One of the central questions considered by the court in Barrier Limited v Redhall Marine Limited [2016] EWHC 381 (QB) was whether an arbitration clause from a contract (the “Main Contract”) between A and B had been incorporated into a subcontract between B and C.
Background facts:
The applicant was the subcontractor, engaged to paint the interior and exterior of Astute class submarines. It applied to the court for pre-action disclosure against the respondent, who held the Main Contract with a third party, BAE Systems. The application for pre-action disclosure related to a potential claim to recover sums allegedly due to the applicant subcontractor. The respondent defended the application on the basis that the subcontract had incorporated an arbitration clause from the Main Contract.
The factors considered by the court:
The court considered Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AA v Sometal SAL [2010] EWHC 29 (Comm) and TTMI SARL v Statoil [2011] EWHC 1150 (Comm) in reaching its decision.
In Habas Sinai v Sometal it was stated that where the contract (the terms of which the parties are seeking to incorporate) is made between different parties to the subcontract, the parties’ intention to incorporate the arbitration clause must be particularly clear. This does not apply in situations where only two parties are involved. It was also stated that where “verbal manipulation” is required to make the arbitration clause work in the subcontract it may not be clear that the parties intended that clause to be incorporated.
This was followed in TTMI SARL v Statoil, which reiterated the findings in Habas Sinai v Sometal that arbitration clauses are “ancillary provisions” which “oust the jurisdiction of the court” and therefore it is essential that the intention to incorporate them is made clear.
The court’s decision:
The court followed this approach and ruled that the arbitration clause from the Main Contract was not incorporated into the subcontract. This was because it was not clear enough that this was the intention of the parties and, furthermore, “significant violence” was required to the wording of the clause in order to incorporate it.
The application for pre-action disclosure however still failed on other grounds, including the fact that the court found that the respondent’s standard terms (which included an arbitration clause) was validly incorporated.
