Oral agreements are common in business, especially when circumstances require swift decisions. However, these agreements can lead to complex legal disputes when they intersect with existing contracts that contain arbitration clauses. The case of Briggs Marine Contractors Ltd v. Bakkafrost Scotland Ltd (2023) offers a critical examination of how courts address oral agreements in the context of arbitration.
What Happened in the Briggs Marine Contractors Case?
Briggs Marine, a marine salvage business was contracted by Bakkafrost to recover a barge that had sunk off the coast of Skye. The contract stipulated that Briggs would only be paid if the barge was successfully recovered, under a ‘no cure, no pay’ arrangement. When dangerous gases were detected, Briggs argued that the original contract was frustrated due to safety risks. Subsequently, Briggs claimed that the parties entered into an oral agreement for different services, including the venting of the barge and removal of the cargo. This new agreement allegedly allowed Briggs to charge costs plus 15%.
Bakkafrost disagreed, asserting that the oral agreement was merely a variation of the original contract and that any disputes arising from the contract should be resolved through arbitration, as stated in the arbitration clause of the original contract.
The Legal Principles
The court considered the following factors in reaching its decision:
- Arbitration Clauses and Their Scope
The crux of the case was whether the arbitration clause in the original contract applied to disputes arising from the subsequent oral agreement. Arbitration clauses are typically drafted to ensure that all disputes relating to the contract are resolved through arbitration. As Lord Reid emphasised, such clauses should be interpreted broadly, especially when the parties have not explicitly excluded any specific issues from arbitration.
In this case, the court found that the dispute arose out of the original contract and was therefore subject to the arbitration clause. The fact that Briggs sought to rely on an oral agreement did not change the close connection between the two agreements.
- Frustration of Contracts
Briggs’ argument that the original contract was frustrated raised additional questions about whether a frustrated contract could give rise to an enforceable oral agreement. However, the court did not fully accept this argument. Bakkafrost’s contention that the oral agreement was simply a variation of the original contract, rather than a new and independent contract, prevailed. The court found that disputes over the frustration of the contract were, themselves, subject to arbitration.
- The One-Stop Approach
The court applied the principle of the ‘one-stop’ arbitration approach, which assumes that rational businesspeople intend for a single tribunal to resolve all disputes arising from their contractual relationship. Even though the terms of the oral agreement differed, the core subject matter—the recovery of the barge—remained the same.
What Does The Briggs Marine Contractors Decision Mean For Businesses?
The case has several implications for businesses involved in disputes where there is an arbitration clause:
- Oral Agreements and Arbitration
Briggs Marine underscores the risks of relying on oral agreements in complex commercial relationships, especially where arbitration clauses exist in the original contract. Oral agreements are often ambiguous and can create confusion about the scope of dispute resolution mechanisms. Businesses should aim to document any variations or subsequent agreements in writing, particularly if they intend to exclude these from arbitration.
- Frustration and Arbitration Clauses
If a party claims that a contract has been frustrated, they should be aware that courts may still interpret arbitration clauses broadly to cover such disputes. The mere assertion of frustration may not be enough to remove a dispute from arbitration, especially if the subject matter of the dispute closely relates to the original contract.
- Drafting Clear Arbitration Clauses
The ‘one-stop’ arbitration approach places significant emphasis on the drafting of arbitration clauses. If businesses wish to exclude certain disputes from arbitration or require different forums for different types of disputes, these exclusions must be explicitly stated.
Comment
The case of Briggs Marine v. Bakkafrost is a reminder that oral agreements, even when necessary, can complicate matters when disputes arise. Clear documentation and careful drafting of arbitration clauses are essential to ensuring that disputes are resolved in the intended forum.
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At Nath Solicitors, we specialise in providing expert legal advice on arbitration, contract law, and dispute resolution. If you need assistance in drafting or enforcing arbitration agreements, contact us at 0203 983 8278 or get in touch with Shubha Nath at enquiries@nathsolicitors.co.uk or at shubha@nathsolicitors.co.uk
