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Cayman Islands Court of Appeal clarifies construction of arbitration clauses

The Cayman Islands Court of Appeal has considered the correct approach to be adopted by the Court when construing commercial contracts. By a judgment dated 21 November 2019, the Court considered in McAlpine Ltd v Butterfield Bank (Cayman) Ltd whether, on the true construction of an arbitration clause in a design and build contract between the Bank and McAlpine, the claim of the Bank for an indemnity or contribution fell within the ambit of the arbitration clause.

On 31 July 2006, the Appellants, McAlpine Limited (McAlpine), agreed to design and build an office block and car park for the Respondents, Butterfield Bank (Cayman) Ltd (Bank), in Grand Cayman. The terms of the contract were contained in the “Standard Form of Agreement” of the American Institute of Architects. The work was completed and on 23 October 2008 the ‘Final Certificate of Fitness for Occupation’ was issued by the Central Planning Authority. The Respondent made a final payment for the work to the Appellant.

Following an injury suffered by one of the employees of the Bank, the employee brought an action against it in which she alleged that a staircase (constructed by McAlpine) was defective and not built in accordance with Cayman Islands regulations. The Bank sought an indemnity or contribution from McAlpine, and the Bank sought leave from the Grand Court to add McAlpine as a third party to the proceedings. The application was granted at first instance and McAlpine appealed the decision.

When determining the appeal, the Court considered the judge’s analysis of the above agreement, which she concluded provided for the arbitration of disputes between the parties only in relation to disputes arising before final payment. Once final payment was made, the judge held that the dispute could only be resolved by a Court of competent jurisdiction (ie the Grand Court). The Court unanimously disagreed, following an analysis by reference to English authority (in particular Fiona Trust v Privalov [2007] Bus. LR 686, HL), determining the approach to be adopted by the Court in construing any agreement to arbitrate, namely a requirement to give effect to the reasonable commercial expectations of the parties.

Allowing McAlpine’s appeal, Goldring JA (with whom Field JA and Moses JA agreed) stated that “…it seems to me almost inconceivable that rational business people, in the context of this single building contract, would choose two different tribunals to resolve their disputes, let alone make the choice of tribunal dependent upon when payment was due or paid.”

Cayman Islands Court of Appeal clarifies construction of arbitration clauses

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