The High Court has recently dealt with a case where Michael Flatley, the well-known entertainer and entrepreneur, objected to a dispute he had with his insurers proceeding to arbitration. Mr Flatley contended that, as a consumer, he could not be forced to honour a contractual obligation to arbitrate as he deemed the relevant clause in his insurance policy to be an unfair term.
The High Court recently dealt with a case involving Michael Flatley in the context of a dispute he had with insurers, Hiscox. The dispute centred on matters related to his renovated mansion at Castlehyde, near Fermoy, in County Cork.[1] The insurers maintained that the insurance policy contained an arbitration clause and had sought to arbitrate the matter. However, Mr Flatley instead commenced litigation regarding the substantive dispute. He was of the view that the insurers were trying to avoid their responsibility to him in the courts.
The decision arose regarding a motion brought by the insurers to refer those proceedings to arbitration in order to require Mr Flatley to honour his agreement to arbitrate. That application, made under Article 8 of the UNCITRAL Model Law, was based on the fact that the policy stated as follows:
“Any dispute arising out of or relating to this insurance, including over its construction and validity, will be referred to single arbitrator in Dublin in accordance with the Arbitration Act then in force.”
Background
Mr Flatley took out insurance through a specialist broker for his Castlehyde mansion which he had spent over €30 million renovating. The annual premium was nearly €70,000 and the policy was subject to an arbitration clause. Mr Flatley wanted to bring a substantial claim concerning the property under the policy. A dispute arose as to whether the claimed indemnity should be forthcoming.
Ultimately, Mr Flatley sought to litigate the dispute, even though the policy contained an arbitration claim. He maintained that, since he was purchasing the insurance as a consumer, referring disputes to arbitration instead of litigation was an unfair term in a consumer contract. He therefore contended that it could not be binding on him.
In resisting the insurer’s motion, he relied on section 129(1) of the Consumer Rights Act 2022 which provides that an unfair term of a consumer contract is not binding. He also relied on section 132(1) which states that a term will be unfair if its object or effect is to hinder a customer in pursuing a legal remedy by requiring “(d)… a customer to take a dispute to an arbitration procedure that is not governed by law” or “(e)… a customer to pay his or her own costs of an arbitration”. The court therefore had to determine as part of the insurers’ application whether an arbitration clause was an unfair term in a consumer contract. The court also needed to be satisfied that there was no dispute that Mr Flatley was, for current purposes, acting as a consumer, which the insurer did not dispute.
The judgment
Mr Flatley’s claim that the arbitration clause was unfair on him as a consumer involved a number of arguments which the court addressed in turn:
- Treatment of costs of the arbitration: Mr Flatley’s main argument was that the clause was unfair because it did not make clear that Mr Flatley would not have to bear his own costs of any arbitration. This position was based on Mr Flatley’s own interpretation of section 132(1)(e). That interpretation, as set out by Judge Twomey, involved the conclusion that, to be ‘fair’, the clause should make clear that the arbitration would be at no cost to Mr Flatley. This meant that, even if he lost, he would have no costs to bear.
Ultimately, that interpretation was rejected. Judge Twomey noted that, if it were correct, it would have far-reaching implications for every consumer arbitration in Ireland. Even in cases where the arbitrator determined a consumer’s claim to be unmeritorious, traders would have to pay the consumers’ their fees. This meant one would have to assume that the Oireachtas’ policy when passing section 132(1)(e) was that lawyers should be incentivised to bring unmeritorious claims against traders in consumer arbitrations. This was entirely contrary to the policy that legal costs operate as a disincentive to unmeritorious claims. In any event, Judge Twomey also noted the actual arbitration clause was in fact silent on costs.
Accordingly, without any provision in the clause in question which required the consumer to bear their own costs, section 132(1)(e) did not apply at all. There was therefore no basis for Mr Flatley’s argument that the term was unfair. - Arbitration is not ‘governed by law’: The reliance on section 132(1)(d) that the arbitration was ‘not governed by law’ was also rejected. There was no evidence to suggest this was the case. The arbitration clause expressly stated that the “Arbitration Act then in force” would apply. In addition, case law confirmed that arbitrations in Ireland conducted under that Act are governed by law.[2]
- Arbitration clause is not transparent: The claimed lack of transparency arose because the clause did not state that the costs of the arbitration would be ‘nil’. However, since the court had already found Mr Flatley’s interpretation of section 132(1)(e) was incorrect, this argument could not be sustained.
- Arbitration clause is not clear: This argument appeared essentially to be that the clause was in a general sense not sufficiently clear. Although Mr Flatley put on affidavit he was unaware of the arbitration clause, it was in a policy negotiated by his agent. On that basis, the court deemed him to have his agent’s knowledge. In the absence of any more detailed explanation as to what was not understood, this claim was rejected.
- Unfair due to the absence of good faith: Mr Flatley also relied on section 130(1) to say that a lack of good faith made the clause unfair. Here, the purported decision to terminate the policy before expiry by Hiscox was in ‘bad faith’ and made the clause unfair. This was rejected on the basis that termination does not impact whether a term is unfair or not – that is a stand-alone issue.
Conclusion
Despite Mr Flatley raising novel arguments, the court had “little hesitation in referring the dispute to arbitration.” The decision demonstrates that the courts are supportive of arbitration. It also shows that being a consumer will not automatically mean an arbitration clause is not binding and that arbitration is indeed appropriate for consumers.
However, for those seeking to include arbitration clauses in contracts with consumers, care is needed to ensure they will be found binding in the event of a challenge. Apart from the default protections under the Arbitration Act 2010,[3] it is important to bear the provisions of the Consumer Rights Act 2022 in mind to ensure nothing in an arbitration clause might be asserted to be an ‘unfair term’.
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[1] Flatley v Austin Newport Group Ltd & Ors [2024] IEHC 359
[2] Marshall v. Capital Holdings Ltd t/a Sunworld [2006] IEHC 27.
[3] Section 31 of which provides that arbitration clauses / agreements with consumers are not binding in consumers unless they are individually negotiated and the dispute exceeds €5,000.
