In Habas Sinai ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL [2010] EWHC 29 (Comm), Mr Justice Clarke held that general words of incorporation were capable of incorporating contractual terms that included an arbitration clause, without referring specifically to it.

BACKGROUND

The matter before Clarke J in the High Court of England and Wales was an application by Habas to set aside an arbitral tribunal's decision that it had jurisdiction to hear Sometal's claim for more than U.S.$5 million on account of Habas' alleged repudiation of contract by failing to take delivery of steel scrap. The contract for the sale of the scrap was dated 9 June 2008 and typed on paper with the letter heading of Sometal's agent, Metkin. The contract contained a number of terms under the headings Material, Quantity, Price, Shipment, Discharge Rate, Payment, Final Rate and NOR Tenderence (sic) and then ended with: "all the rest will be same as our previous contracts.”

There had been 14 previous contracts between the same parties. The issue on Habas' application was whether general words such as these were capable of incorporating an arbitration clause found in previous contracts and, if they were, whether their effect was to incorporate a London arbitration clause such that Sometal's claim was to be resolved by an London Court of International Arbitration (LCIA) arbitration.

The tribunal held that the parties, by incorporating "all the rest" of the terms in "our previous contracts" in the June contract, clearly intended to refer to the additional terms to be found in the earlier, Sometal prepared contracts. The inference that the tribunal drew was that the parties intended and understood that, when Metkin referred to terms in previous contracts, it was referring to the additional terms in the fuller Sometal prepared contracts.

COURT'S DECISION

In Habas, Clarke J endorsed Langley J's distinction in The Athena (No 2) [2007] 1 Lloyds' Rep 280 between "two contract" cases and "single contract" cases. In the "two contract" case it might not be evident that the parties intended not only to incorporate the substantive provisions of the other contract but also provisions as to the resolution of disputes between different parties, particularly if a degree of verbal manipulation was needed for the incorporated arbitration clause to work. These considerations did not, however, apply to a single contract case.

Clarke J did not accept that Habas should be regarded as a "two contract" case. Whilst, literally speaking, there was more than one contract to be considered, the relevant distinction was between the incorporation of the terms of a contract made between (a) the same and (b) different parties. Accordingly, general words of incorporation were capable of incorporating terms that included an arbitration clause without referring specifically to it.

Having regard to the sequence of contracts, it was clear that the words of incorporation in the June 2008 contract were apt to incorporate the London arbitration clause. When the parties referred to "all the rest" being the same, there was no good reason to treat them as meaning all the rest except the arbitration clause.

COMMENT

Clarke J has brought some clarity to a potentially difficult area. In The Federal Bulker [1981] 1 Lloyds' Rep 103, for example, the Court of Appeal acknowledged the general principle that general words may be used to incorporate by reference standard terms to be found elsewhere, but stated that "in the present field a different, and stricter rule, has developed, especially where the incorporation of arbitration clauses is concerned". Clarke J deserves credit for clarifying where the distinction lies between cases that attract the stricter test and those to which the general principle applies: the "material distinction" lies between incorporation of terms of a contract made between on the one hand the same parties and on the other hand different parties.