Contract for Building Works, the PWD 203A Form,
FIDIC Form, etc. create lesser issues, because the
intention for a mandatory and binding arbitration
is clear and obvious.
However, some contracts adopted by the
employers have “defective” arbitration clauses
that lack clarity and are downright ambiguous. For
example, in the case of Mangistaumunaigaz Oil
Production Association v United World Trade Inc.
[1995] 1 QBD 617, the agreement provided for
“Arbitration, if any, by I.C.C. rules in London” which
the Court upheld as an arbitration agreement.
When upholding certain unhappily drafted
arbitration clauses, the courts did so because
they view such clauses as an agreement between
the parties. When courts view such clauses as
an agreement between the parties, they will
ensure every effort is made to uphold it. The
courts believe that such approach is a business
sense approach. An arbitration clause may be
incorporated by a back-to-back arrangement. In
such cases, it is arguable if the sub-contractors,
who in reality had very little bargaining power, had
really agreed to such clauses.
The Court’s approach (ii): Incorporation of
an “arbitration agreement” by reference
Apart from the liberal approach that the Courts
have adopted in interpreting an arbitration
agreement, by virtue of section 9(5) of the
Arbitration Act 2005 and the development
in common law the position now is that a
general reference to a foreign document in the
construction contract would allow incorporation
of any arbitration agreement found in the said
foreign document (Ajwa for Food Industries Co
(MIGOP), Egypt v Pacific Inter-Link Sdn Bhd [2013]
5 MLJ 625).
The law allows the mere reference of the word
“arbitration” in another document or contract to
oust the Court’s jurisdiction. This seems contrary
to the very root of contract law, namely the
intention of the parties and the requirement of
consent to form any agreement.
Such an approach could create an injustice
especially in the construction industry where a
contract could refer to hundreds if not thousands of
documents and if any one of these documents had
an arbitration clause, then the contracting parties
have no choice but to resort to arbitration. In effect,
such arbitration agreements are ‘hidden’ in the
contract but has full legal force on the parties.
This is no different than ‘forced arbitration’ in
employment, insurance, home-building, car loans
and leases, credit cards, retirement accounts,
investment accounts, and nursing facilities, to
name a few.
Multi-tier Dispute Resolution clause
If this is not bad enough, there are scenarios
where contracts provide for a multi-tier dispute
resolution clause that requires the contractor to
comply with certain requirements, for instance to
submit a report to an officer from the employer, to
take part in mediation etc., before being able to
initiate arbitration proceedings whilst already being
hindered from filing a legal suit. Such pre-requisite
requirements are binding on the parties. Cases
have held that such pre-conditions are mandatory
and have to be adhered to before one can refer
to arbitration. The contractor will be stopped from
filing a legal suit or an arbitration proceeding unless
the steps as stipulated under the said multi-tier
arbitration clause has been satisfied. An example
would be Clause 67 of the PWD Form DB (Rev 2007).
Conclusion
In short, most of the time some contractors without
experience of dispute resolution think arbitration
means sitting down and settling the case, but they
do not know the adversarial nature, costs and time
involved in arbitration. They certainly do not know
that courts, when interpreting contracts, do not
need to consider what they think are the clauses
they had agreed on. They also may not know that if
somewhere in their contract they had accidentally
referred to a document which has an arbitration
clause, they would then be taken to have agreed
to arbitration. The bottom line is, they may have
“an arbitration clause” forced on them. The reality
is that this would end up stifling the contractors’
suits that are only seeking payments for work
done. Already out of pocket, they may now have to
pay more for a dispute resolution.
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