1 | ARTHUR COX
Group Briefing
April 2014
KEY CONTACTS
For further information on any of the
items discussed, please contact either of
the contacts listed below or your usual
Arthur Cox contact.
NIAV O’HIGGINS
PARTNER
+353 1 618 0314
[email protected]
TRISTAN CONWAY-BEHAN
ASSOCIATE
+353 1 618 0342
[email protected]
This document contains a general
summary of developments and is not
a complete or definitive statement of
the law. Specific legal advice should
be obtained where appropriate.
CONSTRUCTION & ENGINEERING
Incorporation By
Reference: Focus on
Arbitration Clauses
Judgments in two recent High
Court cases dealing with the issue of
incorporation by reference of arbitration
clauses highlight that clarity is key in
terms of contract formation. When
seeking to incorporate terms into an
agreement, whilst the accepted position
is that general words of reference will
be sufficient, the same general words
should be evident as to the terms to
which they relate. Clear as mud….then
read on!
INCORPORATION BY REFERENCE – THE BASICS
The completion and execution
of a formal written document
encompassing all of the agreed terms
governing the relationship between
parties is something which is more
often honoured in the breach than
in the observance. The more usual
scenario will involve an exchange of
correspondence between the parties
during which one or both parties may
seek to incorporate their standard
terms, or those contained within the
standard forms of contracts provided
by governing bodies such as Engineers
Ireland/Royal Institute of Architects
of Ireland, into a contract. This is an
acceptable and efficient way in which
to record the terms of an agreement
between parties provided that the
essential terms are agreed and the terms
incorporated are clear in their effect.
Similarly, conditions usual in a
particular trade may be incorporated
where both parties are in the trade and
aware that conditions are habitually
imposed and of the substance of those
conditions, even though they may not
have been referred to at the time the
contract was formed1 . A sequence of
emails may be read together even if they
do not, strictly, form part of a chain and
further, where the later email does not
expressly refer to the earlier emails2.
However, parties should note that,
in the cases of particularly onerous
or unusual terms, the party putting
forward the document will be obliged to
demonstrate that the relevant term has
been brought to the specific attention
of the other contracting party. To quote
Lord Denning:
“Some clauses which I have seen…would
need to be printed in red ink on the face of
the document with a red hand pointing to it
before the notice could be held to be sufficient.”
GENERAL POSITION
The accepted position is that general
1
ritish Crane Hire Corp. Limited v. Ipswich Plant Hire
B
Limited [1975] QB 303, as endorsed in this jurisdiction by Morris P. in Lynch Roofing Systems Limited v.
Bennett & Son Limited [1999] 2 IR 450.
2
olden Ocean Group Limited v. Salgaocar Mining
G
Industries PVT [2011] EWHC 56 (Comm)
2 | ARTHUR COX
CONSTRUCTION & ENGINEERING
INCORPORATION BY REFERENCE: FOCUS ON
ARBITRATION CLAUSES
words of incorporation will be effective
to incorporate a term(s) from another
contract. In the construction context, the
concept of incorporation by reference is
often used to incorporate the terms of a
main contract into a sub-contract.
In Ireland, the case of James Elliott
Construction v. Irish Asphalt3 is
instructive. In looking at the
incorporation of an exclusion clause
which was found within one of the
party’s standard terms and conditions,
Charleton J. applied a test of reasonable
notice, noting:
“I approach the matter in that traditionbound way because contracts are based
upon what people agree. Any absence in
agreement is not to be supplied by litigation
and a court is not entitled to alter the plain
wording of any agreement, save as required
by statute or, in the rare case circumstances
where that might be possible, by necessary
implication. Each party to a contract,
moreover, is to be judged as if that party is
acting out of rational motives and expects
the other side to act reasonably both in
the performance of obligations and in the
incorporation and construction of terms.”
There are no special rules as to the
incorporation of arbitration clauses by
reference in construction cases4. The
paramount issue for consideration
in each case is whether, on a proper
construction of the contractual
documentation, the parties intended
to incorporate the arbitration clause.
However, the caveat must be added that,
clear evidence of the parties’ intention to
incorporate will be required where the
arbitration clause is not specific to the
contract in question.
THE RECENT CASES
In the first case, In the Matter of the
Arbitration Act 2010 And In the Matter
of an Intended Arbitration Between
John G. Burns Limited (Applicant)
And Grange Construction and Roofing
Company Limited (Respondent)5,
3
[2011] IEHC 69
4
eating on Construction Contracts, 9th Ed. 13-055,
K
as supported by Sea Trade v Hellenic Mutual War
Risks [2007] 1 Lloyd’s Rep. 280 at [65].
5
[2013] IEHC 284
the respondent sought to incorporate
the arbitration clause found within
the standard Construction Industry
Federation (“CIF”) form of sub-contract
into the contract between the parties.
Laffoy J. held that the respondent was
unable to demonstrate, in any of the
documentation determined by the Court
as forming the basis of the sub-contract
between the parties, that its contractual
relationship with the applicant was
governed by the CIF form of sub-contract.
Accordingly, the Court held that there
was simply no arbitration agreement
in writing that could be binding on the
applicant (main contractor).
The Court distinguished such cases as
Lynch Roofing Systems v. Bennett & Son
Limited6, McCrory Scaffolding Limited
v. McInerney Construction Limited7
and Barnmore Demolition & Civil
Engineering Limited v Alandale Logistics
Limited & Ors8, on the basis that, in
those cases specific references were
made in documents found to underpin
the contractual relationship between the
parties to standard terms and conditions
which included arbitration clauses.
In the current case, the Court found
that the key contractual documentation
neither contained an express reference
to the CIF standard form of sub-contract,
nor anything from which it could be
implied that the intention was that the
CIF standard form sub-contract would
apply. Laffoy J. noted that the last of
the four documents forming the subcontract, a letter dated 19 January, 2010
(referred to by counsel for the applicant
as the sub-contract and by counsel for
the respondent as a contract document),
contained the contract price, clarified the
VAT position and stated:
“All other terms and conditions are based on all
tender documents and post tender negotiations
as per the letter of nomination dated 13
December, 2009, and as noted below.”
There followed what were described as
“additional conditions relating to this
order”, which numbered seventeen in
total. It was accepted by the Court that,
6
[1999] 2 I.R. 450
7
[2004] 3 I.R. 592
8
Unreported High Court, Feeney J., 11 November, 2010
the respondent’s commencement of
the sub-contract works was evidence
of its acceptance of the terms set out
therein. The Court noted that on a plain
reading of the letter, in conjunction
with the documents referred to within
it, the terms of which were effectively
incorporated in it, it seemed clear that
the intention of the parties was that all
the terms and conditions applicable to
the parties’ relationship were to be found
in the documents referred to in the letter
and in the letter itself. None of these
referred to the arbitration clause in the
CIF standard form of sub-contract.
MOUNT JULIET PROPERTIES LIMITED V. MELCARNE
DEVELOPMENTS LIMITED & ORS, [2013] IEHC 286
In this case, Laffoy J. found that the
standard terms of SE 9101 and ME 9101
(both standard forms of appointment
issued by Engineers Ireland) formed
the basis of the respective relationships
between the applicant consultants and
respondent developer. In so finding,
the Court held that the standard form
of arbitration agreement contained
within each of SE 9101 and ME 9101
applied to the separate contractual
relationships between the parties and
had been incorporated by general words
of reference in correspondence between
the parties.
In both cases, correspondence issued by
each of the third and fourth defendants
made specific reference to these standard
terms of engagement and additionally,
in the case of the fourth defendant, to
the fact that its opinion on compliance
would be in the standard industry form:
“Engineering services are provided in
accordance with the standard conditions
in Agreement SE 9101 as published by
the Institution of Engineers of Ireland.
Engineering Services include all necessary
designs, specifications, drawings and
schedules for the proper tendering and
construction of the project. Monitoring of the
construction will be carried out by visits of
inspection in the normal manner. Form BRSE
9101 ‘Opinion on compliance with building
regulations’ will be provided on completion of
the engineering aspects of the works.”
In the case of the fourth defendant, the
correspondence also set out the relevant
3 | ARTHUR COX
CONSTRUCTION & ENGINEERING
INCORPORATION BY REFERENCE: FOCUS ON
ARBITRATION CLAUSES
fees, referred to an upcoming meeting
and included a statement that the fourth
defendant trusted that the details set out
in the correspondence met the plaintiff’s
approval. It was specifically noted that
there was no ‘demurrer’ by the plaintiff to
the fourth defendant’s correspondence.
The fourth defendant proceeded to
provide the relevant services.
The Opinion on Compliance, BRSE
9101, as issued by the fourth defendant
also noted that it was for use where a
consulting engineer is appointed under
“Conditions of Engagement Agreement
SE 9101”.
Clause 4.2 of SE 9101 provided for a right of
either party to refer a dispute to arbitration.
The plaintiff’s position was that it was
not aware of the terms of SE 9101 at any
stage during the negotiations and, further,
that the arbitration clause contained in
Agreement SE 9101 was never sufficiently
identified to make it a part of the
agreement between the parties.
Similarly, initial correspondence from the
third defendant made specific reference
to the fact that its services would be based
on the “Agreement ME 9101 in relation
to Mechanical & Electrical Services”
and intimated that the plaintiff should
request any further information which it
might require in this regard. Similarly, the
plaintiff argued that it was unaware of the
terms of ME 9101.
In the case of both the third and fourth
defendants, the Court held that specific
reference had been made to the basis
upon which both parties would provide
their services and, hence, the basis of the
contractual relationship between them and
the plaintiff. Having been put on notice of
this, the plaintiff could not plead ignorance
in seeking to avoid the arbitration clause in
the standard conditions.
respondent, and that it was open to
the respondent to seek copies of those
conditions but it had not done so.
The Court also referred to the decision
of Leo Laboratories v. Crompton BV10 (a
choice of jurisdiction case) and noted, in
particular the following passage from
the judgment of Fennelly J.:
“It is not in dispute that the plaintiff was on
notice of the [defendant’s] standard terms
and conditions…The defendant’s order
confirmation referring to them was exhibited
in the plaintiff’s own affidavit. Indeed the
plaintiff purported to rely on standard
conditions of its own. I am quite satisfied that
O’Higgins J. was correct to conclude that the
plaintiff was fixed with the general terms
and conditions of sale. It was put expressly
on notice of their existence and thus put on
inquiry as to their terms.” [emphasis added]
CONCLUSION
Both recent High Court cases
further affirm that general words
of incorporation will be effective in
incorporating an arbitration clause
between parties to an agreement.
However, parties should avoid having
to rely on general references within
their contractual documentation and
should strive, at all stages, to be clear in
recording the specifics of the agreement
between them. It is always worth bearing
in mind that some additional time spent
around the formation of the contracts and
accurately recording the relevant agreed
terms, will be time better spent than in
potential dispute at the far end, where
it may fall to an arbitrator or court to
interpret the intentions of the parties.
In making her decision, the Court
referred to a decision of the High Court
in Kastrup Trae-Aluvinduet A/S v. Aluwood
Concepts Limited9, in which McMenamin
J. considered that the respondent in
that case had been put on notice of
the applicant’s general conditions, by
virtue of a reference to the same in the
first letter from the applicant to the
9
[2009] IEHC 577
10
[2005] 2 I.R. 255
4 | ARTHUR COX
CONSTRUCTION & ENGINEERING
INCORPORATION BY REFERENCE: FOCUS ON
ARBITRATION CLAUSES
arthurcox.com
Dublin
+353 1 618 0000
[email protected]
Silicon Valley
London +44 207 823 0200
+1 650 943 2330
[email protected]
[email protected]
Belfast
+44 28 9023 0007
[email protected]
New York
+1 212 782 3294
[email protected]