MPB V LGK – English High Court Dismisses Jurisdictional Challenge To Arbitral Award: Beware Standard Terms And Conditions

Background

In April 2016, MPB, a building contractor, and LGK, a steel supplier and installer, entered into a contract for the supply and installation of structural steel to MPB’s project in north London. Prior to the contract being finally agreed to, the parties exchanged a number of emails, one of which contained a quotation (the “Quotation”) that was accompanied by LGK’s standard terms and conditions of contract (“LGK’s Terms”). The final order, as agreed between the parties, incorporated MPB’s standard terms and conditions of contract (“MPB’s Terms”) and included a table of works which was based on the Quotation.

Clause 11 of LGK’s Terms contained a two-tiered dispute resolution clause, which provided:

“either party may refer a dispute to adjudication at any time…The Decision of the Adjudicator shall be binding on the parties until the dispute is finally resolved through agreement for by Arbitration under the CIMAR rules.”

In contrast, MPB’s Terms were silent as to any dispute resolution procedure.

After the relevant works had started, a dispute arose and a number of adjudications were initiated (two by LGK and two by MPB). The relevant adjudication for the purposes of this case was the third adjudication, which MPB commenced in reliance on LGK’s Terms (the “Adjudication”). MPB was awarded £76,056.67 and successful enforcement proceedings followed.

Subsequently, LGK commenced arbitration proceedings in relation to the adjudication decision. MPB challenged the sole arbitrator’s jurisdiction over the dispute. When the arbitrator issued his award on jurisdiction, in which he held that he did have jurisdiction over the dispute by virtue of the arbitration agreement in LGK’s Terms, MPB filed an application in the High Court seeking to set aside his award.

The High Court’s Decision

The basis for MPB’s application was that no arbitration agreement existed between the parties and, therefore, the arbitrator lacked jurisdiction over the dispute.

In reaching its judgment, the High Court had to consider: (i) whether the arbitration agreement contained in LGK’s Terms was incorporated into the contract between MPB and LGK; and (ii) whether it was open to MPB to deny the application of Clause 11, as it had previously relied on Clause 11 to commence an adjudication and resultant enforcement proceedings (the doctrine of approbation and reprobation).

In relation to the first issue, the Court held that Clause 11 of LGK’s Terms was incorporated into the contract between MPB and LGK, for the following reasons:

1. MPB had clear notice of LGK’s Terms, as the Quotation had been provided to it with LGK’s Terms;
2. The scope of work and price contained in the Quotation “were clearly based on, and to be read in conjunction with” LGK’s Terms²; and
3. Despite MPB’s Terms being given priority, the arbitration agreement in LGK’s Terms was not inconsistent with MPB’s Terms, which were silent as to dispute resolution.

On the second issue, the Court held that MPB had unequivocally elected to rely on Clause 11 containing the arbitration agreement and was now asserting an inconsistent right to challenge the adjudicator’s decision in the courts instead. Although the Judge accepted that the Court should be slow to find that a party’s conduct in “rough and ready”³ adjudication could amount to an unequivocal election affecting how it might argue its case in future, she found that the real question here was not about how MPB put its case in the adjudication but MPB’s fundamental election to use a particular dispute resolution mechanism – that contained in Clause 11, which provided for arbitration. MPB’s application to set aside the Tribunal’s jurisdiction award was dismissed (with costs awarded to LGK).

Practical Considerations

Conflicting standard terms and conditions during a tender negotiation is not a novel issue for construction practitioners. Indeed, the Court noted in its judgment that it is not uncommon for construction contracts to be set out in a number of different documents and to contain different sets of standard terms. What was unusual in this scenario, and perhaps was the saving grace, was that one of those standard terms documents did not contain a dispute resolution mechanism. The Court’s judgment, on the whole, emphasises the importance of including express dispute resolution clauses in all contracts. Further, as there is potential for inconsistent clauses when there is a suite of contractual documents, parties should look to include a clear priority clause in the overarching agreement or agree on which party’s standard terms and conditions govern their relationship. For example, in MPB v LGK, if MPB’s intention was to have disputes resolved before the Courts of England and Wales, it should have included an express clause to that effect in its Terms. As MPB’s Terms had priority in the contractual hierarchy, this clause would have been the applicable dispute resolution provision (rather than Clause 11 of LGK’s Terms).

This judgment also serves to confirm the operation of multi-tiered dispute resolution clauses, where the different tiers are interrelated, such as was the case in Clause 11 of LGK’s Terms. Parties should be reminded that, if they seek to rely on one tier of the dispute resolution clause, they may later be precluded from challenging the validity of the second tier.

¹ Under section 67 of the Arbitration Act 1996.

² Paragraph 29 of the Judgment.

³ Paragraphs 61 and 72 of the Judgment.