The Incorporation of Arbitration Agreements

Sub-clause 20.6 of the FIDIC Red Book is a good example of the express incorporation of an arbitration clause. The clause sits clearly within the main contract terms. However, that is not always the case. Often parties will not include an arbitration clause in the contract itself but you will find that arbitration has been included by reference to a standard set of conditions which contain an arbitration clause. In this situation it is often the case that there will be no separate indication that there is an arbitration clause in those standard conditions.

Under section 5 of the 1996 Arbitration Act, in England and Wales, arbitration agreements must be in writing but that can include agreements evidenced in writing, including where an agreement is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement.

A recent decision in the English courts demonstrates some of the difficulties that can arise, where the arbitration agreement is found in a separate set of standard terms which have not actually been seen by one of the parties to the contract. Could there be a valid arbitration agreement in such circumstances?

Barrier Ltd v Redhall Marine Ltd

In the case of Barrier Ltd v Redhall Marine Ltd1 Redhall had entered into a contract with BAE for the construction of Astute Class submarines for the Ministry of Defence (MoD). In January 2002 Redhall then subcontracted part of its functions under the Main Contract to Barrier. Barrier's role under the subcontract related mainly to painting the submarines internally and externally. A dispute arose over payment. Barrier sought the disclosure of certain documents through the courts. However, Redhall said that the contract contained an arbitration clause. If that was right, the disclosure request would fail.

Redhall argued their case in two ways:

(i) The arbitration agreement was contained in the Redhall standard terms and Barrier had been given sufficient notice of these.

(ii) There was an arbitration agreement in the Main Contract between Redhall and Barrier. The terms of the Main Contract were explicitly incorporated into the subcontract.

Incorporation of the standard terms even though these had not been provided

Barrier worked on six submarines in total; however, the subcontract was only for Boats 1—3. In December 2001 Redhall sent Barrier a purchase order in respect of painting and scaffolding work on Astute submarines. The purchase order was numbered...