What's in a Claim? The Art of Constructing Arbitration Clauses

In an unreported judgment of the Civil Division of the Grand Court of the Cayman Islands dated 26 August 2019, Mrs Justice Mangatal has provided some helpful clarification of the manner in which the Court will approach the interpretation of arbitration clauses.

Background

The case was a personal injury claim in which the Plaintiff, Ms. Burlington, was hurt in an accident whilst on the premises of her then employer, Butterfield Bank (Cayman) Ltd. During the course of the proceedings (which remain ongoing) the parties' respective expert witnesses each agreed that there were material defects in the construction of the staircase on which the Plaintiff had been injured.

 

Three interlocutory applications came before the Court, one of which was an application by the Defendant for leave to issue a third party notice ("Third Party Notice") against McAlpine Limited ("McAlpine"), the builder of the staircase.

 

One of the key issues that fell to be determined by the Court on that application was whether the construction contract between the Defendant and McAlpine, dating from 2006 (the "Agreement'), contained a valid arbitration clause. McAlpine argued that it did, and that the arbitration clause provided for a clear process for the resolution of any disputes (including claims in tort), as a condition precedent to the Defendant's entitlement to bring any claims. It was therefore submitted that the existence of the clause precluded the Defendant from pursuing its claims against McAlpine before the Court, and that the Court should not grant the Defendant leave to bring a claim which it would then be bound to stay under Section 9 of The Arbitration Law, 2012.

Court's Decision

Mangatal J held that "the scope of any agreement to arbitrate, is to be determined by reference to its precise wording, and construed according to its language, contextually, and in the light of the circumstances in which it was made." In this instance, it was clear that the dispute resolution procedure set out in the Agreement was limited to disputes that arose during and not post construction. This was made plain by the relevant wording in A.4.2.1 of the Agreement which limited the applicability of the dispute resolution process (and therefore the scope of the agreement to arbitrate) to claims "arising prior to the date final payment is due."

 

Even though A.4.1 of the Agreement provided that "The term "Claim" also includes other disputes and matters in question between the Owner and Design-Builder arising out of or relating to the Design-Build Contract" (emphasis added), which might seem to suggest that all claims were subject to the dispute resolution procedure, Mangatal J determined that "when the language of the entire Agreement is looked at closely, and in its full context, and having regard in particular to the clear language of A.4.2.1, it is plain that the dispute resolution procedure does not apply to post-construction defects discovered years after final completion of the design-build project." The language at A.4.1.3 of the Agreement also supported this. That article stated that "Pending final resolution of a Claim, except as otherwise agreed in writing or as provided in Section A.9.7.1 and Article A.14, (neither of which were considered to be relevant to the issues before the Court), the Design-Builder shall proceed diligently with performance of the Design-Build Contract and the Owner shall continue to make payments in accordance with the Design-Build Documents" (emphasis added).

   

In light of the above, Mangatal J decided that it was appropriate to grant the Defendant leave to issue a Third Party Notice against McAlpine.

Conclusion

This decision serves to reinforce the fact that the Court will closely scrutinise the wording of any arbitration clause that comes before it, and will not easily conclude that its jurisdiction has been ousted. The importance of proper care in formulating arbitration clauses cannot be overestimated, along with a proper consideration and understanding of the scope of any agreement to arbitrate. As an essentially contractual right and obligation, the wording used is paramount, and will be construed in the light of the entire agreement where necessary in order to establish what disputes the parties intended and agreed to arbitrate.


CAYMAN ISLANDS
Nick DunnePartnerT +1 345 814 4548nick.dunne@walkersglobal.com
Andrew GibsonDirector of LegalT +1 345 814 4573andrew.gibson@walkersglobal.com

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