In a decision delivered on 19 June 2013, the Irish High Court held that an arbitration clause was incorporated into a contract between the parties in circumstances where reference had been made to a standard form agreement which contained an arbitration clause. The decision shows that a party will be bound by an arbitration clause where it has been put on notice (and thus on inquiry) of a standard form contract containing an arbitration clause, irrespective of whether it has knowledge of the existence of the arbitration clause.
The plaintiff (the developer) retained the defendants to construct 10 residential houses. The houses were completed in 2008 and were put on the market and sold by the developer.
The developer commenced High Court proceedings seeking an indemnity and damages from each of the defendants (including, respectively, a building contractor, an architect's firm, a mechanical and electrical engineering firm, and a structural engineering firm) alleging loss, damage and breach of contract and breach of duty for their failure to carry out their obligations.
The third and fourth defendant engineering companies denied that they were liable for any alleged defects in the houses, and argued that the developer's action should be referred to arbitration, pursuant to an agreement entered into between the parties. The third and fourth defendants relied on Article 8 of the Arbitration Act 2010 which provides that a Court must order parties to arbitrate if there is a valid arbitration clause in the agreement.
The third defendant claimed that their engineering services were provided in accordance with the standard conditions in Agreement ME 9101 (an industry standard form used by mechanical engineers), which contains an arbitration clause. It was common case that an agreement in the form of Agreement ME 9101 was not executed by the plaintiff and the third defendant, but it was referred to in correspondence between the parties, and in the Opinion on Compliance with Building Regulations, issued by the third defendant.
The fourth defendant claimed that their engineering services were provided in accordance with the standard conditions in Agreement SE 9101 (an industry standard form used by structural engineers) which was published by the Institution of Engineers of Ireland. As with ME 9101, SE 9101 contained an arbitration clause. It was also common case that an agreement in the form of Agreement SE 9101 was not executed by the plaintiff and the fourth defendant, but the agreement was referred to in correspondence between the parties, and in the Opinion on Compliance issued by the fourth defendant.
The plaintiff opposed the submission of the dispute to arbitration. The plaintiff accepted that, having regard to the travaux préparatoires of the United Nations Commission on International Trade law and its working group relating to the preparation of the Model Law, there does not have to be explicit reference to the arbitration clause in a document incorporated in a contract. It is sufficient if the reference only refers to the document. However, the plaintiff contended that if parties were to be bound by an arbitration clause, they must know of the existence of the arbitration clause and, in this case, the evidence was that the plaintiff’s officers did not know of the existence of the arbitration clause.
The Court had to consider whether the arbitration clauses in the standard Agreements had been incorporated by reference to the contract between the plaintiff and the third defendant, and/or to the contract between the plaintiff and the fourth defendant.
The question also arose as to delay and/or estoppel so as to preclude the reliefs sought.
The High Court referred the matter to arbitration, finding that the arbitration clauses had been incorporated into the contracts between the parties by reference to the standard form agreements.
Laffoy J. held that the plaintiff was expressly put on notice that the third and fourth defendants, respectively, were offering their services on the terms set out in Agreement ME 9101 and Agreement SE 9101. If the plaintiff was not aware of the terms of the standard form conditions and, in particular, was not aware that they included an arbitration clause, it was put on inquiry in relation to those matters. In other words, it should have sought a copy of those agreements from the defendants or elsewhere.
The High Court held that there was no basis for finding that the third defendant was precluded by delay or estopped from bringing its application. It also held that there was no basis as regards the fourth defendant for the allegation of estoppel.
This decision is further support for the position that the requirement, set out in the Arbitration Act 2010, that an arbitration agreement must be in writing, will be broadly construed. The decision also illustrates when an arbitration clause may be incorporated by reference. It clarifies that a party will be bound by an arbitration clause, contained in any standard form contract, where it has been put on notice, and thus on inquiry, of such contract, irrespective of whether it has knowledge of the existence of the clause. It serves as a warning to parties who contract with others on the basis of standard form industry contracts, to seek a copy of such contracts and to check whether any alternative dispute resolution clauses are included in them. On the basis of this case, it will not be a defence to claim that you were not aware of the existence of the clause.