Case reference: 
[2020] EWHC 90 (TCC)
Thursday, 23 January 2020

Key terms: 
Approbation; Arbitration; Arbitration agreement; Arbitration clause; Arbitrator; Construction contract; Incorporation; Incorporation of terms; Jurisdiction; Reprobation; Terms and conditions

This was an application by MPB (the Claimant) to set aside an arbitral award pursuant to section 67(1)(a) of the Arbitration Act 1996 on the grounds that the tribunal had no substantive jurisdiction over the dispute because there was no agreement to arbitrate. 

The parties had entered into a subcontract for the supply and installation of structural steel work by LGK (the Defendant) for a project on which MPB was engaged as building contractor ("the Contract"). The evidence surrounding the formation of the Contract was incomplete, but it included (1) LGK’s quotation for the work (“the Quotation”) and (2) MPB’s subcontract order (“the Order”). The Quotation had been accompanied by LGK’s standard terms and conditions (“LGK’s Terms”). Clause 11 of LGK’s Terms made provision for the resolution of disputes by adjudication followed by arbitration under the Construction Industry Model Arbitration Rules (CIMAR) (“Clause”). The Order was described as being “based on” LGK’s Quotation. The Order also expressly incorporated MPB’s standard terms and conditions (“MPB’s Terms”), which were to take precedence but were silent as to how disputes were to be resolved. 

A series of adjudications followed. The third adjudication was commenced by MPB with reference to Clause 11. LGK subsequently commenced an arbitration, but MPB challenged the arbitrator’s jurisdiction on the basis that LGK’s Terms had not been incorporated into the Contract. The arbitrator held that there was an arbitration agreement through the incorporation of Clause 11 and that he had jurisdiction. MPB applied to set aside the award. The key question in this adjudication was whether the Contract incorporated Clause 11 of LGK’s Terms. If not, the issue was whether LGK could rely on the doctrine of approbation and reprobation (which prevents a party from electing to take and pursue inconsistent stances) as prohibiting MPB from challenging the incorporation. This was on the basis that MPB had relied on Clause 11 when commencing the third adjudication only to later argue that it did not form part of the Contract.

MPB argued that the reference to the Order being “based on” the Quotation concerned the description of the work only, and that the Order separately addressed the terms on which the work was to be executed – the section entitled "Terms" stated "[t]he work to be executed in accordance with our [i.e. MPB’s] terms and conditions" without reference to LGK's Terms. Even if LGK's Terms were incorporated into the Contract, MPB argued that their terms were to take precedence and the absence of an arbitration agreement within those terms entitled the parties to take their disputes to court instead of arbitration.

Although they accepted that MPB's Terms took precedence, LGK relied on their manuscript deletion of the words "it is required that you withdraw any of your conditions which are at variance with the conditions contained therein" in the Order as a refusal on their part to withdraw their terms. As MPB's Terms were silent on dispute resolution, LGK argued that the arbitration agreement in Clause 11 applied and the arbitrator therefore had jurisdiction. LGK also argued that, having relied on Clause 11 as the basis for referring the dispute to adjudication, MPB should not be permitted to approbate and reprobate its incorporation. On this issue, MPB submitted that, to succeed, LGK needed to establish that MPB had unequivocally elected to incorporate LGK's Terms into the Contract. MPB argued that there was no unequivocal election because MPB had relied on Clause 11 or section 108(5) of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) to found the jurisdiction of the adjudicator. MPB also submitted that it was necessary for them to have derived a benefit from relying on the doctrine, but that no such benefit had been conferred on MPB because they had the right to refer the dispute to adjudication by virtue of the HGCRA in any event.

The application was dismissed. The judge determined that Clause 11 of LGK’s Terms had been incorporated into the Contract. The Quotation was provided to MPB together with LGK’s Terms, so MPB had been given clear notice of those terms. The Quotation was based on, and to be read in conjunction with, LGK's Terms. They formed an integral part of the Quotation. The natural and ordinary meaning of the words “based on” was that the Order was based on the Quotation as a whole, including LGK’s Terms. A reasonable person would have understood this as meaning that the Quotation (as a whole) was intended to form part of the Contract. MPB’s Terms took precedence in the event of incompatibility, but since MPB’s Terms were silent on how disputes should be resolved, there was no incompatibility so the arbitration agreement survived. Accordingly, the arbitrator had jurisdiction to determine the dispute. 

In any event, the judge determined (obiter) that MPB would have been prohibited from challenging the incorporation of Clause 11 by the doctrine of approbation and reprobation. MPB had clearly and unequivocally elected to rely on Clause 11 when commencing the third adjudication. By challenging the arbitration agreement, MPB were now asserting a different and inconsistent right (to have the adjudicator's decision treated as binding until finally resolved by agreement or the courts, not arbitration). It was not necessary for MPB to have benefitted from reliance on the doctrine; it was enough for LGK to have suffered a detriment. In this case, having lost the enforcement proceedings, LGK served a notice of arbitration (in accordance with Clause 11). If MPB were then permitted to reprobate its previous case that the dispute resolution mechanism was as set out in Clause 11, LGK would have wasted time and costs in seeking to have the dispute finally resolved by arbitration (thereby suffering a detriment). In those circumstances, it would be unjust to allow MPB to approbate and then reprobate the dispute resolution mechanism set out in Clause 11.

This case demonstrates the uncertainty that can arise when a contract is formed through the exchange of various documents and multiple terms and conditions. It also serves as a useful reminder of the importance of ensuring consistency in dispute resolution clauses.

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