Habas Sinai v Sometal
Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL
English Commercial Court: Christopher Clarke J:  EWHC 29 (Comm): 18 January 2010
Available on BAILII @ http://www.bailii.org/ew/cases/EWHC/Comm/2010/29.html
Paul Kay and Siddharth Dhar (instructed by Radcliffes Le Brasseur) for the Claimant/Habas; John Russell (instructed by Clyde & Co) for the Respondent/Sometal
ARBITRATION: INCORPORATION OF ARBITRATION AGREEMENT/CLAUSE INTO CONTRACT: GENERAL REFERENCE TO PRIOR CONTRACTS BETWEEN SAME PARTIES WHICH INCLUDED ARBITRATION AGREEMENT/CLAUSE: WHETHER WORDS USED SUFFICIENT TO INCORPORATE PRIOR ARBITRATION AGREEMENT/CLAUSE
The Commercial Court held that the general words of incorporation in the contract between the parties – “all the rest will be same as our previous contracts” – incorporated the London arbitration agreement/clause from the contracts previously made between those parties without the need for specific words of reference within the incorporating contract to the arbitration agreement/clause
Case note by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales at Kennedys Singapore LLP and an International Contributor to DMC’s CaseNotes
Sometal, as seller, and Habas, as buyer, agreed a contract for the sale of 10,000 MT of steel scrap metal ex Romania and Bulgaria CIF FO Turkey, which was dated 9 June 2008 and typed on Sometal’s agent’s letterheaded paper. The contract contained a number of main terms under headings such as Material, Quantity, Price, Shipment, Discharge Rate, Payment, Final Rate and NOR Tenderance (sic) and ended with the words:
“All the rest will be same as our previous contracts”.
There had been 14 previous contracts between Habas and Sometal between 23 January 2004 and 9 January 2006. Some of the previous contracts contained clauses providing for London arbitration, some provided for Istanbul arbitration and the rest were silent on the mode and/or forum of dispute resolution.
A dispute arose, in which Sometal claimed US$5m from Habas for repudiating the contract by failing to take delivery of the scrap metal, and Sometal commenced London arbitration. Habas challenged the jurisdiction of the London Court of International Arbitration (“LCIA”) Tribunal appointed to determine the dispute.
The issues for the LCIA Tribunal to decide were:
(a) whether general words such as those used were capable of incorporating an arbitration clause found in previous contracts; and (if so)
(b) whether the effect of the general words was to incorporate a London arbitration clause in the following terms:
“All disputes, or controversies, or differences, which may arise between buyer and seller under this contract, shall be settled in London, according to London Arbitration Rules, by the United Kingdom Law...”
Habas contended that:
(a) for a clause such as a London arbitration clause to be incorporated into a contract there must be either an express reference to the clause or wording that showed a clear intention to incorporate it and that in the present case neither requirement was satisfied; and
(b) even if general words were capable of incorporating such a clause, the words used in the present case were inapt for the purpose.
Sometal contended that there was no such requirement and that the parties had in fact incorporated the London arbitration clause.
The LCIA Tribunal found in favour of Sometal and Habas appealed to the Commercial Court.
Issue One - Are general words of incorporation sufficient?
The judge identified that there were broadly four categories of incorporation of terms, which include an arbitration clause, into a contract, namely:
(1) A and B make a contract in which they incorporate standard terms; (2) A and B make a contract incorporating terms previously agreed between A and B in another contract or contracts to which they were both parties; (3) A and B make a contract incorporating terms agreed between A (or B) and C; and (4) A and B make a contract incorporating terms agreed between C and D.
Categories one and two were referred to as “one-contract” cases. Categories three and four were referred to as “two-contract” cases. The distinction between the cases was that for categories three and four either one or both parties would be, or could be presumed to be, unaware of an arbitration clause in the incorporated document unless this were specifically brought to their attention.
The present case fell within category two so was a one-contract case (although there had in fact been a number of separate contracts between the same parties).
Habas submitted that as there was no case deciding on category two incorporation, the approach taken in categories three and four should be adopted, namely that in order for an arbitration clause to be validly incorporated there must either be a specific reference to the clause in the incorporating contract or that contract must manifest a clear intention to incorporate the arbitration clause in question.
Sometal submitted that category two should follow category one, namely that general words of reference in the incorporating contract to the incorporation of standard form contract terms, which included an arbitration clause, was sufficient to incorporate the arbitration clause from the incorporated document.
Habas relied on case law in relation to the incorporation of arbitration clauses from charterparties into bills of lading and for reinsurance contracts from a primary insurance contract, among others.
The judge proceeded to consider the case law and concluded that it was apparent from the authorities that various different reasons had been given for the court’s restrictive approach to the incorporation of arbitration clauses in two-contract cases. These were:
(a) Arbitration clauses were not “germane” or “directly” relevant to, nor part of the subject matter of, the main contract, and general words must generally be taken to cover only those contractual provisions that are germane to the subject matter of the bill of lading contract (e.g. provisions as to carriage and discharge) and are capable of being operated in conjunction with that subject matter because the court cannot confidently infer that the parties intended to incorporate any more than that;
(b) Arbitration clauses were ancillary provisions by way of dispute resolution essentially personal to the parties which agree them, so that general words of incorporation were insufficient - an arbitration clause was, thus, not incorporated by language which referred to ‘all terms’;
(c) Arbitration clauses oust the jurisdiction of the courts and clear words were needed for that purpose;
(d) Bills of lading may come into the hands of those who will, or may, neither know, nor have the means of knowing, the arbitration clause in the charterparty, which they would not have seen and to which they would be unlikely to assent. They would not therefore appreciate that by becoming a party to the bill they became parties to a contact precluding access to the courts. But the fact that a contract was not contained in a negotiable instrument did not mean that general words of incorporation were, in general, capable of incorporating arbitration clauses;
(e) The terms of a charterparty arbitration clause may not be applicable to disputes between the bill of lading holder and the shipowner, and on that account are not to be regarded as incorporated by a general reference; and
(f) The need for certainty in the law.
In considering whether or not the two-contract case considerations ought to apply to category two one-contract cases, the judge stated:
“I do not accept that, in a single contract case, the independent nature of the arbitration clause should determine whether it is to be incorporated. A commercial lawyer would probably understand that an arbitration clause is a separate contract collateral to another substantive contract and that the expression “arbitration clause” is, on that account, something of a misnomer for “the arbitration contract which is ancillary to the primary contract”. But a businessman would have no difficulty in regarding the arbitration clause (as he would call it) as part of a contract and as capable of incorporation, by appropriate wording, as any other term of such a contract; and it is, as it seems to me to a businessman’s understanding that the court should be disposed to give effect. A businessman who had agreed with his counterparty a contract with 10 specific terms under various headings and then agreed with the same counterparty terms 1-5 under the same headings as before and, as to the rest, that all the terms of the previous contract should apply, would, I think, be surprised to find that “all” should be interpreted so as to mean “all but the arbitration clause”.”
The judge found grounds to distinguish two Court of Appeal decisions that potentially stood in the way of this conclusion, namely Aughton Ltd (formerly Aughton Group Ltd) v. MF Kent Services Ltd 57 B.L.R. 1 and AIG Europe (UK) Ltd v. Ethniki  2 All E.R. 566.
Accordingly, the judge held that general words of incorporation were capable of incorporating terms that included an arbitration clause without specifically referring to it.
Issue Two – Were the words of incorporation effective?
On analysis of the facts, the judge held that the words of incorporation were effective.
The judge took “our”, in “… same as our previous contracts”, to be a reference by Sometal to its own prepared contracts, as distinct from the Habas-prepared contracts. It was the Sometal-prepared contract under dispute in this case and it was the other contracts prepared by Sometal that had contained London arbitration clauses. By contrast, the Habas-prepared contracts contained either dispute resolution clauses with a different venue or no dispute resolution clauses.
This case is a reminder of the need for unambiguous dispute resolution clauses/agreements in contracts for the purpose of avoiding collateral disputes arising concerning whether or not parties intended to refer their disputes to arbitration. The absence of such clauses may provide parties in breach of contract with a substantial advantage, since the claimant will need to resolve successfully both the jurisdictional dispute as well as the substantive dispute. The latter could otherwise be put in jeopardy if an arbitral tribunal is later found to have lacked jurisdiction to make an award.
The decision in this one-contract case makes commercial sense even if it does not create greater legal certainty in all instances. The parties had previously contracted on the terms that were incorporated into the body of the contract so both were aware of the existence of the London arbitration clause. As the judge indicated, this actually provides stronger grounds to conclude that the parties in category two cases intended to incorporate an arbitration clause than in category one cases, where the parties may be unfamiliar with the provisions of incorporated standard form contract terms.
By contrast, where terms are incorporated from a contract made between different parties (such as a bill of lading incorporating charterparty terms or a reinsurance contract incorporating terms from the related but separate primary insurance contract) there is a greater need to ensure that the parties did actually intend to incorporate an arbitration clause not specifically referred to in the words of incorporation. This distinction justifies the stricter test in two-contract cases.