States of Guernsey v Jacobs UK Ltd

An arbitration agreement may be made independently of an underlying contract, including on an ad hoc basis. Its formation is determined objectively, using ordinary principles of offer, counter-offer and acceptance. A party who makes agreement conditional on acceptance of an additional term has made a counter-offer, not a partial acceptance. The counter-offer must itself be accepted before an arbitration agreement can arise.

The States of Guernsey brought Part 8 proceedings against Jacobs UK Ltd concerning the proposed development of a new terminal at Guernsey Airport. Guernsey sought declarations concerning the existence of a binding arbitration agreement in relation to disputes arising from the project.

The parties had exchanged draft professional appointments over several years. Guernsey’s October 2004 drafts introduced an arbitration clause. Jacobs’ April 2005 response stated that it would sign only if Guernsey acknowledged that specified work was an additional service for which Jacobs would be paid. The central issue was whether that response amounted to acceptance of the arbitration clause or constituted a counter-offer.

1. The claim was dismissed. The court was prepared, if agreed, to issue a declaration that there was no arbitration agreement between the parties concerning the Guernsey Airport Terminal Project.
2. An arbitration agreement may be agreed independently of an underlying contract and may be made on an ad hoc basis. Whether such an agreement exists is determined objectively, by construction or under ordinary principles of offer and acceptance. The objective approach was supported by Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334. The conventional approach was also supported by The Elizabeth H [1962] 1 Lloyds Rep 172 and Modern Buildings Wales Ltd v Limmer and Trinidad Co Ltd [1975] 2 Lloyds Rep 318.
3. Guernsey’s letter of 19 October 2004 was an offer to contract on the terms of the red-lined draft agreements, including the arbitration clause. Jacobs’ letter of 7 April 2005 was not a partial acceptance. Objectively construed, Jacobs stated that it would sign only if Guernsey acknowledged that the specified extension-of-time work was an additional service for which Jacobs would be reimbursed. That condition was material even though the disputed invoice was relatively modest.
4. Guernsey’s letter of 25 January 2006 did not accept the counter-offer. It referred only to additional payment in certain circumstances, requested further information, and did not agree to pay the disputed invoice. The later correspondence also showed that the revised terms had not been accepted.
5. The suggested analysis based on a condition precedent was incorrect. An effective condition precedent would presuppose a binding agreement, whereas the proper analysis was that no acceptance of the counter-offer had occurred.