which contained the arbitration clause. It had also been submitted to the Court of Appeal on behalf of the defendant main contractor that to find that there was no arbitration between the parties was to ignore commercial reality, "in that affairs in the building industry are often characterised by the informality which attended the relationship here". But Mann LJ held that "the law requires a firm foundation for the establishment of an arbitration agreement." The latter argument concerning the commercial reality is really the same argument which found favour in the judgment of Morris P. in Lynch Roofing Systems v. Bennett and Son (Construction) Limited (supra), and which is apparent also in British Crane Hire v. Ipswich Plant Hire. A question arises as to whether Smith & Gordon Ltd is simply an anomaly, but I will return to that question later.

Mr O'Donnell has sought to distinguish the facts of Lynch Roofing from the present case, so as to avoid the conclusion that an arbitration clause was part of the arrangements between the plaintiff and the defendant. Firstly, he has submitted that the Lynch Roofing case proceeded on the basis that both parties enjoyed equal bargaining power, whereas in the present case, the plaintiff sub-contractor is a much smaller operation than the defendant company which is a substantial main building contractor. In answer to this, Mr Fitzpatrick has submitted that there is no evidence of unequal bargaining power, and that the plaintiff company is in fact a substantial scaffolding company in Northern Ireland, and that in any event it is not so much a matter of financial strength in determining the equality of such positions, but rather it is the capacity in which the terms were agreed. He has submitted that here it was two commercial entities, each experienced in the trade, and it was not a situation referred to in British crane hire at p. 1061 where a private individual had entered into dealings with a garage company which repaired his car. That was regarded by Denning MR as a situation of unequal bargaining power. I would be of the view, however, that the plaintiff and the defendant in the present case enjoy equal bargaining power in the sense relevant to these proceedings. They are both significant commercial entities, experienced in the trade. The fact that the defendant may be larger in size must be irrelevant, as it must be nearly always the case that the sub-contractor will be a less substantial entity than the main contractor in financial terms.

Mr O'Donnell has also submitted that in the present case there is no history of any course of dealing between these parties – that this transaction was a once-off transaction between these parties, and that this is a distinction between this case and British Crane Hire, where there had been a previous course of dealing between the parties. However, in my view, the important consideration is not whether these two parties had between themselves previous dealings, but rather whether the plaintiff was somebody who had previous general experience of trading under contracts which included an arbitration clause. This appears to be the question which Morris P. considered important. That learned judge states at p. 453 of his judgment:

"…and two issues therefore appear to me to arise in this case. Firstly, did the parties habitually trade under contracts which incorporated arbitration clauses so that a court would be forced to conclude that the parties expected and knew that this clause would govern their contract. Put another way, as Denning L.J. said, was there evidence that 'it was clear that both parties knew quite well that conditions were habitually imposed by the supply of these machines and both parties knew the substance of these conditions'. In the present case I am satisfied that each party was sufficiently familiar with the trade so as to lead a court to conclude that, as Denning L.J. put it in British Crane Hire v. Ipswich Plant Hire [1975] 1 Q.B. 303, the defendants would be understood and presumed to say 'of course that is quite understood'. I would find it hard to believe that a large roofing contractor would undertake this contract without the benefit of a building contract."

Thirdly, Mr O'Donnell refers to the fact that in the Lynch Roofing case, the letter dated 18^th December 1996 which was sent by the defendant to the plaintiff was never responded to by the plaintiff who nevertheless entered upon the site and commenced work. That letter had stated that the defendant wished to enter into a sub-contract with the plaintiff and stated that "same would be subject to a written receipt of the conditions and terms detailed on form CBS/ACC" which he had in fact attached to the letter. It was that CBS/ACC form which contained the arbitration clause. In the present case, Mr O'Donnell submits that the situation is different is as much as the letter of intent dated 3^rd April 2001 simply stated: "We are pleased to inform you that we intend to enter into a signed contract with you ………in accordance with Conditions of Contract GDLA 82…", the latter not being enclosed or attached.

However in relation to this point of distinction, I am of the view that it evaporates as an argument in circumstances where shortly thereafter the plaintiff went onto the site and commenced work. It would beggar belief that the plaintiff would have commenced substantial work and services other than on the basis of some contract, and it must be the GDLA Contract, as that was the basis on which the contract was offered, and by entering upon the site and commencing work was accepted by the plaintiff.

The fourth point of distinction referred to by Mr O'Donnell is that in the Lynch Roofing case the letter had been preceded by a meeting at which the price and terms were orally agreed between the parties, and the defendant's grounding affidavit there was an averment to the effect that at that meeting it had been made clear to the plaintiff's representative that the conditions would be as per the main R.I.A.I.conditions of contract. He submits that this is not the situation in the present case, where no prior meeting had taken place, and that there was simply the tender followed by the letter of intent. However, I do not feel that this distinction is determinative, and for the same reason as I have just stated, namely that the plaintiff went into the site and commenced work, and this must in my view have been on the basis of the letter of intent and thereby by reference to the GDLA 82 terms.

Mr O'Donnell of course relies on the Smith & Gordon case to which I have already referred. There is something unsatisfactory about the report of that case. It sits very uncomfortably beside British Crane Hire, a case decided nearly twenty years previously and one which has been relied upon in this jurisdiction. There is no mention whatsoever of that case in the report of Smith & Gordon, and there can therefore be no question of it being overruled. It seems somewhat anomalous, and I would not feel obliged in any way to follow it. I prefer to follow the thinking of Morris P. in Lynch Roofing, which accords with my own sense that in the business dealings between parties such as the parties before this court, one must have regard to the business realities, and not seek too much in aid by way of technicality, where it must be clear on what basis the plaintiff went upon the site and commenced work.

I am satisfied that the arbitration clause should be read into the dealings between these parties. There is no doubt also that the dispute between the parties as to the amount being claimed by the plaintiff, and the possible defences to that claim on the part of the defendant company is a dispute classically appropriate to the arbitration process, and I have no doubt also that if the arbitrator feels at any stage that he ought to await the outcome of the personal injury litigation, if he is faced with a situation where that is relevant, he can adjourn the arbitration, or even seek the directions of the Court in relation to the matter.

I will therefore grant the relief sought by the defendant in their Notice of Motion dated 10^th May 2004 and make an order pursuant to s. 5 of the Arbitration Act, 1980 staying the proceedings and remitting the plaintiff's claim to arbitration pursuant to the arbitration clause existing between the parties by virtue of the GDLA 82 terms and conditions referred to in the letter of intent dated 3^rd April 2001.

Approved: Peart J.