Contract Formation And The Incorporation Of Arbitration Clauses


The Case of Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd, [2012] EWHC 1376 (TCC) concerned issues regarding formation of contract. In particular it addressed whether the parties had reached an agreement on price and insurance arrangements and ultimately whether each agreement included an arbitration clause.

The Facts

During 2003 and 2004 Merit Process Engineering Ltd ('Merit') negotiated with Balfour Beatty Engineering Services (HY) Ltd ('BBES') on three separate work packages for plant and pipeworks in the construction of scientific and research facilities. The Main Installation Package and the Vacuum Drainage Package concerned works on the Diamond Synchrotron Project at Chilton, Oxfordshire, whereas the third package related to the Isis Project at Didcot.

The Main Installation Package was procured by way of a letter of intent dated 2 March 2004 and limited to the value of £500,000 pending the agreement of a formal sub-contract. The limit was raised as the works progressed to £1.6 million in September 2004. The letter of intent did not include an arbitration clause.

BBES did not wish to commit to any contractual arrangements with Merit until BBES had finalised its contract with the main contractor Costain. During March 2004 there were various meetings, telephone and email exchanges between the BBES and Merit. On 25 March 2004, BBES sent an email to Merit offering a contract price of £1.6 million subject to a deduction of 2.5% settlement discount with payment in 35 days from each application date. The alternative to this was a reduction in contract price and 60 day payment terms. On 30 March 2004 Merit sent an email stating that the contract price was £1,637,500 subject to 2.5% discount and 35 day payment terms. BBES did not reply to this email.

Merit continued with the works under the letter of intent. On 10 December 2004, BBES entered into a contract with Costain. On 21 March 2005, BBES sent Merit a proposed sub-contract agreement with a contract price of £1.6 million. The conditions of contract included an arbitration clause and indicated that Merit was required to maintain personal injury and public liability insurance each to the value of £10 million. Merit requested amendment so that the contract documents provided for a contract price of £1,637,500 and suggested that public liability insurance coverage should be £5 million. BBES responded on 22 April 2005 stating that the contract price was to be...

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