MPB v LGK

Factual and Procedural Background

This case concerns an application by the Applicant ("MPB"), a building contractor, to set aside an arbitral Tribunal award dated 12 September 2019 ("the Award") under section 67 of the Arbitration Act 1996 on the basis that no arbitration agreement existed between the parties, denying the Tribunal substantive jurisdiction.

MPB had engaged the Respondent ("LGK"), suppliers and installers of structural steel work, for a project at King's Court in Primrose Hill, London NW3. The parties entered into a contract ("the Contract") in or around April/May 2016 for the supply and installation of structural steel.

The Contract's formation evidence was incomplete, but it involved a quotation ("the Quotation") dated 11 April 2016 issued by LGK accompanied by LGK's standard terms and conditions ("LGK's Terms"). MPB issued a Sub-Contractor Order on 13 April 2016 ("the Order"), which referenced the Quotation and MPB's own standard terms ("MPB's Terms").

Disputes arose, leading to a series of adjudications. The third adjudication ("Adjudication no. 3") was commenced by MPB relying on clause 11 of LGK's Terms, which provided for dispute resolution by adjudication followed by arbitration under the Construction Industry Model Arbitration Rules ("CIMAR"). The adjudicator ruled partially in MPB's favor, and enforcement proceedings followed.

LGK commenced arbitration proceedings challenging the adjudicator’s decision. MPB contested the Tribunal's jurisdiction, arguing no arbitration agreement existed. The Tribunal issued an award on jurisdiction holding that clause 11 was incorporated into the Contract and thus the Tribunal had jurisdiction.

MPB applied to set aside the Award, challenging the incorporation of clause 11 and asserting that if incorporated, they were precluded from denying it by the doctrine of approbation and reprobation.

Legal Issues Presented

1. Whether clause 11 of LGK's Terms, containing the arbitration agreement, was incorporated into the Contract between the parties.
2. Whether MPB is estopped from challenging the incorporation of clause 11 by the doctrine of approbation and reprobation, having relied on it in prior adjudication and enforcement proceedings.

Arguments of the Parties

Applicant's (MPB) Arguments

• The reference in the Order to "based on quotation Q17729 Rev B dated 11/04/2016" did not incorporate LGK's Terms; it related only to the description of the work, separate from the terms under which work was to be executed.
• MPB's Terms were stated as the governing terms for execution of work, and the inclusion of LGK's Terms as additional to the Quotation did not make them integral or incorporated.
• The words "based on" were to be construed narrowly, not as incorporating the entire Quotation including LGK's Terms.
• The Order’s wording that it "is deemed to take precedence" referred to the Order itself, not to LGK's Terms.
• MPB's Terms took precedence over LGK's Terms, and since MPB's Terms contained no arbitration clause, disputes should be resolved by the Courts.
• Regarding approbation and reprobation, MPB argued there was no unequivocal election to incorporate LGK's Terms and no benefit was conferred by reliance on clause 11, as they could rely on statutory adjudication provisions.
• MPB contended that adjudication is a temporary, "rough and ready" process often without legal representation, so the doctrine should not lightly apply to dispute resolution clauses relied on in adjudication.

Respondent's (LGK) Arguments

• The Contract incorporated LGK's Terms, including clause 11, by reference to the Quotation in the Order, which formed an integral and indivisible part of the Contract.
• The phrase "based on quotation Q17729 Rev B" should be given its natural and ordinary meaning, encompassing the Quotation as a whole, including LGK's Terms.
• The words in the Order stating "All Subcontract Orders are placed in conjunction with MP Appendix 1 Subcontract Order Notes and are deemed to take precedence" meant MPB's Terms took precedence over LGK's Terms, not that LGK's Terms were excluded.
• LGK relied on manuscript deletions in the Order as evidence that LGK did not withdraw any of its conditions, reinforcing incorporation.
• On approbation and reprobation, LGK argued MPB elected to rely on clause 11 in adjudication and enforcement proceedings and is therefore precluded from denying incorporation now.
• LGK submitted that MPB’s agreement with prior adjudicator findings that the Order and Appendix 1 took precedence over LGK's Terms was binding and estopped MPB from denying incorporation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
The Republic of Korea v Mohammad Reza Dayyani & Ors [2019] EWHC 3580 (Comm)	Section 67 Arbitration Act 1996 challenges proceed by de novo rehearing; tribunal award is persuasive but not conclusive.	Court applied the principle of de novo rehearing of jurisdiction issues and considered the Tribunal's reasoning with interest.
Habas v Sometal [2010] EWHC 29 (Comm)	Categories of incorporation of standard terms into contracts; usual approach is to determine parties' intention by contract construction.	Guided the Court to apply standard principles of contract construction to determine incorporation of LGK's Terms.
Arnold v Britton [2015] UKSC 36	Contract interpretation focuses on what a reasonable person would understand the language to mean in context.	Supported the Court's approach to interpreting the incorporation clause in the factual and commercial context.
Tradigrain SA v King Diamond Marine [2000] 2 All ER (Comm) 542	Incorporation of one document’s terms into another requires construing the incorporating clause and rejecting inconsistent or insensible parts.	Applied to assess the scope and effect of the incorporation clause in the Order.
Mottram Consultants Ltd v Sunley (Bernard) & Sons Ltd [1975] 2 Lloyds Rep 197	Deleted parts of a printed form can be considered as part of surrounding circumstances for contract construction.	Considered in the context of manuscript deletions in the Order; Court held deleted wording was not an aid to construction here.
Punjab National Bank v de Boinville [1992] 1 WLR 1138	Deleted words may show what parties did not agree to and assist in interpretation where ambiguity exists.	Referenced in assessing the relevance of deletions in the Order; Court found no ambiguity justifying reference to deletions.
Narandas-Girdhar and Anr v Bradstock [2016] EWCA Civ 88	Deleted words in contracts may be considered if ambiguity exists in remaining words, but with caution.	Guided the Court's cautious approach to manuscript deletions in the Order.
Codrington v Codrington [1875] LR 7 HL 854	Doctrine of approbation and reprobation: a party accepting a benefit under an instrument must adopt all its provisions.	Supported the principle that a party cannot adopt inconsistent stances regarding contractual rights.
Lissenden v CAV Bosh Limited [1940] AC 412	Doctrine of approbation and reprobation is akin to equitable election, requiring a clear choice between inconsistent rights.	Clarified limitations of the doctrine; Court applied the principle requiring unequivocal election.
Banques des Marchands de Moscou v Kindersley [1951] 1 Ch 112	Doctrine applies where a party has taken a benefit inconsistent with denying validity of an instrument.	Considered whether MPB's conduct amounted to election; Court found election based on reliance on clause 11.
Express Newspapers Plc v News (UK) Ltd & others [1990] 1 WLR 1320	Doctrine of approbation and reprobation prevents a party from adopting inconsistent attitudes.	Supported the Court's view that MPB cannot "blow hot and cold" regarding clause 11 dispute resolution mechanism.
PT Building Services Ltd v ROK Build Ltd [2008] EWHC 3434 (TCC)	Taking a benefit is sufficient but not necessary for election under doctrine of approbation and reprobation.	Applied to find that election can arise even without clear benefit; supported Court’s reasoning on MPB’s election.

Court's Reasoning and Analysis

The Court conducted a de novo rehearing of the jurisdictional issue under section 67 of the Arbitration Act 1996, carefully considering the Tribunal's award but not affording it automatic weight.

On incorporation, the Court found that the Order’s reference to "based on quotation Q17729 Rev B dated 11/04/2016" was sufficiently wide to incorporate LGK's Terms, which formed an integral part of the Quotation. The natural and ordinary meaning of "based on" was to include the Quotation as a whole, including appended standard terms.

The Court rejected MPB’s argument that the reference was limited to the description of the work, noting the table in the Order also addressed value and other contract provisions, making severance impractical and inconsistent with commercial common sense.

Although the Order stated the work was to be executed in accordance with MPB's Terms, the Court construed the provision that MPB's Terms were "deemed to take precedence" as meaning MPB's Terms took precedence where there was inconsistency, not that LGK's Terms were excluded.

The manuscript deletions by LGK in the Order were considered but found not to assist in determining incorporation, as the remaining wording was unambiguous and the deletions could have multiple explanations.

Regarding the doctrine of approbation and reprobation, the Court found MPB had clearly and unequivocally elected to rely on clause 11 of LGK's Terms in adjudication and enforcement proceedings, thereby accepting the dispute resolution mechanism set out therein.

The Court rejected MPB’s contention that reliance on statutory adjudication provisions negated election, emphasizing that MPB expressly and repeatedly invoked clause 11, which envisaged a two-tier dispute resolution process: adjudication followed by arbitration.

MPB's current challenge to the arbitration agreement was inconsistent with its prior election, constituting impermissible "blowing hot and cold." Although taking a benefit is usually required for election, it is not invariably necessary; election may arise from conduct alone.

The Court acknowledged the temporary and informal nature of adjudication but held that election to a dispute resolution mechanism goes beyond how a party puts its case in adjudication and binds the party to that mechanism.

Holding and Implications

The Court DISMISSED MPB's application to set aside the Tribunal award on jurisdiction and upheld the incorporation of clause 11 of LGK's Terms into the Contract.

This decision confirms that where parties incorporate standard terms by reference in a construction contract, including dispute resolution clauses, the arbitration agreement contained therein can confer substantive jurisdiction on arbitrators. Further, a party that elects to rely on such a clause in adjudication proceedings is estopped by the doctrine of approbation and reprobation from subsequently denying its validity.

The direct effect is that the arbitration proceedings may continue with the Tribunal's jurisdiction upheld. The Court did not establish new precedent but applied established principles of contract construction and equitable estoppel to the facts.