Supreme Court dismisses appeal; specific performance stay upheld as arbitration dispute is too late.

THE SUPREME COURT

Keane C.J.

Murphy J.

Geoghegan J.

24/01

BETWEEN/

DECLAN O'DWYER AND JULIA JONES-O'DWYER

Plaintiffs/Appellants

and

ROBIN BOYD

Defendant/Respondent

JUDGMENT of MR. JUSTICE GEOGHEGAN delivered the 4th day of July 2002

This is an appeal from an order of the High Court (O'Neill J.) granting a stay of these specific performance proceedings instituted

by the plaintiffs/appellants against the defendant/respondent so as to enable certain matters to be referred to arbitration in

accordance with the terms of a contract of sale.

The contract of sale was dated the 21st of August, 1998 and was in a standard Law Society form. That standard form included

"General Conditions of Sale" which by virtue of paragraph 2 of the special conditions were to be incorporated in the contract.

Condition 51 of the general conditions prescribed that all differences and disputes between the vendor and the purchaser in

relation to certain listed matters were to be referred to arbitration. One of these matters specified at Condition 51(d) was:

"any issue on foot of Condition 33, including the applicability of said condition, and the amount of compensation payable

thereunder".

Condition 33 reads as follows:

"33. (a) In this condition 'error' includes any omission, non-disclosure, discrepancy, difference, inaccuracy,

misstatement or misrepresentation made in the Memorandum, the Particulars or the Conditions or in the course of any

representation, response or negotiations leading to the sale, and further in respect of measurements, quantities,

descriptions or otherwise.

(b) The Purchaser shall be entitled to be compensated by the Vendor for any loss suffered by the Purchaser in his

bargain relative to the sale as a result of an error made on behalf of the Vendor provided however that no compensation

shall be payable for loss of trifling materiality unless attributable to recklessness or fraud on the part of the Vendor nor

in respect of any matter of which the Purchaser shall be deemed to have had notice under Condition 16(a) nor in

relation to any error in a location or similar plan furnished for identification only.

(c) Nothing in the Memorandum, the particulars or the conditions shall:

(i) entitle the Vendor to require the Purchaser to accept property which differs substantially from the property

agreed to be sold whether in quantity, (quality) tenure or otherwise, if the Purchaser would be prejudiced

materially by reason of any such difference.

or

(ii) affect the right of the Purchaser to rescind or repudiate the sale where compensation for a claim attributable

to a material error made by or on behalf of the Vendor cannot be reasonably assessed.

(d) Save as aforesaid, no error shall annul the sale or entitle the Vendor or the Purchaser (as the case may be) to be

discharged therefrom."

The completion date in the contract of sale was the 30th of November, 1998 but the sale was not completed on that date,

mainly because the defendant/respondent was not in a position to give vacant possession to the plaintiffs/appellants of a small

area of ground containing a large slurry tank with a capacity for 400 tons of cattle excrement. There had been considerable

correspondence and discussions in relation to this slurry tank area. It is neither necessary nor desirable to go into the details of

these discussions at this stage. It is sufficient to state that when the time came for completion of the contract the respondent

maintained and has maintained ever since that he did not own this slurry tank area and was not in a position to give title to it.

The appellants do not believe this for reasons which emerge from the documentation before this court but which are not

relevant to the issues on this appeal. It is clear, therefore, that this is a most unusual case in that instead of a vendor insisting

that he is in a position to make title and a purchaser disputing this, the exact opposite has happened. The vendor is satisfied he

cannot make title but the purchasers do not believe him. For reasons which I will explain, this disbelief on the part of the

purchasers would seem to me to be irrelevant to the issues on the appeal even if, in the event, the appellant's scepticism was

proved to be well-founded.

The case of the respondent is that the slurry tank area was included in the contract through an error and that therefore it is a

case coming within Condition 33. As is clear from Condition 51(d) cited above any issue on foot of Condition 33 "including the

applicability of said condition" (my emphasis) falls within the arbitration clause. The appellants want all issues to be dealt with in

the specific performance suit and certainly do not want the specific performance suit to be stayed and they, of course, dispute

that there was any "error". But because the applicability of the condition itself is an arbitrable issue, the fact that the

appellants dispute the existence of the "error" must be regarded as irrelevant. It is for this reason that on the wording of

Condition 51(d) cited above the dispute relating to the slurry tank would seem clearly to fall within that condition.

I now turn to the history of the specific performance suit and how the question of a stay arose. On the 11th of April, 2000 the

appellants served notice of motion for judgment in default of defence which came on for hearing on the 8th of May, 2000. The

motion was listed before McCracken J. and at that stage there was before the court the appellants' affidavit and exhibits but no

affidavit filed on behalf of the respondent. Counsel for the respondent requested a three week adjournment which was opposed.

The learned High Court judge, in the event, granted an adjournment of one week. Apparently, it had been indicated that the

respondent might want to bring a motion to have the proceedings stayed so that there be a reference to arbitration under the

contract. McCracken J. gave liberty to serve short notice of motion for the same date as the resumed hearing of the motion for

judgment. On the 11th of May, 2000 a notice of motion was served seeking a stay of the specific performance proceedings

under s. 5 of the Arbitration Act, 1980. Subsection (1) of that section reads:

"5.-(1) If any party to an arbitration agreement, or any person claiming through or under him, commences any

proceedings in any court against any other party to such agreement, or any person claiming through or under him, in

respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time after an

appearance has been entered, and before delivering any pleadings or taking any other step in the proceedings, apply to

the court to stay the proceedings, and the court, unless it is satisfied that the arbitration agreement is null and void,

inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to

the matter agreed to be referred, shall make an order staying the proceedings."

Subsection (2) of section 5 is not relevant to this case. From the terms of subsection (1) it is clear that provided that the

application for the stay has been made at the right time the court has only very limited discretion to refuse. By "right time" I

mean of course that the application must be made "before delivering any pleadings or taking any other step in the

proceedings". After that the court would have no jurisdiction to grant the stay. As will emerge when I refer to the appellants'

notice of appeal the question of whether the respondent had taken a step in the proceedings before applying for the stay is an

important issue on this appeal.

The resumed hearing of the motion for judgment and the hearing of the new motion seeking the stay came before O'Neill J. The

hearing of the motion seeking the stay was then adjourned for six weeks and when it came up for hearing again on the 3rd of

July, 2000 there was a further adjournment because by that time the respondent had filed two affidavits and the second had

not been given in advance to the appellants. The ultimate hearing of the motion grounded on a number of affidavits took place

on the 3rd of October, 2000 and the order now appealed against granting the stay was made by O'Neill J.

The appellants have served an elaborate notice of appeal which I will shortly summarise. But before I do so and by way of slight

digression, I would, at this point, compliment the appellants who are unrepresented on the way they presented their appeal

both in terms of the books of documents and their oral submissions. Although naturally they do not have a full understanding of

the legal issues involved, they are quite close to such an understanding and in the manner that they have presented their

appeal they have certainly assisted me in coming to grips with what the real issues are.

The appellants have included every conceivable point that could be made on their behalf in the notice of appeal but it emerged

from the hearing that in reality the substantial grounds of appeal can be reduced to two. These are:

1. The matters in dispute do not fall within Condition 51? This is really the second ground of appeal in the notice of appeal

though there is overlap from other grounds. The appellants' argument is that their litigation directed towards obtaining

title and vacant possession is a specific performance suit in which they are also claiming damages and that the scope of

their action goes well beyond so called "error" in description which they deny existed. They say that the arbitration

effectively deprives them of their specific performance suit.

2. If the appellants are wrong about that, the High Court still had no jurisdiction to grant the stay because the

respondent had taken a step in the proceedings within the meaning of section 5 of the Arbitration Act, 1980. This ground

of appeal is essentially contained in paragraph 5 of the notice of appeal.

The other grounds of appeal are not really stateable in law though it is very understandable that the appellants would have

regarded them as relevant. Ground No. 1 refers to section 26 of the Arbitration Act, 1954. That section reads as follows:

"26.- Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is

applicable to the reference, be deemed to contain a provision that the arbitrator or umpire shall have the same power

as the court to order specific performance of any contract other than a contract relating to land or any interest in

land."

The appellants seem to take the view that because of this section issues in their specific performance suit cannot be referred

to arbitration. That is a misreading of the section. If the matter substantially in dispute in this case goes to arbitration, the

arbitrator will, in the first instance, be concerned with whether Condition 33 applies at all. My impression is that the appellants

would obviously like that issue to be decided by a court and not by an arbitrator, but they have signed a contract which says

that that issue does have to go to an arbitrator. All the provisions of the Arbitration Acts will apply to any such arbitration

including of course, if difficult legal questions arise, the power of the arbitrator to state a case to the High Court. But Condition

51 of the general conditions incorporated in the contract which the appellant signed incontrovertibly provides that the

applicability of Condition 33 is itself to be arbitrated on as distinct from the issues under Condition 33. If the arbitrator came to

the conclusion that Condition 33 was applicable then he or she would go on to determine whether there should be an

abatement of the purchase price. In the meantime this specific performance suit does not disappear. It is simply stayed pending

the outcome of the arbitration. There is no question of the arbitrator granting a specific performance order and, therefore,

there is no question of any contravention of section 26 of the Arbitration Act, 1954. If and in so far as there are issues

outstanding after any abatement of purchase price has been determined they will come to be determined by the court if

necessary.

Ground 4 in the notice of appeal seems to suggest that a referral to arbitration would in some way adversely affect the title of

the appellants. There does not seem to be any reality in this ground of appeal but at any rate it is not a ground on which the

stay can be refused.

The matters of public law and public policy referred to in ground 6 of the notice of appeal are not relevant to the contractual

rights of the parties and especially the contractual procedures which is what this appeal is all about.

The course of an arbitration would not be affected by the disputes relating to the discharge from the pipe as referred to in

ground 7 in the notice of appeal. At the hearing, counsel for the respondent offered that as part of an overall settlement her

client would join in any proceedings against the adjoining owner Mr. O'Grady. If there are issues arising out of the complaints

referred to in ground 7 of the notice of appeal these can ultimately be dealt with in such proceedings and/or in these

proceedings whether or not the matters are referred to arbitration.

Ground 8 refers to alleged procedural and evidential defects.

Ground 9 seems to refer to the manner in which affidavits etc. were presented to the court. As the Chief Justice explained to

the appellants at the hearing of the appeal, there is nothing unusual about affidavits not being opened publicly in court. In

crowded motion lists it is frequently the case that a judge may quietly read the affidavits himself or herself or may indicate that

they will be read in his or her chambers. None of the matters referred to in grounds 8 and 9 amount to unfair procedures or

unlawful procedures or affect the validity or correctness of the High Court decision. If and in so far as there was any procedural

defect at any stage in the filing of documents etc. it is quite clear that all documents which were relevant were before O'Neill J.

when he made his order.

I return therefore to the only two arguable grounds of appeal which I set out above. Dealing with the first of these two

grounds, I would refer to the statement of claim. Paragraph A of the prayer contained in the statement of claim seeks two

alternative orders namely, an order for specific performance of the original contract of the 21st of August, 1998 "or

alternatively an order for specific performance of the contract with such abatement of the purchase price as the court may

think fit." Although, therefore, the appellants believe there was no "error" with regard to the slurry tank area and that the

respondent does have title to give them, it is perfectly clear that they are making a fallback claim for abatement of the

purchase price if they are proved wrong. For the reasons which I have already explained it is enough that one party to the

agreement alleges that the discrepancy was an error for the matter to be referred to arbitration because even if the suggestion

that it was an error is heavily in dispute it is for the arbitrator to determine that dispute because it is for the arbitrator to

decide whether Condition 33 applies or not.

At present the appellants are not talking of rescission. The respondent, at one stage, did purport to rescind following a twenty-

eight day notice but counsel for the respondent has acknowledged that her client was not entitled lawfully to rescind the

agreement. Therefore, as things stand at the moment neither party is rescinding or purporting to rescind and I do not intend by

this judgment to express any view as to what if any future rights in that regard there might be.

Although it may not be strictly relevant to this ground of appeal, I think that it is a suitable point at which to clear up a possible

misconception which the appellants may be harbouring. An order for specific performance is not an order declaring any matters

of title. It is simply an adjudication by the court that a particular contract has been entered into between the parties and that

that being so it ought to be performed. However, it may prove impossible to perform because of title problems. In that event

the court would normally refer the matter to the Examiner of the High Court to determine the title question. This does not

entirely prevent the issues from being litigated in court because if there was an issue between the parties to the contract or

indeed involving a third party such as in this case, the adjoining owner, the Examiner might well refer it back to the judge to

have it determined in open court, and at any rate there may be an appeal to the court from the findings of the Examiner. But an

order for specific performance as such will not solve the appellants' problem. As I have already indicated, the structure of the

statement of claim would seem to suggest that the appellants may not have been entirely unaware of this given that there is

an alternative claim for abatement of purchase price. In so far therefore as the respondent is claiming that a portion of property

was erroneously included in the contract and will only perform on that basis with appropriate abatement of purchase price if

necessary, the matter would correctly be referred to arbitration and subject to the second substantial ground of appeal the

stay would be appropriate.

Moving now to the second substantial ground of appeal that is to say that the court had no jurisdiction to order the stay

because the respondent had taken a step in the proceedings, it is only fair to say that although many relevant and useful cases

have been cited none of them are quite on all fours with what happened in this case.

Before reviewing the case law, I think it useful to refer first to textbook passages on which the appellants have particularly

relied. The passage most favourable to the appellants' point of view is probably that contained in Halsbury's Laws of England,

4th edition, reissue, Volume 2 at paragraph 627. The passage in question reads as follows:

"The applicant must have taken no step in the proceedings after acknowledgment of service. A step in the proceedings

is an act which both invokes the jurisdiction of the court and which demonstrates the applicant's election to allow the

action to proceed. An applicant may take what would otherwise be a step if he makes it clear that that act is done

without prejudice to his right to apply for a stay. Steps in the proceedings have been held to include: the filing of an

affidavit in opposition to a summons for summary judgment, service of a defence, and an application to the court for

leave to serve interrogatories, or for a stay pending the giving of security for costs, or for an extension of time for

serving a defence, or for an order of discovery, or for an order for further and better particulars. The following have

been held not to be steps: acts preliminary to the issue of proceedings, a request in correspondence for an extension of

time for serving a defence, the filing of affidavits in answer to an application by the plaintiff for the appointment of a

receiver, transferring a summons into counsel's list, applying to strike out a defective statement of claim, resisting an

application for an interlocutory injunction by putting in evidence and appearing in court, and applying for a stay on

grounds other than that the dispute was subject to an arbitration payment."

In a footnote to that passage there is a very general statement in the following terms:

"Any act which does not involve the court does not invoke its jurisdiction: ... as a general rule any application to the

court, or filing of pleadings or documents, does invoke its jurisdiction and does amount to a step in the proceedings: ...

under certain circumstances, however, such actions may not amount to steps."

The appellants also relied on a passage in the Law and Practice of Commercial Arbitration in England, second edition, Mustill

and Boyd. The passage appears at p. 472 and with reference to what is a "step in the proceedings" reads as follows:

"The reported cases are difficult to reconcile, and they give no clear guidance on the nature of a step in the

proceedings. It appears, however, that two requirements must be satisfied. First, the conduct of the applicant must be

such as to demonstrate an election to abandon his right to stay, in favour of allowing the action to proceed. Second, the

act in question must have the effect of invoking the jurisdiction of the court."

To arrive at a a true understanding of the correct principles to be applied it is necessary to review the actual decided cases. At

this stage I should make it clear that although I will be reviewing the cases I will be doing so in the context of one aspect only

of this case. In ground 5 in the notice of appeal the appellants rely on three distinct alleged "steps". Two of these are in my

view unstateable for the reasons which I will be indicating. Serious consideration has only to be given to the third.

Associated with the contract of sale there had been a tenancy agreement between the respondent and the appellants. In 1999

the respondent purported to terminate that tenancy agreement and issued ejectment proceedings against the appellants in the

District Court. The appellants claim that the issuing of the District Court ejectment proceedings constituted a "step". This

argument cannot be sustained since clearly the alleged "step" was not a "step" in these specific performance proceedings

brought in the High Court but rather the institution of different litigation in a different court.

The second alleged "step" is the imposing on the appellants the necessity to make an application to the High Court for liberty to

serve out of the jurisdiction in South Africa because the respondent would not nominate their Dublin solicitors to accept

service. While it was very understandable that the appellants should be highly aggrieved by this behaviour on the part of the

respondent it cannot be said to constitute a "step". The behaviour complained of was not part of the proceedings itself.

The third "step" alleged by the appellants is undoubtedly arguable and requires serious consideration. This relates to the

application to McCracken J. for an adjournment of the motion for judgment. After carefully considering the decided cases which

I am about to review, I have come to the conclusion nevertheless that that was not a "step" within the meaning of the

Arbitration Act, 1980. By merely applying for an adjournment the respondent was not indicating to the court one way or the

other whether he intended to participate further in the proceedings and indeed the question of reference to arbitration was

raised. The adjournment was in my view nothing more than a holding operation.

The leading English case on the question of what constituted a "step" was for many years Ford's Hotel Co. Limited v. Bartlett

[1896] AC 1. Quite apart from any persuasive value which the case may have, it is of importance in Ireland in that it was relied

on and effectively followed by Finlay P. in O'Flynn v. An Bord Gais Éireann [1982] ILRM 324, a case to which I will be referring in

more detail in due course. In the Ford's Hotel case a defendant had taken out a summons and had obtained an order for further

time for delivering a defence. This was held to be a "step" in the proceedings within the meaning of the similar provision

contained in the Arbitration Act, 1889. In the O'Flynn case as will be seen, Finlay P. approved the following passage from the

speech of Lord Halsbury:

"The intention of the legislature in giving effect to the contract of the parties, and saying that one of them should be

entitled to make an application to insist that the matter should be referred according to the original agreement, was

that they should at once, and before any further proceedings were taken, specify the terminus a quo, and that if an

application to stay proceedings was made under those circumstances, then that the court should enforce the

contractual obligation to go to arbitration. My Lords, that seems to be a very wise provision: that costs should not be

thrown away in beginning to litigate."

Three of the five Law Lords delivered opinions and there is some slight discrepancy between them as to whether it was the

application for the extension of time or the actual making of the order for the extension of time or a combination of both which

constituted the "step" but nothing turns on that for the purposes of this appeal. In this case the respondent never made any

application to the court for an extension of time to deliver a defence or indeed any other application other than for an

adjournment which must necessarily be noncommittal. But it was not entirely noncommittal in that short service was allowed for

the bringing of a motion to stay the proceedings.

For a "step" to be constituted it may not be essential that the parties seeking the stay has himself or herself made some

application to the court. In the English case of Pitchers, Limited v. Plaza Queensbury Limited [1940] 1 All ER 151 it was held

that opposition to a summons for leave to sign final judgment before the Master was a "step". However, the case is somewhat

unusual in that as was pointed out in the judgment of Slesser L.J. that was not a case where an application for a stay was

made at the same time as leave to sign judgment was opposed. At the stage when the matter was before the Master there was

no application to stay on the grounds of arbitration. That only first arose on appeal to the judge. But again the facts are far

removed from this case where all that was asked for was a straightforward adjournment.

The next case of importance is the Irish case of O'Flynn already cited. I referred to the fact that Finlay P. in that case

approved of the interpretation of the relevant section by Lord Halsbury in the Ford's Hotel case but he went on to make the

following observation.

"...it seems clear that the step which should be held fatal to a party seeking to refer a matter to arbitration is a step

which involves costs, in other words a step which invoked the jurisdiction of the court at his instance or which institutes

some matter whether by way of motion or otherwise in the court. In the case of the Brighton Marine Palace and Pier

Limited v. Woodhouse [1893] 2 Ch. 486 it was held that an agreement reached by letter between the parties for the

extension of time for a defence was not the taking of a step by the defendant which could debar him from obtaining a

staying order under the Acts. In the course of the judgment of North J. in that case he points out that it was not a

proceeding in the action but rather in a sense outside the court."

In one sense an application for an adjournment is the invoking of the court's jurisdiction but that is not sufficient for it to

constitute a "step", it is a totally neutral act in the context of whether it is an intention to refer to arbitration or proceed with

litigation.

Finally I would refer to the modern English case of Turner & Goudy v. McConnell and Anor. [1985] 1 WLR 898. In that case, a

Court of Appeal consisting of Dillon L.J. and Mustill J. (as he then was and who was one of the co-authors of the work cited

earlier) held that the defendants had taken a step in the proceedings by filing an affidavit showing cause why summary

judgment should not be entered against them and by appearing before the Master thereby causing judgment to be deferred by

an adjournment; and that therefore it was too late to apply for a stay under the Arbitration Act, 1950. The judgment of the

court was delivered by Dillon L.J., and he succinctly explains the reasoning behind the court's decision in the following passage

towards the end of his judgment at p. 903:

"In the present case the defendants were required under Order 14 to show cause why judgment should not be entered

against them. They had to do that by affidavit or otherwise. They did it by filing the affidavit, which I have mentioned,

which put forth at length the reasons why they contended that judgment should not be entered against them. Their

position that they were opposing the application was maintained by the presence of the solicitor for the defendants

before the Master on the 3rd of May and it was because of the contentions put forth in the affidavit, and not withdrawn,

that the Master necessarily adjourned the proceedings to a more appropriate date.

They have therefore, in my judgment, taken a step in the action by filing the affidavit to show cause why judgment

should not be entered against them and by appearing before the Master on the 3rd of May with the consequence that

judgment was deferred by the adjournment and, in my judgment, it is too late for them in June to decide that they

want a reply for a stay for arbitration."

It is clear from that passage that the circumstances of that case were also entirely different from the circumstances of this

case where the respondent did nothing except to apply for an adjournment.

The appellants in different connections have referred the court to a number of other authorities which I do not propose to

review as I do not think they are relevant. At this stage I would just summarise the legal position in which the appellants find

themselves.

They are faced with an application for a stay which was for the reasons which I have indicated made in time and is not

defeated by any step taken by the respondent. The matters to be arbitrated upon allegedly fall within Condition 33. As there is

a dispute as to whether they do in fact fall within Condition 33 that matter must itself be resolved by the arbitrator because

that is what Condition 51 says. If the appellants satisfy the arbitrator that there was no "error" and that the respondent is in a

position to perform the contract exactly as intended by the written terms thereof, there will be a finding by the arbitrator of

non-applicability of clause 33. The stay can then be lifted and the specific performance suit can proceed accordingly. If on the

other hand the arbitrator finds that there was an "error" or "errors" as a consequence of which the respondent is legally unable

to perform the contract in the exact manner prescribed by its terms then the arbitrator will assess an appropriate sum by way

of abatement of price and after that the respondent cannot be forced to perform the contract except in the modified form with

the abatement of price. As to whether in that event the appellants would be entitled to rescind is not a matter that can be

considered at this stage by this court.

I would dismiss the appeal.