High Court: Michael Flatley fails to convince High Court arbitration clause in insurance policy is ‘unfair term’

About this case:

• Citation:
  [2024] IEHC 359
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Michael Twomey

Delivering judgment for the High Court, Mr Justice Michael Twomey stated: “This court rejects Mr Flatley’s claim that Hiscox, in trying to get Mr Flatley to arbitrate, rather than litigate, its dispute with him, is seeking to ‘avoid their responsibility to [him]’. On the contrary, it seems to this court that it is Mr Flatley who is seeking to avoid his responsibility to Hiscox. This is because, in the plain English terms of the arbitration clause, he agreed to arbitrate any dispute he had with Hiscox. However, he is seeking to avoid his responsibility to Hiscox, by now seeking to litigate his dispute with Hiscox.”

Background

The plaintiff, a famous dancer and businessman, engaged AON plc to negotiate an insurance policy for his house at Castlehyde, Co Cork, on which he had spent around €29 million in renovations.

Pursuant to the terms of the insurance policy agreed with the sixth defendant, Hiscox Société Anonyme, the plaintiff was required to pay an annual premium of €69,285 and agreed that if a dispute over the policy arose, then any such dispute would be resolved by arbitration.

The plaintiff claimed under the policy in respect of allegedly defective works carried out on his Castlehyde property, which claim was disputed by Hiscox. The plaintiff issued proceedings in respect of the works, later joining Hiscox as a co-defendant. Hiscox applied to stay the proceedings and to refer the dispute to arbitration pursuant to the policy terms and Article 8(1) of the UNCITRAL Model Law.

The plaintiff claimed inter alia that in obtaining insurance cover for his Irish home, he was acting as a ‘consumer’ and asserted that the arbitration clause in the insurance policy was an ‘unfair term’ in a consumer contract as prohibited by the Consumer Rights Act 2022, as the clause did not make it clear that he would not have to bear his own costs of the arbitration.

That assertion was based on s.132(1) of the 2022 Act, which states inter alia that:

The High Court

Mr Justice Twomey observed that the thrust of the plaintiff’s claim was that the reference to the payment of his own costs in s.132(1)(e) meant that “for an arbitration clause in a consumer contract to be fair, the arbitration must never be at a cost to a consumer such as Mr Flatley. Thus Mr Flatley is claiming that he should never be liable for his own legal costs, and/or Hiscox’s legal costs, even if he were to lose the arbitration.”

The plaintiff having argued that Hiscox should have amended the arbitration clause following the 2022 Act to make it clear that he would not have to ‘bear his own costs’, the judge pointed out that “the real life effects” of that interpretation would mean that “a consumer could decide to institute baseless or groundless arbitration proceedings against a trader, and the trader would have to discharge the trader’s own legal costs for winning the arbitration, but also pay the consumer’s legal costs for bringing the baseless/groundless claim”.

Opining that such an interpretation would encourage lawyers to take “groundless and baseless” arbitration claims on the basis that they would always be paid for doing so, Mr Justice Twomey considered that the plain and literal meaning of s.132(1)(e) is that “a term in a consumer contract in relation to arbitration is unfair if that term provides that the consumer is required to pay his own costs” and thus had no application to the arbitration clause in circumstances where it made no reference to costs at all.

The court reiterated that “one cannot extrapolate from the wording of s. 132(1)(e), as Mr Flatley’s counsel has sought to do, a right of lawyers, to, in effect, be paid their legal costs for bringing unmeritorious arbitration claims, on behalf of consumers, against traders, who might be unfortunate enough to be wrongly pursued by those consumers”.

Turning to the plaintiff’s remaining arguments, Mr Justice Twomey reasoned that contrary to the plaintiff’s contention that the arbitration would not be governed by law contrary to s.132(1)(d) of the 2022 Act, the arbitration clause was one governed by the Arbitration Act 2010 and so was “governed by law” as per Marshall v Capital Holdings Ltd t/a Sunworld [2006] IEHC 27.

The court did not accept the plaintiff’s argument as to the “lack of transparency” of the arbitration clause as defined in s.134(2) of the 2022 Act, finding that “it must follow that a clause does not lack transparency if it fails to contain wording, which has been found to be based on a misinterpretation of the relevant legislation”.

In response to the plaintiff’s argument that he was not aware of the arbitration clause when he agreed to the policy and that AON had not brought it to his attention, Mr Justice Twomey stated that “there is no evidence that Mr Flatley’s agent, AON, was not aware of the arbitration clause before Mr Flatley agreed to the policy. Mr Flatley must be deemed to be aware of that which his agent is aware. Accordingly, Mr Flatley’s claim that he was personally not aware of the arbitration clause does not, in this court’s view, get him anywhere.”

The court also rejected the argument that Hiscox’s decision to terminate the policy before its expiry date amounted to “bad faith” by reference to s.130(1) of the 2022 Act, such as to render the arbitration clause unfair. Mr Justice Twomey made it clear that “the termination of a contract does not impact on whether a consumer contract contains an unfair term or not. The arbitration clause is either an unfair term or it is not an unfair term, and a decision by Hiscox to terminate the policy has no impact on whether it is unfair. Hence this alleged lack of good faith on the part of Hiscox in terminating the policy, has no bearing on whether the terms of the policy are unfair…”

The court concluded that the substance of the dispute was whether certain matters were covered by the insurance policy and whether Hiscox was liable, and so fell within the terms of the arbitration clause.

Conclusion

Accordingly, the High Court made orders referring the matter to arbitration.

Michael Flatley v Austin Newport Group Limited & Ors [2024] IEHC 359