Barnmore Demolition and Civil Engineering Ltd v Alandale Logistics Ltd & Ors

Factual and Procedural Background

The first and second named defendants sought an order under Article 8(1) of the Model Law and section 6 of the Arbitration Act 2010 to refer the plaintiff's claim against them to arbitration and to stay the proceedings. The defendants asserted that the plaintiff's claim was subject to an arbitration agreement as defined under the Arbitration Act 2010. The plaintiff opposed this application on the basis that no arbitration agreement existed between the plaintiff and either of the first two defendants.

The dispute centered on whether an arbitration agreement existed, particularly focusing on Clause 18 of a draft subcontract titled "Bespoke Form of Subcontract 2006 Edition," which was never executed or agreed upon by the parties. The draft subcontract contained an arbitration clause, but the contract was incomplete, unexecuted, and contained inconsistencies and missing terms.

Negotiations between the parties revealed only an "agreement in principle" pending confirmation and acceptance by their respective companies, with no final contract or arbitration agreement concluded. The plaintiff had performed work and been paid by the first defendant prior to any arbitration clause being introduced. The defendants contended that the arbitration clause was binding despite the contract being unsigned, but the court found no evidence of a separate or independent arbitration agreement.

The court examined correspondence and conduct between the parties, concluding that no binding arbitration agreement had been formed either expressly, by conduct, or through business dealings. The defendants’ application to refer the matter to arbitration was resisted by the plaintiff, leading to this judicial determination on the existence of an arbitration agreement.

Legal Issues Presented

1. Whether there exists a valid arbitration agreement between the plaintiff and either or both of the first and second named defendants within the meaning of the Arbitration Act 2010 and the Model Law.
2. The appropriate standard of judicial review to apply when determining the existence of an arbitration agreement under Article 8(1) of the Model Law—whether a prima facie test or full judicial consideration is required.
3. The extent of the court’s jurisdiction to decide on the existence and validity of an arbitration agreement as opposed to deferring such questions to an arbitral tribunal under the Kompetenz-Kompetenz principle.

Arguments of the Parties

First and Second Defendants' Arguments

• The plaintiff's claim is subject to an arbitration agreement found in Clause 18 of the draft bespoke subcontract, which, although unexecuted, reflects an agreement in principle pending confirmation and acceptance.
• The arbitration clause should be enforceable despite the contract not being finalized or executed, as the agreement to arbitrate is a separate and independent agreement.
• On a prima facie basis, the court should refer the dispute to arbitration, allowing the arbitral tribunal to determine its own jurisdiction, including the existence of the arbitration agreement.
• Payments made after the agreement in principle constitute evidence of performance and acknowledgment of the contract containing the arbitration clause.

Plaintiff's Arguments

• No arbitration agreement exists between the plaintiff and the first or second defendants because the draft subcontract was never finalized, executed, or agreed upon.
• The arbitration clause was part of an unexecuted draft and was never the subject of a separate, distinct, or severable agreement.
• There was no course of dealing or business relationship indicating an expectation or knowledge that arbitration would govern their dealings.
• The court should apply full judicial consideration to determine whether a valid arbitration agreement exists, rather than deferring to the arbitral tribunal on a prima facie basis.
• The plaintiff's conduct and correspondence indicate that the draft subcontract was not accepted and remained incomplete and uncertain in its terms.

Table of Precedents Cited

Court's Reasoning and Analysis

The court commenced by reviewing the statutory framework under the Arbitration Act 2010 and the UNCITRAL Model Law, emphasizing the doctrine of separability which treats arbitration agreements as independent from the main contract. The court noted that while an arbitration agreement is independent, it must nevertheless be agreed upon by the parties to be binding.

The court examined the requirements for an arbitration agreement under Article 7 of the Model Law, highlighting that such an agreement must be in writing but may be concluded orally, by conduct, or by other means provided the content is recorded in some form.

Addressing the Kompetenz-Kompetenz principle under Article 16, the court acknowledged that both arbitral tribunals and courts have jurisdiction to rule on their own jurisdiction, including on the existence of arbitration agreements. However, the court rejected the defendants’ contention that the court should apply only a prima facie test and refer the matter to arbitration, instead favoring full judicial consideration of whether an arbitration agreement exists.

The court considered relevant case law from the United Kingdom and Ireland, which generally supports courts deciding threshold questions on the existence and validity of arbitration agreements, except in exceptional cases.

Applying these principles to the facts, the court found that the draft bespoke subcontract containing the arbitration clause was never executed or agreed upon by the parties. The negotiation process culminated only in an agreement in principle, with no final contract or arbitration agreement concluded. The plaintiff’s conduct and correspondence confirmed that the draft subcontract was not binding and remained incomplete and uncertain.

The court further found no course of dealing or business relationship between the parties that would indicate an expectation or understanding that arbitration governed their dealings. The payment made by the defendants was not sufficient evidence of acceptance of the arbitration clause.

Using the prima facie test as an alternative standard, the court still concluded that the defendants failed to establish the existence of an arbitration agreement. The defendants’ case amounted only to a proposal or an agreement to agree, which is not enforceable as an arbitration agreement.

Therefore, the court determined that the plaintiff’s claim was not subject to an arbitration agreement with the first or second defendants.

Holding and Implications

DISMISSED: The court refused the defendants’ application to refer the plaintiff’s claim to arbitration and to stay proceedings against the first and second defendants.

The direct effect is that the plaintiff’s claim will proceed in court rather than arbitration, as no valid arbitration agreement was found to exist. The decision does not establish any new precedent but reaffirms the principle that an arbitration agreement must be clearly agreed upon and that courts have jurisdiction to determine the existence of such agreements before referring matters to arbitration.