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How do you make sure that the terms of one contract are incorporated into another?

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13/01/2015

It is not uncommon for parties to want to include the terms of one contract, such as a framework agreement, into the terms of another contract, such as a sub-contract. But as the recent decision in Imtech Inviron Limited v Loppingdale Plant Limited [1] illustrates simply referring to the terms of the contract to be incorporated is not always enough.

Loppingdale Plant Limited (LPL) entered into a framework agreement for works to be carried out at Stansted Airport with the intention that all or part of the works would be subcontracted to the claimant (Imtech).

LPL issued purchase orders to Imtech which stated that their terms and conditions were to be “as per contract + Stansted Airport September 2012”. These terms were known as the September Conditions and provided that:

“These Terms and Conditions together with the Framework Agreement attached to these Terms and Conditions…together with the Purchase Order to be issued by LPL…and the Task Order to be issued to LPL…set out all the rights and obligations of the parties each to the other and no other terms or conditions shall be implied…”

Under the terms of the framework agreement, the parties were required to refer a dispute to adjudication as a condition precedent to litigation in the courts. They were also required to appoint one of three named adjudicators and to use the NEC adjudication agreement.

Imtech referred a dispute over non-payment of a sum in respect of an interim payment application. LPL claimed that the adjudicator did not have jurisdiction as he had not been properly appointed under the terms of the framework agreement.

The court found that, on the drafting of the contract, it was not clear that the parties had intended to incorporate the adjudication provisions from the framework agreement into the September Conditions, especially as they could not be incorporated without some degree of verbal manipulation (i.e. because the definition of “Parties” in the framework contract referred to parties who were not the parties to the subcontract).

Imtech was therefore not bound by the adjudication provisions in the framework agreement which in turn meant that the adjudicator had been properly appointed and had jurisdiction to decide the dispute.

Practical Tip
When seeking to incorporate the terms of one contract into another, particularly where the parties to the two contracts are not the same, care needs to be taken to ensure that the terms are properly incorporated.

It can clearly be attractive to make contracts “back to back”, but simply referring to another document may not be sufficient to show an intention to incorporate ALL the terms. There appears to be a clear distinction between incorporating substantive rights and obligations and incorporating provisions relating to dispute resolution of such substantive rights and obligations. Showing an intention to incorporate the latter is likely to require express specific wording in the new contract.

[1] [2014] EWHC 4006 (TCC)

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