Court allows service of indemnity notice on co-defendant despite arbitration stay to balance justice.

Neutral Citation: [2014] IEHC 97

THE HIGH COURT

[2009 2772 P]

BETWEEN

LOUISE MARIE O’CONNOR

PLAINTIFF

AND

NOEL DUFFY TRADING AS THE DUFFY GAFFNEY PARTNERSHIP, SWORDS SPORT AND LEISURE LIMITED, CKP CONSULTANTS

LIMITED TRADING AS KAVANAGH MANSFIELD & PARTNERS, JETAGE INTERNATIONAL LIMITED TRADING AS SLS GROUP,

DERRYVARAOGUE

DEFENDANTS

JUDGMENT of Mr. Justice Barrett delivered on the 28th day of February, 2014.

1. This case centres on the issue of whether a defendant to court proceedings can seek an indemnity and contribution from a co-

defendant where that co-defendant has secured a stay of proceedings between itself and the plaintiff in order that arbitration

proceedings between the plaintiff and that co-defendant might take place.

Facts

2. The present proceedings spring ultimately from the construction of an all-weather pitch at Mount Sackville School in Chapelizod.

Following construction, one of the 15-metre light standards at the pitch collapsed and thereafter safety concerns prompted the

dismantlement of the remaining seven light standards. Not surprisingly, litigation ensued.

3. The plaintiff, being the principal of the school, sued (1) Mr. Noel Duffy trading as the Duffy Gaffney Partnership, (2) Swords Sports

and Leisure Limited, and (3) CKP Consultants Limited trading as Kavanagh Mansfield & Partners. Mr. Duffy was the project manager on

the construction works and a partner in Duffy Gaffney Partnership which is engaged in the business of quantity surveying. Swords

Sport and Leisure Limited are building contractors. Kavanagh Mansfield & Partners are architects and engineers. There is also a

fourth-named defendant in the proceedings whose part in the proceedings is considered further below.

Some Preliminary Issues

4. Identity of third-named defendant: There is some confusion in the pleadings as to the true identity of the third-named defendant.

In an affidavit of 7th October, 2013, it is averred by an officer of Piconsult Limited that the correct name of the third-named

defendant is Piconsult Limited trading as Kavanagh Mansfield & Partners. This affidavit avers that Piconsult Limited was formerly CKP

Consultants Limited, an averment that suggests there was merely a change of registered name by CKP Consultants Limited. Yet an

affidavit of 6th July, 2009, sworn by the same individual avers that CKP Consultants Limited was in fact dissolved on 6th November,

1990. This suggests that Piconsult Limited was not formerly CKP Consultants Limited. The court requires that an affidavit is filed

within two weeks of the date of this judgment that correctly identifies the third-named defendant and that counsel identify what

order is being sought to correct any error arising.

5. Joining of fourth-named defendant: A further issue arising is that it appears from the affidavit evidence that at some time in

February 2013, Jetage International Limited, trading as SLS Group, Derryvaraogue was joined by court order as a fourth-named

defendant to the proceedings, being a party alleged to have some responsibility in respect of the design and erection of certain works

associated with the all-weather pitch lighting at Mount Sackville. The court has not had sight of this order and requires that a copy

of the relevant order be produced to the court within two weeks of the date of this judgment.

6. Previous order of the High Court: On 20th July, 2009, pursuant to motion on notice made by the third-named defendant, de Valera

J. made an order under Order 56, rule 2 of the Rules of the Superior Courts 1986 and the provisions of section 5 of the Arbitration Act

1980 “that the proceedings herein be stayed pending further order”. In a letter of 27th September, 2013, from the solicitors for the

putative third-named defendant to the solicitors for the fourth-named defendant, it was suggested that the effect of the order of

stay was that the third-named defendant was no longer a defendant in the proceedings. In the affidavit of 7th October, 2012, of Mr.

Mansfield it is likewise suggested that “CKP Consultants Limited trading as Kavanagh Mansfield and Partners is not and has not been a

Co-Defendant in the above-entitled proceedings since 20 July 2009, the date of the High Court Order [made by de Valera J.]”.

Leaving aside for a moment the issue as to the correct identity of the third-named defendant, it is clear that the order of de Valera

J., the operative text of which is quoted above, is purely an order of stay. It does not order that the third-named defendant be

struck out from the proceedings, a point that the court considers significant.

7. It was suggested before the court that the parties are ad idem that the order of de Valera J. in fact meant only to stay

proceedings between the plaintiff and the third-named defendant. However, there is nothing on the face of the order to suggest that

this is so. Nor is there any requirement that the element of court proceedings which are not the subject of an arbitration agreement

must be allowed to proceed while the element of proceedings that is the subject of an arbitration agreement goes to arbitration. As

Clarke J. observed in Kelly v. Lennon [2009] IEHC 320, [2009] 3 I.R. 794 at 806, in the course of considering an agreement for the

referral of some issues arising to arbitration:

“In my view, in cases such as this, where some but not all of the issues necessary to determine a cause of action arising

in proceedings are the subject of a valid and subsisting arbitration clause, the court has a discretion as to the proper

course of action to adopt which should be exercised in the light of all the circumstances of the case with a view to

ensuring, insofar as possible, a speedy resolution of all the issues which arise, and a final determination of the cause of

action concerned, while at the same time ensuring that the court does not trespass on determining an issue which has

been properly made the subject of an arbitration agreement between the parties.

I should emphasise that the discretion of which I speak does not, it seems to me, extend to the court taking over a

jurisdiction to determine any issue properly referred to arbitration. Rather, the discretion is as to how the various

elements of the case (being those properly within the jurisdiction of the court and those validly referred to arbitration)

should be sequenced so as to maximise the likelihood of a speedy and just resolution of all issues between the parties.”

8. Despite the fact that the parties to these proceedings may consider that the order of de Valera J. meant only to stay proceedings

between the plaintiff and the third-named defendant, the order on the face of it stays the entirety of the proceedings arising. If the

parties to the proceedings wish to have the order of de Valera J. varied or substituted, they may make application to do so but no

such application has been made and the basis and rationale for such order would have to be identified to the court.

Notice of Indemnity and Contribution

9. As the order of de Valera J. appears on its face to stay the entirety of the proceedings arising and no application has been made

to have that order varied or substituted, it is not strictly necessary for the court to consider the issue of whether a notice and

indemnity can be served by one co-defendant on the other as the entirety of the proceedings have been stayed pending the

outcome of the arbitration. Notwithstanding this, the court proceeds hereafter to consider the issue of whether a defendant to court

proceedings can seek an indemnity and contribution from a co-defendant to those proceedings in circumstances where that co-

defendant has previously secured a stay of proceedings between itself and the plaintiff in order that arbitration proceedings between

the plaintiff and that co-defendant might take place.

10. A consideration of reported cases in both Ireland and England and Wales suggests that this issue has not previously been the

subject of a written judgment in either jurisdiction. The court was referred by the third-named defendant to the Privy Council decision

in Minister of Foreign Affairs, Trade and Industry v. Vehicles and Supplies Limited and Another [1991] 1 W.L.R. 550 and in particular

to the portion of Lord Oliver of Aylmerton’s judgment, at 556, in which he considers what is the effect of an order of stay. The court

was also referred to the decision of Clarke J. in Kalix Fund Limited v. HSBC Institutional Trust Services Limited; Unione Di Banche

Italiane Societa Cooperative Per Azioni trading as UBI Banca v. Thema International Fund and HSBC Institutional Trust Services

(Ireland) Limited [2009] IEHC 457, [2010] 2 I.R. 581 and, in particular, his comments at 593 as to what a stay entails.

11. The court does not propose to consider in this judgment the relevant portions of those judgments. This is because the court

considers the issue arising not to be what an order of stay does but rather where the balance of justice lies when a stay that has

been granted has the potential, as here, to work significant unfairness to an entity that was not party to the application for that

stay. In general, of course, it should be possible to avoid this arising as an issue through the simple expedient of a party, when

seeking a stay, making other co-defendants party to such application and expressly raising with the court the issue of indemnity and

contribution. In this way, to paraphrase Clarke J. in Kelly v. Lennon, the court will be better placed to determine the best course of

action to adopt in the light of all the circumstances of the case. There will of course be instances when this is not done and even

when it is done the question arises as to how the court should address the challenging issues that such an application presents. After

all, no matter how such an application is decided it may cause difficulties. A co-defendant may be prevented from serving notice of

indemnity and contribution by virtue of a stay granted in the context of an arbitration agreement to which it is not party. Conversely,

a co-defendant who enjoys the benefit of an arbitration agreement will in effect be denied the benefit of that stay if it remains

possible to be served with a notice of indemnity and contribution.

12. In such circumstances it appears to the court that the balance of justice must generally favour the co-defendant who is not the

beneficiary of the arbitration agreement. This is because the party who does benefit therefrom can inter alia seek of the court, when

making application for a stay, that it make proper provision as to its liability to indemnity and contribution. Moreover, it can seek to

make any other defendant/s party to the application. In addition, as a continuing party to the stayed proceedings, it is ultimately

responsible for having created a situation in which the plaintiff ceases, pursuant to the order of stay, to involve that co-defendant

further in the court proceedings.

Order

13. For the reasons identified above, the court proposes to make an order allowing the service of a notice of indemnity and

contribution by the fourth-named defendant on the third-named defendant. However, this will require first that the order of de Valera

J. be varied or substituted as the court considers that order to have stayed the entirety of the court action. The court will adjourn

the present proceedings for two weeks to allow the filing of the affidavit and production of the court order referred to above and also

for the parties to determine whether either or both of them wish to make any application in respect of the order of de Valera J. The

parties have liberty to apply.