Lisnave Estaleiros Navais SA v. Chemikalien Seetransport GmbH [2013] EWHC 338 (Comm)

The Commercial Court here considered the circumstances in which a term may be implied into a contract as a result of a course of dealing between the parties. The particular term which the fleet agent was seeking to imply into a Fleet Agreement with a shipyard was an agreement to arbitrate. After considering the relevant case law, the Court held that it was impossible to conclude that the parties intended that this term should form a part of their contract.

The background facts

The Claimant shipyard (“Lisnave”) entered into a Fleet Agreement with the Defendant fleet agent (“CST”) in relation to repairs for vessels managed by CST. Lisnave subsequently entered into separate ship repair contracts with each of the ship-owners whose vessels were managed by CST. The purpose of the Fleet Agreement was to set out the terms which would apply to each individual repair contract. The repair contracts expressly incorporated Lisnave’s General Conditions. In particular, Article 15.2 of the General Conditions provided for disputes to be resolved by arbitration in London.

A dispute later arose between Lisnave and CST in connection with the Fleet Agreement. CST referred the matter to arbitration on the basis that Article 15.2 of the General Conditions was implied into the Fleet Agreement by virtue of the parties’ prior course of dealing under the individual ship repair agreements. The parties agreed that the Tribunal would first determine the question of whether there was an agreement to arbitrate. By a majority, the Tribunal agreed that it did have substantive jurisdiction and the Fleet Agreement did incorporate the General Conditions and therefore did provide for arbitration. Lisnave appealed against the award.

The relevant case law

There is a long line of authorities dealing with the implication of a term into a contract. The course of dealing principle was set out in McCutcheon v. David Macbrayne Ltd [1964] 1 WLR 125, in which the House of Lords provided that a term could be incorporated into the last of a series of similar contracts, where such a term was used in the previous contracts and, for some reason, appears to have been omitted from the particular contract under consideration. The incorporation of terms by a prior course of dealing, however, is a question of fact and degree, which depends, amongst other things, upon the number of previous contracts, how recent they are, and the similarities between the contracts (in terms of subject matter and the manner in which they were concluded - see Capes (Hatherden) Ltd v. Western Arable Services Ltd [2010] LLR 477). It is also established law that it is not necessary for the parties to the prior course of dealing to be exactly identical to the parties to the contract under consideration (SIAT v. Tradax [1978] 2 LLR 470). More recently, in Attorney General of Belize v. Belize Telecom [2009] 1 WLR 1988, Lord Hoffman held that a term can be implied into a contract only where the Court finds that the parties must have intended that term to form a part of their contract. The question, therefore, is not whether it would have been reasonable for such a term to be incorporated into the contract, but rather whether the parties intended to include such a clause into their contract. A consideration in this respect is whether the term which one party is seeking to imply into the contract is necessary and obvious.

In the context of arbitration agreements, there is also a presumption that parties are likely to have intended any disputes arising out of the relationship into which they have entered to be decided by the same Tribunal (Fiona Trust & Holding Corporation v. Privalov [2008] 1 LLR 254). In addition, there is a presumption that, in the case of related matters, even where arising under separate but related contracts, the parties to the contracts would prefer to have all the proceedings considered in one forum.

The Commercial Court decision

Considering the various authorities above, Mr Edelman QC overturned the majority award and held that the Tribunal did not have jurisdiction, as Art 15.2 could not be implied into the Fleet Agreement. The Judge gave several reasons for his decision, which were as follows:

  1. The Judge found that it was impossible to conclude that it was obvious that the parties intended that Art 15.2 should apply to the Fleet Agreement. In reaching this conclusion, the Judge took into consideration the fact that, whilst there was a strong inter-relationship between the Fleet Agreement and the repair contracts, the relationship concerned the effect of the terms of the Fleet Agreement on the terms of the repair contracts. As such, the terms of the repair contracts did not have any impact on the Fleet Agreement. Moreover, the dispute which had arisen in connection with the Fleet Agreement had, in the Judge’s opinion, no direct relevance to the repair contracts.
  2. The Judge also considered it possible that the parties may simply not have addressed their minds to the issue of a potential dispute under the Fleet Agreement.
  3. Finally, the Judge considered that the language of the Fleet Agreement was inconsistent with an intention to incorporate any part of the General Conditions. Whilst Clause B of the Fleet Agreement did refer to “Conditions”, there was nothing to indicate that this was a reference to the General Conditions. In particular:
    1. The General Conditions apply to all contracts “for” dry-docking etc. The Fleet Agreement was not a contract “for” such work. As such, the General Conditions were unsuitable for application to the Fleet Agreement.
    2. The Judge also noted that CST only alleged that Art 15.2, and no other term of the General Conditions, was incorporated in the Fleet Agreement. This may have been because the General Conditions would not be relevant or suitable to be incorporated in the Fleet Agreement as the General Conditions dealt with actual repairs to vessels. The selection of Art 15.2 for incorporation on its own was considered all the more difficult a proposition, as it was part of a set of other dispute resolution provisions in Art 15, which formed an integral part of the overall scheme of Art 15. The Judge did not therefore see that there was any reason why the parties should be regarded as having intended to incorporate Art 15.2 in the Fleet Agreement.

Comment

Traditionally, the English courts have been reluctant to imply terms into contracts which are not expressly provided for within the contract. In this case, the Court balanced this traditional reluctance to interfere with a contract in writing against the presumption that where there are related contracts, the parties intend for related disputes to be considered in one forum. The Judge here preferred to look at the intentions of the parties, rather than rely on the presumption that the same forum would apply for all disputes. It is therefore always recommended that an express dispute resolution provision be incorporated into every contract, in order to avoid a dispute of this nature before the real matter in hand can be considered.