“Arising under” or “Arising out of”: spot the difference

Referees are a sad bunch.  They love to debate whether there are subtle differences between various laws of the game.  Lawyers are a sad bunch too.  We enjoy to debate whether there are subtle differences between various legal phrases.  For example, is there are difference between “best endeavours”, “reasonable endeavours” and “all reasonable endeavours”?  That’s one for another day.  What about this one:  is there a difference between “arising out of”, “arising under”, “in connection with” and “in relation to”?  That’s one the courts have looked at recently.

In L Brown v Crosby Homes (2005), the judge felt that “arising out of” was wider than “arising under”.  He decided, therefore, that disputes in certain side agreements could be referred to arbitration.  In Fiona Trust (2007), the House of Lords decided, that the various phrases meant the same thing. Therefore, the phrase “arising under” should be construed liberally.

In Hillcrest Homes Ltd v Beresford and Curbishley Ltd (2014), the judge decided that the answer depends on context.  In the Hillcrest case, the parties entered into a JCT contract.  There was a dispute between the parties and the contractor referred a dispute to adjudication.  Some of the differences related to misrepresentation.  They are claims which do not arise “under” the contract, although they are claims under statute and they arise “out of” the contract.  A subtle, but important difference.

The contractor was successful in the adjudication.  The employer was grumpy and it went to court.  It argued that the contractor was not entitled to refer the misrepresentation claim to an adjudicator because the contract stated that a dispute or difference could only be referred to adjudication if it “arises under the” contract.  This was narrower than the arbitration clause in the contract which allowed the parties to refer to arbitration any dispute or difference “arising out of or in connection with” the contract.  The judge agreed with the employer.  He decided he was able to distinguish the Fiona Trust case from the Hillcrest case.  The Fiona Trust case related to a commercial agreement and arbitration.  Adjudication is different.  It is imposed by statute.  Therefore, the narrow interpretation should apply.  Consequently, only claims which arise “under” the contract could be referred to adjudication.   It will be interesting to see if this leads to bespoke amendments to the JCT’s adjudication clause to bring it in line with the NEC’s approach. 

Remember that lawyers are a sad bunch so I suspect that the debate will run for a little while longer. 

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