If your contract contains bespoke clauses designed to vary a set of incorporated standard terms, take care. The English Commercial Court has recently held that unless specifically negotiated clauses are so incompatible with the standard terms as to be “repugnant”, the standard term clauses will also be incorporated - with some surprising results.
In A v B, Queen’s Bench Division (Commercial Court), No.793, one party believed that its customised contract excluded the FOSFA standard form “Scott v Avery” provision, which prohibits the parties from seeking pre-action injunctive relief from the court. The court disagreed.
The parties contracted for the sale and purchase of two cargoes of soya beans. The contract for each cargo contained specific terms as to origin, specification, quantity, shipment, price, payment and so on.
The parties had also drafted a specific law and arbitration clause. This closely tracked the first paragraph of the FOSFA 23 arbitration clause, but deliberately omitted the whole second paragraph. It is the second paragraph which prevents the parties from bringing “any action or other legal proceedings” in respect of a dispute, until that dispute has first been determined by FOSFA. It is well established that this wording prohibits a party from seeking interim relief (including freezing injunctions to prevent the dissipation of assets) and it is common to seek to exclude its effect.
Under the heading “General Conditions”, the contracts also incorporated “All other terms, conditions and rules not in contradiction with the above contained in the form FOSFA number 23”.
The buyer failed to perform under both contracts and, in the belief that the Scott v Avery provision had been excluded from both contracts, the seller sought and obtained freezing injunctions to prevent the dissipation of the buyer’s assets. The buyer sought to set aside the orders.
Despite the inclusion of bespoke law and arbitration clauses which specifically did not include the Scott v Avery wording, the court held that the Scott v Avery wording was nevertheless incorporated into the contracts by the general incorporation of the FOSFA form. That was because, in the court’s view, the FOSFA arbitration clause was an “other” term or condition, and was not “in contradiction” with the bespoke clause. The court declined jurisdiction and the seller’s freezing orders in respect of these contracts were discharged.
- Incorporated clauses are “to be read harmoniously, so far as it is possible to do so, and are [only] given no effect where there is repugnancy with the specifically agreed special clauses”.
- The seller submitted that the exclusion of the Scott v Avery wording in the bespoke clause was in contradiction to the inclusion of the wording in the FOSFA form, and that if the parties had wished the provision to apply they would have included it in their clause. The court disagreed. In its view an omission, without more, did not disclose any intention to exclude the clause and preserve the court’s jurisdiction.
- In order to exclude the effect of a standard form clause, it is not enough to omit the unwanted wording from your specifically drafted clause. You must include an express provision which is in direct conflict with the standard form clause.
The court’s approach to incorporation is worthy of note in two main respects:
- It seems to give little effect to the particular form of incorporating words used, namely only “other”terms were to be incorporated. The contract contained a bespoke law and arbitration clause and, therefore, the FOSFA arbitration clause was arguably not an “other” term. The effect, it could be said, is to give unwarranted primacy to the incorporated words, over the bespoke contract.
- Although this judgment arises from a dispute over the Scott v Avery clause - which limits the interim remedies available to the parties and is therefore a sensitive provision – in our view the judgment is likely to have a wider application.
If your contracts incorporate standard forms, as many do, then we recommend a review of current and future contracts to ensure that all necessary bespoke provisions are not undermined or neutralised by standard form wording which has not been expressly excluded.