Do such clauses survive if the contract is rendered void ab initio?
The issue of whether an arbitration clause in an insurance contract survives notwithstanding the fact that the contract itself is void ab initio is one which has exercised the courts in Ireland, and indeed England and Wales, for some time. While the Supreme Court in Ireland in 1995 appeared to hold that such arbitration clauses cannot be relied upon where the underlying contract has been deemed void or invalid, subsequent High Court cases and legislation enacted in 2010 appear to have established to the contrary and embedded what is known as the doctrine of separability into Irish law.
Superwood judgment and the resulting uncertainty
In the decision of the Supreme Court in Superwood Holdings Plc v. Sun Alliance and London Insurance Plc, in 1995, Blayney J held that an arbitration clause as a term of a contract cannot subsequently be relied upon and enforced where the contract itself has been deemed void or invalid. In delivering the main judgment of the Court in this case, Denham J assumed the view that the repudiation of the contract on the part of the Respondents denied the Appellants the right to arbitrate on the issue justifying the repudiation. This decision relied on a number of previous authorities, both English and Irish, in coming to this view. Clearly, the assumption here was that if a contract had been rendered void ab initio, then the contract is deemed to never have existed and, in such circumstances, any provision thereof cannot be relied upon subsequent to the repudiation.
The Supreme Court ruling in Superwood on this point however has not been followed in subsequent High Court decisions. In Doyle v. Irish National Insurance Co plc Kelly J held that an arbitration clause in a contract is distinct from other clauses. Even in circumstances where there is a repudiation of the contract and the performance of any further obligations of each party may cease, the contract survives for the purpose of measuring the claims arising out of the breach and the arbitration clause survives for the purpose of determining the mode of their settlement. Kelly J further held that
“this principle applies equally in circumstances where one party seeks to avoid or rescind a contract on the ground of a misrepresentation or non-disclosure. The plaintiff’s contention that the arbitration clause was no longer valid was not well-founded as a matter of law.”
Kelly J did not reference Superwood in delivering his judgment and as a result, this judgment may be considered per incuriam (being a judgment proffered without recourse to a relevant precedent), and its precedential weight therefore impacted accordingly. Kelly J did follow a line of reasoning in certain English cases that an arbitration clause in a contract is distinct from the other clauses therein in that it does not contain obligations between the parties, but an agreement between the parties to refer any dispute in respect of such obligations to arbitration.
In any event, Kelly J’s ruling in Doyle would appear to be in direct conflict with the Superwood decision and of course as such, notwithstanding the potential application of the per incuriam label, should not take precedence over Superwood as a Supreme Court judgment. However, the reasoning of the court in Doyle was approved and applied by Clarke J in the High Court in the more recent case of Kelly v. Lennon. Once again, the decision in Superwood was not addressed by Clarke J in delivering his judgment. In approving the ruling in Doyle, Clarke J stated that
“it is clear from the review of the authorities conducted by Kelly J. in Doyle v. Irish National Insurance Company