Introduction
Construction contracts are typically formed of multiple documents containing detailed legal and technical information that must be read together in order to have a proper understanding of how the contract is intended to operate.
A recent decision by the English Commercial Court provides an important reminder of the risks and significance of inconsistent provisions in different documents forming the construction contract and how these should be resolved.
The dispute
In Tecnicas Reunidas Saudia for Services and Contracting Ltd -v- Petroleum Chemicals and Mining Company Ltd [2025] EWHC 1785 (Comm), Tecnicas and PCMC entered into a sub-contract for part of the EPC works in connection with a gas processing plant in Saudi Arabia. The relevant sub-contract was made up of a series of documents which contained differing dispute resolution provisions: the General Terms referring disputes to ICC arbitration and the Purchase Order (PO) to ad hoc arbitration.
A dispute arose between the parties which was referred by PCMC to arbitration under the ICC rules. The ICC Tribunal issued a partial award accepting jurisdiction. Tecnicas challenged the resultant award under section 67 of the Arbitration Act 1996 for lack of substantive jurisdiction, arguing that the sub-contract required the parties to refer disputes to ad hoc arbitration (rather than ICC).
The decision: Contractual hierarchy
The Court agreed with Tecnicas and found that the parties should have engaged in ad hoc arbitration, the provisions of which were to take precedence over ICC arbitration. The Court therefore set aside the ICC Tribunal’s partial award accepting jurisdiction.
As is typical of construction contracts, the General Terms were complemented by a number of additional documents, including a PO. The PO (which contained the reference to ad hoc arbitration) set out the order of precedence of documents forming the sub-contract. This specifically stated that the PO took precedence over all other documents forming the sub-contract.
The Court made clear that where a contract contains a precedence clause (such as that set out in the PO) the Court will uphold it, even if other documents forming the contract may contain more favourable provisions for either party.
Institutional v ad hoc arbitration: Why does it matter?
Given that both the General Terms and the PO provided for arbitration, the Court also had to consider the following point: does it matter whether a party commences ad hoc arbitration or arbitration under the ICC Rules? The short answer is “yes”. There are significant substantive differences between ad hoc arbitration and institutional arbitration administered by the ICC. According to the Court, the two are fundamentally a different contractual bargain, with potentially far-reaching consequences:
- Right of appeal: the ICC rules exclude the parties’ right to appeal an award on a point of law under section 69 of the Arbitration Act 1996 (a feature unique to arbitration in the UK).
- Autonomy: with ICC arbitration, parties agree to a detailed set of rules, thereby removing a degree of party autonomy compared to ad hoc arbitration, e.g. the fact that the ICC Court has the power to appoint the third arbitrator.
- ICC oversight: ICC has oversight of the arbitration with powers including the ability to replace arbitrators.
- Costs: parties to ICC proceedings must pay fees to the ICC for administering the arbitration as well as the prescribed arbitrator costs.
- Scrutiny of the award: ICC rules provide for scrutiny of the award by the ICC Court itself which power include the ability to propose modifications to the award.
The takeaway
The Court’s decision makes clear that document precedence provisions will be strictly enforced. Parties must ensure that standard form documents (such as POs and General Terms, which are often incorporated into construction contracts) are coherent and accurately reflect their agreement.
As this case demonstrates, in the instance of dispute resolution provisions, a lack of clarity can result in protracted satellite litigation, costing both time and money.
