The impact of inclusion of arbitration clause by reference in main contract and sub contract documents in the construction industry and its negative connotations

Abstract

In construction contracts an arbitration clause comes into being, as an exclusive clause in the main contract or by reference to another contract. In the dispute resolution process the Arbitrator derive his power from the arbitration agreement and from the applicable law which invariably makes it mandatory for the arbitration clause to be in writing. Such clause prevents Court jurisdiction since party autonomy will prevail. Therefore, it is important to identify, which form of arbitration clause would serve the purpose, since the usage of such clause in the dispute resolution process may become void if it is incorporated by general reference. The Court will not allow proceedings unless the arbitration clause is properly constituted. The Arbitration Clause by reference in itself could lead to disputes! An arbitration clause in a contract comes into being through a separate agreement, as an exclusive clause in the main contract or by reference to another contract. Therefore, it is important to have a properly constituted clause, and if it is by specific reference or general reference, or both, it would pave the way for disputes. The arbitration clause is a self-contained co-lateral contract preventing Court jurisdiction and would survive even if the main contract is void. When the arbitration clause is incorporated with lacuna, the opposing party could successfully challenge its validity in Courts. Disputes can be compounded when a main contractor sub-contracts to another who in turn sub-contracts to others making reference to the terms of the main contract. In this context, this paper is presented with a literature review and English case law to show the importance of properly constituting an arbitration clause to reduce disputes in the construction industry.