Arbitration Clause in contract may not extend to all contractual documents – Michael Alexander Trzecieski & Anor v Kai Gruenenwald & Anor (2011)

An arbitration clause contained in a contractual document might not necessarily govern subsequent or related documents. To err on the side of caution, parties are reminded to include an arbitration clause in every document, if arbitration is the desired course of dispute resolution.

In this case, the 1st Defendant applied to stay the action in favour of arbitration pursuant to an arbitration clause in a Memorandum of Understanding (“MoU”). The Plaintiffs and Defendants had executed two documents, namely a MoU and a Letter of Intent (“LoI”). The parties entered into the MoU for the purpose of facilitating the free flow of information and ideas in the negotiations for a joint venture and for observing confidentiality obligations. The LoI, on the other hand, was the contemplated agreement or one which set out the general scope and terms of co-operation between the Plaintiffs and 1st Defendant regarding the joint venture. The Court concluded that, unlike the MoU, which did not create any liability save the confidentiality obligations, the LoI was a legally binding document.

However, only the MoU and not the LoI contained an arbitration clause. The Plaintiffs’ claim was based on the alleged breach of the LoI by the Defendants by exploiting the intellectual property contributed by the Plaintiffs pursuant to the LoI.

The judge held that since the claim was based on the LoI which did not contain an arbitration clause, there did not appear to be any basis for staying the action to the arbitration. The judge rejected the Defendants’ argument that the LoI was an amendment or exhibit of the MoU and therefore bound by the arbitration clause in the MoU. The Court held that the LoI was rather the contemplated agreement and of a very different nature to the MoU. The LoI, was, the Court said, the fruit of the MoU and legally binding. For the MoU, save the confidential provisions to facilitate negotiations, nothing was binding. The Court could not, it said, infer an intent to arbitrate into the LoI when the parties had not provided for it. Accordingly, the Court dismissed the 1st Defendant’s application for a stay in favour of arbitration.