How long can you stay?

The Arbitration Act 1996 removed the court's discretion to refuse a stay to arbitration. In Halki Shipping Corporation vs Sopex Oils Ltd, the Court of Appeal held that if one party asserts that there is a dispute under a contract containing an arbitration clause, even if that party's position is untenable, a "dispute" has arisen and there is an entitlement to a "stay". So, where a dispute arises under a contract containing an arbitration clause, there is an unassailable right to arbitration.

In many cases, exercising this right will give one party a tactical advantage – for example, by allowing it to avoid an application for summary judgment or by forcing a legally-aided opponent to meet his own legal costs.

However, arbitration agreements in the common forms of construction contract do not merely cover disputes "arising under" the contract (for example, claims concerning valuations, defects, and so on) but also disputes "in connection with" the contract. What is unclear is how far the entitlement to stay to arbitration will extend to this broader class of disputes.

A recent case in the Technology and Construction Court (Al-Naimi vs Islamic Press Agency) sheds some light on the issue but raises as many questions as it answers.

The parties had entered into a JCT Minor Works Contract to cover the refurbishment of a building. A dispute subsequently arose as to the progress and quality of the works and the monies due to the contractor.

The contractor obtained legal aid and sued for payment for additional works that he claimed had been carried out under a separate oral agreement not containing an arbitration clause. The employer applied for a stay, claiming that the works had been carried out as a variation to the written contract and so were caught by the arbitration clause.

* Staying to arbitration can confer important tactical advantages * A party may be able to stay even if the other party argues there is no arbitration clause

The judge held that the dispute between the parties as to whether the additional works were performed under the original agreement was a dispute as to a matter arising in connection with the original agreement, entitling the employer to a stay and allowing the arbitrator to decide whether the additional works were covered by the arbitration clause.

In circumstances where all the works were carried out over one period to the same building, the employer's contention that the works were carried out under a single agreement seems arguable. However, the judge made express reference to the definition of a "dispute" adopted in the Halki Shipping case. The surprising implication of the decision is, therefore, that where two parties have entered into a contract containing an arbitration clause, it is possible for one party to assert that subsequent works carried out under an entirely separate agreement at a different time and location were in fact carried out as a variation to that contract, and so obtain a stay.

The precise scope of disputes arising in connection with a contract is also unclear. In addition to covering disputes as to whether a contract has been varied so as to include additional (or even separate) works, the wording may also allow rectification of a contract on the basis that there has been a mistake in the written terms and it does not represent the true intention of the parties, as well as disputes as to whether a party has agreed to waive rights or, because of its conduct, is prevented from asserting those rights. It may also cover disputes as to whether a party was induced to enter into a contract by misrepresentation.

Leave to appeal against the judgment has been granted and, the Court of Appeal may take the opportunity to clarify the types of dispute that may be said to arise in connection with a contract and the test to be applied when one party seeks a stay to arbitration in relation to a dispute falling within this broader class.