Incorporation of Arbitration clause in a sequence of contracts

Habas, a Turkish company, applied to set aside an Interim Final Award made by the London Court of International Arbitration (LCIA), in which the tribunal had ruled that it had the jurisdiction to hear the claim made by the defendant, Sometal. A company called Metkim acted as agent for Sometal. In June 2008 Sometal and Habas entered into a one-page contract typed on Metkim’s headed paper, by which Sometal agreed to sell an amount of steel scrap. The contract contained terms concerning quantities, payment and shipment etc., and concluded:

“All the rest will be the same as our previous contracts”.

There had been fourteen previous contracts between the parties, and the issue now was whether that phrase acted to incorporate an arbitration clause into the contract, in particular a London arbitration clause referring all disputes and differences to the LCIA under the London Arbitration Rules and subject to UK law. The parties were agreed that if the London arbitration clause did form part of the contract, then Sometal’s claim for $5m for Habas’ alleged repudiation by failing to take delivery of the scrap of the contract was to be resolved by the LCIA.

Habas argued that for the arbitration clause to be incorporated there had to be an express reference to it or wording which showed that the parties clearly intended that it should be incorporated. Even if general words were capable of incorporating the clause, those used in the present circumstances were not adequate.

The first three of the parties’ previous contracts had been written on Habas’ letter headed paper, whilst the remaining eleven had been on Metkim’s. The court examined the wording of these earlier contracts. One, number 4, dated 23 March 2006 contained the London arbitration clause. Subsequent contracts were similar to the present one as they stated that matters not dealt with by the contracts were to be agreed mutually or would be as previous contracts. In those contracts which said that the remaining matters were to be agreed mutually, there was no evidence of any agreement that disputes would be resolved by arbitration.

In its award, the LCIA had pointed out that the present contract like the others prepared by Metkim had not referred to other important commercial terms such as quantities and demurrage, and had discussed whether the parties had intended that the phrase “as our previous contracts” should be limited to incorporating just these types of terms. The tribunal had concluded that the parties could not have been intended to refer back to the contracts which Habas had prepared because Metkim had not been involved in making them; nor could the parties have meant to refer back to the Metkim contracts because they either did not contain the relevant additional terms or they themselves referred back to previous contracts. That left only the contracts prepared by Sometal, and those were the ones containing the arbitration clause, Sometal argued that by incorporating “all the rest” of the terms in “our previous contracts” in the June contract, the parties had clearly intended to refer to the additional terms to be found in the Sometal prepared contracts.

Referring back to extensive previous authority, the court accepted that for the terms of an earlier contract or contracts to be incorporated, it was necessary for what those terms were to be clear. There was a particular need for clarity when the incorporation relied upon was of a term in a contract between different parties, even if one of them were involved in the legal dispute. The court did not view the present case as such a “two contract” case. General words of incorporation were capable of incorporating an arbitration clause without specifically referring to it, So were the words used here sufficient?

In context, the phrase “all the rest will be the same as our previous contracts” was ambiguous. It could mean that all the terms that were common to previous contracts were to be incorporated, or all the terms found in any one of the previous contracts except where there was a conflict between them. Neither of these alternatives would, in any event, incorporate the arbitration clause.

It was clear to the court that because of the gap of over two years, the parties had not intended to incorporate the provisions of the Habas contracts whether Metkim had been involved in them or not. As well as the lapse of time, there had been a distinct change between the contracts drafted by Habas and those drafted by Metkim or Sometal. Also, the parties could not be taken to be referring to contracts which contained provisions that the parties were to agree the rest. From the sequence of contracts, from contract number 4 onwards, which contained the London arbitration clause, the words of the June 2008 contract were sufficient to incorporate it. When the parties referred to “all the rest” being the same there is no good reason to treat them as meaning all of the rest except the arbitration clause.

Author: Ann Glacki

Date: January 2010

Ann Glacki

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