In the Matter of the Arbitration Acts, 1954-1998 And in the Matter of a Proposed Arbitration Between: Gerard O'Sullivan and Martina O'Sullivan (claimants) v Eagle Star Insurance Company Limited (respondent).
Practice and procedure - Arbitration - Application for extension of time to refer dispute to arbitration - Whether undue hardship caused by refusal to extend time - Whether respondent entitled to recover from third party - Whether prejudice - Arbitration Act 1954 (No. 26), s.45
The High Court (Miss Justice Laffoy); judgment delivered July 10th, 2006.
Section 45 of the Arbitration Act 1954 provides that the court may extend the time for the commencement of arbitration proceedings, if it is of the opinion that undue hardship would otherwise be caused.
In the instant case the court, given the current state of the related plenary proceedings, took the view that the claimant were inevitably going to be fixed with an award of damages in favour of the plaintiff in those plenary proceedings. The court accordingly felt entitled to infer that such award would cause the claimants undue hardship if the respondents had wrongfully declined an indemnity and the claimants were deprived of the opportunity to establish that at arbitration.
The High Court so held that this was a proper case in which to extend the time for referring the dispute between the claimants and the respondents to arbitration and time was extended for one week subject to the imposition of conditions similar to the conditions imposed by Hamilton J in Walsh v Shield Insurance Company Ltd ILRM 218.
Ross Gorman BL the claimants; David McHugh BL for the respondent.
Miss Justice Laffoy said the case concerned an application by the claimants for an order under s.45 of the 1954 Act, extending the time for referring a dispute to arbitration.
The claimants were the owners of a dwelling house in Co Cork (the premises). During the period from May 20th, 2002, until May 20th, 2003, the premises were covered by a Homestar 25 Plus Policy of insurance issued by the respondent which issued on foot of a proposal form in which, it was averred on behalf of the respondent, the claimants sought "home insurance". In December, 2002, plenary proceedings were instituted in the High Court, entitled John O'Neill v Gerard O'Sullivan and Martina O'Sullivan (Record No 2002 No. 15558P) in which the Mr O'Neill sought damages for personal injury, loss and damage alleged to have been sustained on or about July 12th, 2002, while he was engaged in works on the premises, in the course of his employment with and under the supervision and control of the defendants. The respondent became aware of the claim of the plaintiff and of the plenary proceedings prior to March 20th, 2003. On that date the respondent required the claimants to complete a "Household Claim Form". By letter dated March 28th, 2003, the respondent declined to provide an indemnity in respect of the claim to the claimants, giving the following reason for that decision in the letter:
"This policy was proposed to us on the basis of the premises being in good repair. We note that there was no stairway fitted at the time. If we had been aware of this position we would not have accepted the risk. Due to the breach of policy conditions by failure to disclose this material fact we are not in a position to consider indemnity under the policy."
In the final paragraph of the letter included a comment that it appeared that the matter might be more appropriate for Mr O'Sullivan's business liability insurers for their consideration. By letter dated December 22nd, 2005, the claimant's solicitors informed the respondent that the claimants would be invoking the arbitration clause in the policy, nominated three persons who might act as arbitrator and enclosed a draft submission to arbitration. The response of the respondent, which was given by e-mail dated February 1st, 2006, was that under the arbitration clause in the policy the claim was deemed to have been abandoned not having been referred to arbitration within 12 months from the date of disclaimer, which was dated March 28th, 2003. The application before the court was initiated by originating notice of motion dated June 15th, 2006.
Miss Justice Laffoy stated that in the interim between March 28th, 2003, and December 22nd, 2005, the claimants had sought an indemnity from their "business liability insurers" Quinn Direct, on March 31st, 2003. Quinn Direct nominated a firm of solicitors from their panel to protect the claimants' interest on October 8th, 2003. By order of the court in the plenary proceedings made on October 13th, 2003, Mr O'Neill was granted liberty to enter final judgment against the defendants, in default of appearance. The assessment of the damages to which Mr O'Neill was entitled is listed for hearing in the autumn.
Miss Justice Laffoy stated that she was being deliberately spare and cautious in outlining what transpired between the claimants and Quinn Direct. The first claimant had averred in the affidavit grounding the application that he was notified by letter dated March 3rd, 2005, that Quinn Direct had decided not to provide an indemnity. Before that, however, Patrick J. O'Shea & Company had succeeded in entering an appearance in the Central Office on December 4th, 2003, notwithstanding that an order had been made giving Mr O'Neill liberty to enter judgment in default of appearance. In September or October, 2005, Patrick J. O'Shea & Company applied to the court in the plenary proceedings for leave to come off record. That application was grounded on the affidavit of Linda O'Shea sworn September 30th, 2005. The application was obviously on notice to Mr O'Neill whose solicitor, John F. Daly of the firm of John F.Daly & Company, Solicitors, filed a replying affidavit to that application sworn on October 19th, 2005. Copies of those affidavits had been put before the court on the instant application and the affidavits had been relied on by both the claimants and the respondent. Whether this had been done with the knowledge of the deponents was not clear. In any event, Miss Justice Laffoy thought it important that she should emphasise that she had formed no view on the claimants' position vis-à-vis either Quinn Direct or Patrick J. O'Shea & Company on the basis of the averments in those affidavits. Patrick J. O'Shea & Company was allowed to come off record by order of the court made in the plenary proceedings on December 5th, 2005. It was at that stage that the claimants sought to dispute the respondent's declinature of indemnity.
Miss Justice Laffoy set out the provisions of section 45 of the 1954 Act "where the terms of an agreement to refer future disputes to arbitration provide that any claims to which the agreement applies shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the court, if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, but without prejudice to section 42 of this Act, extend the time for such period as it thinks proper."
Section 42 of the 1954 Act provides that the statutes of limitation shall apply to arbitration under an arbitration agreement as they apply to an action in court.
Miss Justice Laffoy said that the clause in the policy on which the respondent relied was clause 4 under the heading "Policy Conditions" which provided that if there was a dispute arising out of the policy, the dispute would be referred to an arbitrator. The policy further provided that "claims not referred to arbitration within 12 calendar months from the date of disclaimer of liability shall be deemed to have been abandoned."
Miss Justice Laffoy then considered the case of Walsh v. Shield Insurance Company Limited ILRM 218 which was the only authority cited in the application. In that case Hamilton J. held that there had been inexcusable delay on the part of the applicant in both commencing arbitration proceedings and in bringing an application under s.45 of the Arbitration Act 1954. The period between the repudiation of liability by the respondent insurance company and what Hamilton J. deemed to the commencement of the arbitration was the period between October 13th, 1970 and January 17th, 1973. However, unlike the instant case, during that period there had been engagement between the applicant's solicitor and the respondent insurance company. The delay between commencement of the arbitration and the initiation of the s. 45 application was from January 30th, 1973, to July 2nd, 1976. Notwithstanding the inexcusable delay Hamilton J. made an order deeming the arbitration proceedings to have commenced on January 17th, 1973, and extended the time for the commencement of arbitration, stating that he was "quite satisfied that the respondent has not been in any way prejudiced by such delay. The respondent has repudiated liability on foot of the policy on grounds set forth . . . If these grounds are valid, the delay has not in any way affected them or prevented them from being in a position to make the case before the arbitrator. I am satisfied that undue hardship would be caused if I were not to extend the time for referring the matter to arbitration if successful therein". However, Hamilton J. imposed terms to the making of the order, in that he directed that the applicant be responsible for the costs of the motion and was not to be awarded the costs of the arbitration if successful therein.
It was submitted on behalf of the respondent that both the delay in referring the dispute to arbitration and in initiating the s.45 application were inexcusable. The claimant sought to justify the delay in referring the dispute to arbitration on the ground that the respondent had "advised" that they pass the matter on to their business liability insurers for consideration and they had followed the advice. The claimants argued that had they been aware that their business liability insurers would not provide an indemnity, they would have taken immediate steps to refer the dispute with the respondent to arbitration. Miss Justice Laffoy stated that this line of argument did not excuse the failure to refer the dispute to arbitration immediately after March 3rd, 2003. Miss Justice Laffoy said that she did not think that the comment in the letter could be construed as advice, and therefore considered that the delay through the latter part of 2003, through 2004 and 2005 was inexcusable. Moreover, Miss Justice Laffoy considered that a further delay of over four months in bringing this application was inexcusable.
Counsel on behalf of the respondent submitted that if the claimants' application were acceded to, the respondent would be prejudiced because, Mr O'Neill having obtained liberty to enter judgment in default of appearance and there being little prospect of the respondent being able to have that judgment set aside, the respondent would not be in a position to contest the issue of liability in the plenary proceedings and, furthermore, would not be in a position to properly deal with and contest the issue of quantum. It was submitted that the prejudice was significant and that it had occurred without any fault on the part of the respondent. The respondent further submitted that insofar as the claimants would suffer hardship as a result of the circumstances which had arisen, that issue could properly be addressed by the claimants bringing an action against Quinn Direct, or the firm of solicitors nominated by them, for the manner in which the claim of Mr O'Neill was dealt with.
Miss Justice Laffoy noted that the respondent had not made the case that, if the issue as to whether the respondent had validly declined to indemnify the claimants were to be arbitrated at this juncture, it would be prejudiced by the delay in making the case before the arbitrator, that it was entitled to repudiate liability on the ground set forth in the letter dated March 28th, 2003. Miss Justice Laffoy stated that if the dispute went to arbitration, the respondent could make its case and, if it was entitled to decline indemnity, it would succeed before the arbitrator.
Miss Justice Laffoy took the view that given the current state of the plenary proceedings, the claimants were inevitably going to be fixed with an award of damages in favour of Mr O'Neill. On the basis of the evidence before the court, Miss Justice Laffoy said that she was entitled to infer that such award would cause the claimants undue hardship if the respondent had wrongfully declined an indemnity and the claimants were deprived of the opportunity of establishing that at arbitration. Miss Justice Laffoy was of the view that if, as a result of the arbitration, the respondent was obliged to indemnify the claimants, the respondent would be in no worse position than the claimants in relation to recovering from a third party any loss which had been accrued as a result of the involvement of the third party in handling Mr O'Neill's claim against the claimants, because as one would expect, there was a subrogation clause in the policy providing that they were entitled to take the benefit of the claimants' rights against another person before or after they have paid a claim.
For the reasons outlined above Miss Justice Laffoy held that this was a proper case in which to extend the time for referring the dispute between the claimants and the respondents to arbitration and time was extended for one week subject to the imposition of conditions similar to the conditions imposed by Hamilton J.
Accordingly an order was made that the applicant would be responsible for the costs of the motion and would also be responsible for the costs of the arbitration even if successful therein.
Solicitors: James Lucy & Sons (Kanturk) for the claimants; Harrison O'Dowd (Limerick) for the respondent.
• Niamh Fennell, barrister