Fayleigh Ltd v Plazaway Ltd t/a Hotel Partners and Another

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Ryan
• Judgment Date: 11 February 2014
• Neutral Citation: [2014] IEHC 52
• Docket Number: [No. 191 MCA/2013]
• Date: 11 February 2014

[2014] IEHC 52

THE HIGH COURT

[No. 191 MCA/2013]

Fayleigh Ltd v Plazaway Ltd t/a Hotel Partners & Murphy

IN THE MATTER OF THE ARBITRATION ACTS 1954 - 1998, AND IN THE MATTER OF AN ARBITRATION

BETWEEN

FAYLEIGH LTD

APPLICANT

AND

PLAZAWAY LTD TRADING AS HOTEL PARTNERS AND FRANCIS MURPHY

RESPONDENTS

ARBITRATION ACT 1954 S36

ARBITRATION ACT 1954 S38

CORP LTD v JUBILEE COFFEE ROASTING COFFEE LTD 1958 1 WLR 661

MCCARTHY v KEANE 2004 3 IR 617

GALWAY CITY COUNCIL v KINGSTON & ANOR 2010 3 IR 95

LIMERICK CITY COUNCIL v UNIFORM CONSTRUCTION LTD 2007 1 IR 30

KEENAN v SHIELD INSURANCE CO LTD 1988 IR 89

Arbitration - Management agreement - Termination of agreement - Arbitration award - Application for remittance - Application to set aside - Misconduct - Failure to consider evidence

In these proceedings, the applicant, Fayleigh Limited (Fayleigh), sought an order remitting the arbitration award made by the second respondent, Francis Murphy, on the 1^st of May 2013 for further consideration or, alternatively, an order setting aside the award on the ground of misconduct.

Fayleigh was the lessee of Trim Castle Hotel. The first named respondent, Plazaway Limited trading as Hotel Partners (Plazaway), was a hotel management company. In early 2006, the companies made an agreement whereby Plazaway would manage the Trim Castle Hotel. A dispute arose between December 2008 and January 2009 and was referred to arbitration under the second named respondent. The arbitrator made his award in the sum of €476,767.56 to Plazaway. This was for management fees, design and build fees and termination payment. The arbitrator rejected the counterclaim for negligence and other defaults made by Fayleigh.

The issues requiring determination were when and how the management agreement came to an end. Plazaway contended that it operated the hotel until the end of December 2008. It claimed that Fayleigh terminated the contract and that the management fees and termination payment were due. Fayleigh, however, claimed that Plazaway terminated the contract in March 2008 and that therefore, no termination fee was due and the management fees were reduced. Fayleigh asserted that a range of documentation, seventeen folders in total, substantiated their case whereas Plazaway argued that the documents were inadmissible. The arbitrator determined the documents to be inappropriate and didn”t base his decision on them.

Section 36 of the Arbitration Acts 1954-1998 provided for the remittance of an award back to the arbitrator for reconsideration and section 38 provided that the Court could set aside an award where there was misconduct. In this context, misconduct referred to an irregularity serious enough to amount to injustice or unfairness. The Court noted that the arbitrator said that he would take the folders with him and read them. However, he gave his award without taking them into account and in doing so, failed to consider potentially relevant evidence. He decided against Fayleigh and dismissed their counterclaim entirely. It was noted that the arbitrator was obliged to give consideration to the admissibility of the material in order to reject it. The Court determined that a party putting forward evidence in support of its case was deprived of a fair hearing where, as in these proceedings, the tribunal rejected the evidence out of hand. As such, the arbitrator was found to have made a ‘serious mistake’ and the award could not be allowed to stand.

The Court determined that the appropriate remedy was remission. The Court held that although the arbitrator made a serious mistake, that his ‘experience and integrity’ were not in question and that the solution was to properly consider the documents.

Mr. Justice Ryan

1 By an originating notice of motion dated the 27^th June, 2013, the applicant, Fayleigh Ltd, applies to the court for an order remitting the arbitration award made by the second respondent on the 1^st May, 2013 for further consideration or, in the alternative, an order setting aside the award on the ground of misconduct.

2 The applicant company is the lessee of Trim Castle Hotel, Co. Meath, which it holds under a 35 year lease. Plazaway Ltd trades as hotel partners and is a hotel management company. The parties made an agreement in early 2006 whereby hotel partners would manage the Trim Castle Hotel for and on behalf of Fayleigh Ltd. The written agreement contained an arbitration clause in the event of disputes arising between the parties. Such a dispute arose concerning a number of issues in or about December 2008, or January 2009, and the matter was referred to arbitration and the second respondent Mr. Murphy was appointed arbitrator on the 30^th April, 2009. The hearing of the arbitration commenced on the 21^st February, 2011 and ended with the receipt of legal submissions from the parties in August, 2012. The arbitrator made his award on the 1^st May, 2013, and it was published to the applicant on the 21^st May, 2013.

3 By his award, the arbitrator awarded the sum of €476,767.56 to the claimant, Plazaway Ltd, pursuant to its claim under three headings namely:

4 (a) Management and other fees due to 31^st December, 2008, €265,051.94

(b) Design and build fees €36,300

(c) Termination payment €175,415.62

5 The arbitrator upheld the claim of the hotel management company in full and rejected the counterclaim for negligence and other defaults made by the hotel owner, Fayleigh Ltd.

6 The central issue in the case was when and how the management agreement came to an end in 2008. Did it happen in March or at the end of December? The claimant in the arbitration, Plazaway Ltd, submitted that it had continued to operate the hotel until the end of December 2008. Its case was that the hotel owners, Fayleigh Ltd, terminated the contract and that there were substantial management payments due and owing at the time of termination. In addition, under the terms of the contract, there was an extra termination payment which amounted to a year's base management payment calculated in accordance with the contract. With the addition of a relatively small amount for the design and build services claimed by the management company, that was how the claim was made up.

7 The hotel's position was that it had not terminated the contract; that had been done by the management company, Plazaway. That had happened at or about the end of March 2008, and the result was that no termination payment was due or owing to the management company and the management fees were greatly reduced. Instead of being approximately €265,000, a figure of €88,000 was accepted as being due and owing but subject to the counterclaim that the hotel owner made. Fayleigh's case was that the management company had provided some Ltd services from April to December, 2008 following the discontinuance of the operation of the management contract by Plazaway. From the beginning of the contract, it was understood and agreed between the parties that the hotel operators/managers would also provide some additional services over and above those specified in the management agreement. Plazaway ran a number of hotels and they had employees who did work that covered all the hotels and whose services were billed according to the turnovers of the different businesses. In addition to the full management services that were billed under the management agreements specific to this hotel, Trim Castle Hotel was also liable for some shared services under this heading. It was the hotel owner's case that Plazaway had "stepped back" from the full management contract at the end of March 2008, but had continued to provide some skeleton shared services in accordance with the pre-existing understanding. Fayleigh says that in January 2009 it terminated the provision of these shared services that had continued after the management agreement was discontinued.

8 In support of Fayleigh's contention that the services that Plazaway provided were only these shared services from April 2008 until the end of the year, the company had compiled a dossier in seventeen lever arch files of documents discovered by the operators of the hotel, Plazaway, containing colour-coded bundles arranged in a way that allegedly tended to confirm the owner's argument. Fayleigh's case was that examination of these documents arranged in this way would demonstrate that the services that were provided were not the full management services as provided by the agreement of March/April 2006, but rather were the services shared with the other hotels operated by Plazaway.

9 An issue concerning the use of these folders in the way that they had been compiled arose on Day 4 of the arbitration hearing when Plazaway's director, Mr Colm Duignan, was being cross-examined by counsel for Fayleigh. In the grounding affidavit, Mr. David O'Brien, director of Fayleigh Ltd, says that the applicant sought to introduce the documentation into evidence by putting them to the claimant's witnesses. The dossier presented an obvious practical problem as to how all of this mass of papers was going to be processed, proved and evaluated. Counsel argued the matter. The arbitrator made a ruling or determination as follows:-

"I have listened very carefully to the arguments put forward by counsel for the Applicant and by counsel for the Respondent."

10 There are seventeen books containing Discovery documents, which have been provided by the applicant. In my view, there is no need to prove the documents themselves. I do not accept that the documents, therefore, have to be put on this or any other witness of the applicant, because I can see them also being put, of necessity, to Mr Savage.

11 Yesterday I indicated my view that it would not be in the interests of either party to do so. Not only because of the additional costs involved, but also because inevitably...