6 December, 2012


Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution


Merit Process Engineering Ltd v Balfour Beatty Engineering Services (HY) Ltd, [2012] EWHC 1376 (TCC), 18 May 2012


This is an English case and involved the Defendant’s application to stay the legal proceedings in favour of arbitration on the basis that the relevant agreement contained an arbitration clause. The Claimant (“Merit“) had entered into negotiations with the Defendant (“Balfour“) for three separate sub-contract works, involving plant and pipe works. Balfour did not wish to contract with Merit until the terms of Balfour’s contract with the main contractor, Costain, had been finalized.


On 2 March 2004, Balfour issued a Letter of Intent to Merit, inviting it to start works under the terms of the Letter, pending agreement of a formal sub-contract. As the works progressed the limit of expenditure under the Letter of Intent was raised in stages from the £500,000 stated in the Letter, to £1,600,000. The final limit was agreed in September 2004. The Letter of Intent confirmed that it was Balfour’s intention to enter into a contract with Merit and stated that contract documents would be sent to it in due course and that in the meantime they had instructions to commence the works with all due expedition and in accordance with their directions and that such instructions were given subject to contract. The Letter of Intent did not include an arbitration clause.


On 10 December 2004, Balfour entered into a contract with Costain. On 21 March, Balfour sent to Merit a proposed sub-contract, which included an arbitration clause. Merit did not sign the sub-contract, because there was some disagreement in relation to the price of works, but they continued with the works. In 2011, Merit issued proceedings, claiming payment in respect of the works and Balfour made the present application for a stay of proceedings, on the basis that the agreement between the parties contained an arbitration clause.


The Court held that the parties had not reached agreement in relation to the price of the works. The £37,550 difference between them could not, the Court said, be regarded as either de minimis or non-essential and there was no machinery otherwise agreed between the parties by which a fair price could be arrived at. The Court said that as there was no agreement about the price of the works, there was no contract between the parties and the works had therefore been carried out under the Letter of Intent, which did not contain an arbitration clause. Accordingly, the Court dismissed Balfour’s application for a stay.


This case is in direct contrast with the decision of the Hong Kong Court in Carrier Hong Kong Ltd v Dickson Construction Co Ltd [2005] HKEC 1581, a case handled by Deacons. In that case, the Court upheld the ruling of the arbitrator that a contract existed despite the fact that not everything was agreed between the parties, including the right to vary the price for foreign exchange fluctuation and variations.


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