Incorporation of Arbitration Clauses by Mere Reference
by Chan Kheng Hoe, Head of Construction Law, Chong + Kheng Hoe
The Problem
In many construction contracts, especially at the sub-contract level, parties rely on a simple Letter of Award/Acceptance (“LOA”) as the basis for their contractual relationship. This LOA would also ordinarily make reference to a standard form of contract, for example the PAM Form, and simply say that the PAM Form applies.
The PAM Form, of course, contains an arbitration clause. The question then is whether by a simple reference to the PAM Form in the LOA, the arbitration clause would apply and parties would be subject to arbitration.
The Court of Appeal provided some guidance on this issue in Cockett Marine Oil (Asia) Pte Ltd v MISC Bhd and Anor Appeal [2022] 6 MLJ 786.
Background Facts
Cockett Marine supplies bunkers and bunker fuel for shipping vessels. MISC is the owner of a vessel called Seri Amanah. Pursuant to a tender by MISC, Cockett Marine was awarded a contract to supply bunkers for delivery by barge to the vessel in 2018. MISC also entered into a contract for Cockett Marine to supply bunker fuel for the vessel. This supply was to be arranged via transfer from Cockett Marine’s barge, MV Rahmat, to Seri Amanah.
However, on the day that the transfer was to take place, both Seri Amanah and MV Rahmat were detained by the Malaysian Maritime Enforcement Agency for potential offences under the Customs Act.
Following the incident, MISC terminated the supply contract on grounds that Cockett Marine was in breach of its obligation to deliver the bunkers free of encumbrances. MISC subsequently sued Cockett Marine for breach of the supply contract.
Cockett Marine, in retaliation, commenced arbitration proceedings in London against MISC. Cockett Marine followed up with an application to stay MISC’s lawsuit pursuant to s 10 of the Arbitration Act 2005 (“AA 2005”) pending reference to arbitration.
MISC filed an application under O 29 r 1 of the Rules of Court 2012 to seek an anti-arbitration injunction on the basis that there was no arbitration agreement reached between the parties.
The Issue
The case therefore revolved around the seemingly simple issue as to whether there was an arbitration agreement or otherwise. The problem in this case was that the so-called arbitration agreement was not explicitly set out or even referred to. Instead, it only existed in the form of a hyperlink in Cockett Marine’s correspondence which was a direct link to a document called the “Standard Terms and Conditions for the Sale of Marine Bunker Fuels, Lubricants and Other Products”. It is this standard terms that contained an arbitration agreement.
Court’s Findings
The Court of Appeal adopted the decision of the Federal Court in Ajwa For Food Industries Co (MIGOP), Egypt v Pacific Inter-Link Sdn Bhd [2013] 5 MLJ 625 in support of the proposition that a mere reference to a document is sufficient to incorporate an arbitration agreement.
Once it is shown that the hyperlink does refer to a document that contains an arbitration agreement, then whether the entire agreement is subject to arbitration (i.e. whether the arbitrator has jurisdiction to determine the dispute) then becomes a matter to be determined by the arbitral tribunal. This is consistent with the kompetenz kompetenz principle. The kompetenz kompetenz principle is essentially the principle that the arbitral tribunal is competent to rule on its own competency.
In other words, the Court of Appeal took the position that by virtue of the mere reference to a document that contains an arbitration clause, whether the arbitration clause was sufficiently incorporated becomes an issue to be determined in arbitration and not by the court.
Conclusion
Based on the Cockett Marine case, all subcontracts that make a mere reference to the PAM Form (or any other standard form containing an arbitration clause) may well have to be referred to arbitration even if one were to argue that the arbitration clause has not been sufficiently incorporated.
Of course, the question of the jurisdiction of the arbitrator can nevertheless still be raised during arbitration itself, although one would imagine it to be unlikely for an arbitral tribunal to disclaim jurisdiction under such circumstances.