Nature of Arbitration
The essence of arbitration is that a third party private person adjudicates on the dispute. If differs from other types of arrangements such as mediation, expert determination, etc. In some cases, disputes must be referred to expert determination before arbitration may proceed.
Arbitration may deal only with certain types of private civil rights. It can only bind the parties to the agreement and the parties to the dispute. It typically concerns rights between private (non-Governmental) parties, arising under contracts and the law of restitution. It may sometimes cover civil wrongs, where there is a specific agreement on the matter.
The arbitration agreement only affects parties to the contract. Property rights which are effective as regards all other persons (the whole world) cannot be determined by arbitration. Similarly, where particular areas of responsibility are reserved to a particular governmental body, to determine whether or not the particular law applies, private parties cannot generally usurp this power.
The Arbitration Act, 2010 came into force in June 2010. It applies to all arbitration in Ireland, both domestic and international. The Act adopts the model rules published by the United Nations Commission on International Trade Law (UNICTIRAL). Arbitrations commenced before June 2010 are undertaken under the older legislation, the Arbitration Acts 1954-1980. Arbitrations commenced after that date, are undertaken under the 2010 Act and the model rules.
Arbitration and Public Policy
An agreement which purports to oust or remove the jurisdiction of the courts is illegal and void as contrary to public policy. However, the law looks favourably on arbitration agreements. An agreement to refer to arbitration, whether written or oral, is binding at common law. Provided the arbitration is a condition to bringing a claim, (the claim is to be brought i.e. on the award itself), it does not oust the court’s jurisdiction.
Breach of an arbitration agreement gives a right of action for damages. Arbitration agreements, in the absence of specific wording otherwise, do not oust the jurisdiction of the courts, and would not to be so interpreted, in the absence of clear wording. Provisions which seek to prevent reference to court under the Arbitration Acts have been held to be void as ousting the courts’ jurisdiction.
Apart from the statutory right for courts to stay proceedings, an arbitration agreement is not necessarily a bar to proceedings in relation to the dispute agreed to be referred. If the arbitration agreement becomes abortive, the court will assist in resolving an impasse. A party may waive the agreement to refer to arbitration. A party who takes no steps to require the determination by arbitration, where this is agreed, may be precluded from relying on the arbitration agreement as a defence to court proceedings.
An agreement barring claims unless the claim is made and an arbitrator appointed within a specified limited period, may be binding (an “Atlantic Shipping” clause). However, there is statutory power to extend the time to avoid hardship and injustice. This may not infringe the statutory periods of limitation.
Limited Role of Courts
The Courts have a very limited role in arbitrations. Their role is largely supportive. They may restrain litigation until arbitration takes place. They may grant certain protective measures in relation to an arbitration or pending arbitration. They may deal with certain challenges to the arbitrator, his jurisdiction and powers. The Courts recognise and enforce valid interim and final arbitration awards.
There are very limited rights of appeal from the Court’s decisions in support of arbitration. The purpose is to support the efficiency of arbitration. In particular, the following cannot be appealed:
- Order stopping other litigation;
- Order recognising and enforcing foreign arbitrations,
- certain challenges to and removals of arbitrators.
Where a consumer dispute does not exceed €5,000 a clause which binds the consumer to arbitrate is not binding on the consumer unless he or she so chooses.
The Courts are entitled in some cases, to refer disputes pending before them to arbitration, even in the absence of an agreement. This type of power has become more common in recent years. The Court may firstly request that the parties give consideration to arbitration. They may be required to report back to the Court. The Court may make such Order including an Order requiring the arbitration.
If one party to an arbitration agreement commences litigation, the other party can apply to have the litigation stopped. The arbitration legislation strongly supports arbitration and the Court must stop the litigation where there is an arbitration agreement. It is possible to restrain litigation by injunction.
It may be possible to show a party has waived his right to go to arbitration. It may be shown that the parties have varied or cancelled the arbitration agreement by a later contract. This must be very clear. The court may not restrain litigation if it is shown that the arbitration agreement itself is void and of no effect.
A precondition to valid arbitration is that there is an agreement (a contract) to refer the dispute concerned to arbitration. The agreement can be entered either before the dispute is commenced or after it. Commonly, arbitrations arise out of clauses in standard form contracts or incorporated in them, which provide that disputes arising out of the agreement shall be subject to arbitrations.
The essence of arbitration is that it is a mechanism agreed by the parties to resolve their present or future dispute. The parties are free to a significant extent to decide their own dispute determination mechanisms. Although clauses in clauses in agreements which oust the jurisdiction of the court are usually invalid as being against public policy, there is an exception for arbitration agreements. See our Contract Law Guide.
The arbitration agreement need not be a contract but generally will be. In order to obtain the benefit of the Irish Arbitration Act, the agreement must be in writing or must be proved in writing. This can include electronic communication. A verbal arbitration agreement may be valid, but would not be supported by the arbitration legislation. It would be more difficult to enforce.
Arbitration clauses are common in certain industries and sectors, Many standard form agreements which are used as model contracts in particular sectors, have detailed arbitration clauses. For example, arbitration (and other complimentary dispute resolution methods) are particularly common in the construction industry.
Arbitration is commonly used in international trade. The place in which the dispute is heard and the law that is applied is specified. London and New York are commonly nominated as the place and applicable law for the arbitration. Both have long established reputation and experience in the international area. Ireland has a sought to establish itself as a location and jurisdiction for arbitration.
Incorporation of Arbitration Agreement
An arbitration agreement may be incorporated by being referred to, expressly or impliedly in the relevant contract. It is often sufficient that there is a reference in the contract to general terms and conditions, which contain an arbitration clause. Standard terms may be incorporated by a course of dealing or by custom and a practice in a particular trade.
See our general chapter on contract or in relation to the incorporation of contract terms. As with contract law generally, parties may be deemed to have agreed on something, if is set out in or incorporate in terms and conditions, even if they are not conscious of them. For example, construction industry appointments and contracts commonly refer expressly or implicitly to certain standard terms and conditions which themselves provide for arbitration. Terms and conditions may apply if the parties have not signed any document, where it is clear that they have acted on the basis that it applies.
The arbitration agreement may be complex and elaborate or may be more basic. A simple clause may simply provide for the resolution of disputes by arbitration. Where the arbitration agreement contains little detail, it may be possible to refer to applicable standard terms that contain more detail. If not, the default rules in the Arbitration Act apply.
The agreement need not say that the arbitrator’s decision is final. This would be implied unless otherwise stated. As with contracts generally, the courts will seek to imply a workable solution (business efficacy) into the contract. They will not readily find that the parties intended to provide an unworkable solution.
In the case of more complex arbitration agreements and clauses, in particular, those provided by particular institutions, there may be detailed procedure and clauses relating to the determination of the arbitration. The Arbitration Act may fill the gap, where necessary, or where the agreement is drafted with it in mind.
The wording of the clause will determine what kind of disputes are subject to arbitration. Some kinds of wording relate only to disputes under the contract itself such as issues of breach and non-performance. Other clauses are wider and provide for disputes which may lead to cancellation of the contract itself. Wider wording may deal with issues related to the contract such as restitution claims, claims for civil wrongs arising out of the same subject matter.
Disputes about the Contract
The arbitration reference is independent of the contract in which it is contained. The fact that a contract is found void it does not undermine the contract itself. However, where a defect affects the actual arbitration clause itself, the clause and obligation to arbitrate may not exist. If for example it is alleged that no arbitration clause was ever agreed then it would not apply.
Disputes arising under the contract are usually interpreted more widely than disputes arising in connection with or out of the contract. It is presumed that the former types of disputes are intended to be covered, while the latter type of dispute may require clearer wording. However, the Courts, in line with the general approach of supporting arbitration, are willing to interpret the arbitration clause so that it covers disputes connected with the validity of the contract and the wider circumstances.
The 2010 legislation provides that where parties agree to refer disputes under a contract, that this includes disputes in relation to the existence and validity of the contract. The Act also provides that the arbitrator can rule as to whether there is an arbitration agreement between the parties. The Courts cannot intervene in the matter until the arbitrator rules.
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