Supreme Court of India
M/S. INOX WIND LTD.versusM/S. THERMOCABLES LTD.
- Citation
- 2018 INSC 4
- Decided
- 5 January 2018
- Disposal
- Appeal(s) allowed
- Bench
- S A BOBDE
Holding
A general reference to a standard form of contract, even if not a trade‑association form, is sufficient to incorporate an arbitration clause, making the arbitration agreement valid in the present contract.
Summary
M/S. INOX WIND Ltd. issued purchase orders to M/S. THERMOCABLES Ltd. for wind‑power cables, attaching its own standard terms and conditions which contained an arbitration clause. After the cables were found defective, INOX gave notice proposing a sole arbitrator but received no response, and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Allahabad High Court dismissed the application, holding that the arbitration clause was not incorporated because the standard terms were not a trade‑association form. On appeal, the Supreme Court examined the rule in M.R. Engineers and clarified that a general reference to a standard form, even if not from a trade body, suffices to incorporate an arbitration clause in a single‑contract scenario. The Court found that the purchase order and the respondent’s acceptance created a single contract and the arbitration clause was therefore incorporated. Consequently, the High Court’s order was set aside and an arbitrator was appointed.
Issues considered
- Whether a general reference to a standard form of contract, not drafted by a trade association, is sufficient to incorporate an arbitration clause under Section 7(5) of the Arbitration and Conciliation Act, 1996.
- Whether the arbitration clause was incorporated into the purchase order between INOX WIND Ltd. and THERMOCABLES Ltd.
- Whether the High Court erred in dismissing the application for appointment of an arbitrator under Section 11(6).
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(6), s. 7(5)
Subjects
arbitrationincorporation of arbitration clausestandard form contractSection 11(6)purchase ordercontract constructionsingle contract casetwo contract case
Judgment
86 [2018]
SUPREME COURT 1 S.C.R. 86
REPORTS [2018] 1 S.C.R.
A M/S. INOX WIND LTD.
v.
M/S. THERMOCABLES LTD.
(Civil Appeal No. 19 of 2018)
B JANUARY 05, 2018
[S. A. BOBDE AND L. NAGESWARA RAO, JJ.]
Arbitration and Conciliation Act, 1996 – s.11(6) – Purchase
orders were issued by the Appellant to the Respondent for supply of
cables – Respondent supplied cables to the Appellant – While laying
C
the cables, the appellant discovered that the outer sheaths of the
cables were cracked – Appellant asked for replacement –
Respondent company did not replace the cables – Appellant issued
notice proposing the name of a sole arbitrator in terms of the
Standard terms and conditions – In absence of any response,
D appellant filed application before the High Court u/s.11(6) of the
Act – High Court dismissed the said application holding that there
was no special reference to the arbitration clause in the standard
terms and conditions, so the arbitration clause cannot be said to
have been incorporated into the purchase order – Held: According
to Purchase order, the supply was to be according to the terms
E
mentioned in the order and the Standard terms and conditions that
were attached thereto – Apart from other conditions, the Standard
terms and conditions contained a clause pertaining to dispute
resolution – Material on record indicates that the Respondent
accepted all the terms and conditions mentioned in the purchase
F order except the delivery period – Purchase order is a single contract
and general reference to the standard form even if it is not by a
trade association or a professional body is sufficient for
incorporation of the arbitration clause – Therefore, judgment of
the High Court set aside – Arbitrator appointed to adjudicate the
dispute between the parties.
G
Allowing the appeal, the Court
HELD: 1. Though a general reference to an earlier contract
is not sufficient for incorporation of an arbitration clause in the
later contract, a general reference to a standard form would be
H
86
M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 87
enough for incorporation of the arbitration clause. In M.R. A
Engineers case, this Court restricted the exceptions to standard
form of contract of trade associations and professional institutions.
In view of the development of law after the judgment in M.R.
Engineers’ case, this court is of the opinion that a general
reference to a consensual standard form is sufficient for
B
incorporation of an arbitration clause. In other words, general
reference to a standard form of contract of one party will be enough
for incorporation of arbitration clause. A perusal of the passage
from Russell on Arbitration 24th Edition (2015) would demonstrate
the change in position of law pertaining to incorporation when
read in conjunction with the earlier edition relied upon by this C
Court in M.R. Engineers’ case. This Court is in agreement with
the judgment in M.R. Engineer’s case with a modification that a
general reference to a standard form of contract of one party along
with those of trade associations and professional bodies will be
sufficient to incorporate the arbitration clause. [Para 19][100-F-
D
H; 101-A]
2. In the present case, the purchase order was issued by
the Appellant in which it was categorically mentioned that the
supply would be as per the terms mentioned therein and in the
attached standard terms and conditions. The Respondent by his
letter confirmed its acceptance of the terms and conditions E
mentioned in the purchase order except delivery period. The
dispute arose after the delivery of the goods. No doubt, there is
nothing forthcoming from the pleadings or the submissions made
by the parties that the standard form attached to the purchase
order is of a trade association or a professional body. However, F
the Respondent was aware of the standard terms and conditions
which were attached to the purchase order. The purchase order
is a single contract and general reference to the standard form
even if it is not by a trade association or a professional body is
sufficient for incorporation of the arbitration clause. [Para 20][101-
B-D] G
M. R. Engineers and Contractors Private Limited v. Som
Datt Builders Limited (2009) 7 SCC 696 : [2009]
10 SCR 373 – relied on.
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88 SUPREME COURT REPORTS [2018] 1 S.C.R.
A Sea Trade Maritime Corporation v. Hellenic Mutual War
Risks Association (Bermuda) Limited, The Athena
[2006] EWHC 2530 (Comm); Habas Sinai Ve Tibbi
Gazlar Isthisal Endustri AS v. Sometal SAL [2010]
EWHC 29 (Comm); Aughton v. MF Kent Services
[1991] 31 Con L.R. 60 – referred to.
B
Russell on Arbitration 24th Edition (2015) – referred to.
Case Law Reference
[2009] 10 SCR 373 relied on Para 5
C
[2006] EWHC 2530 (Comm) referred to Para 12
[2010] EWHC 29 (Comm) referred to Para 13
[1991] 31 Con L.R. 60 referred to Para 15
D CIVIL APPELLATE JURISDICTION: Civil Appeal No. 19 of
2018.
From the Judgment and Order dated 20.07.2016 of the High Court
of Judicature at Allahabad in CMAA No. 2 of 2015.
E Ms. Vibha Datta Makhija, Sr. Adv., Anup Jain, Pulkit Shrivastava,
Ms. Disha Vaish, for the Appellant.
K. Rajendran, A. T. M. Sampath, S. K. Bandyopadhyay,
Surangama Banerjee, Rahul Nagpal, for the Respondent.
The Judgment of the Court was delivered by
F
L. NAGESWARA RAO, J. 1. Leave granted.
2. This appeal is directed against the judgment of the High Court
of Judicature at Allahabad dismissing the application filed by the Appellant
under Section 11 (6) of the Arbitration and Conciliation Act, 1996
G (hereinafter referred to as ‘the Act’).
3. The Appellant is a manufacturer of wind turbine generators
(WTGs). The Respondent is engaged in the business of manufacture of
wind power cables and other types of cables. Two purchase orders
dated 13.12.2012 and 02.02.2013 were issued by the Appellant to the
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M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 89
[L. NAGESWARA RAO, J.]
Respondent for supply of cables for their WTGs. According to the A
Purchase Order, the supply was to be according to the terms mentioned
in the order and the Standard Terms and Conditions that were attached
thereto. Apart from the other conditions, the Standard Terms and
Conditions contain a clause pertaining to dispute resolution. The said
clause provides for a dispute to be resolved by a sole arbitrator in
B
accordance with the provisions of the Arbitration and Conciliation Act,
1996. The material on record indicates that the Respondent accepted all
the terms and conditions mentioned in the Purchase Order except the
delivery period as is evident from a letter dated 15.12.2012.
4. The Respondent, pursuant to the Purchase Order, supplied wind C
power cables to the Appellant. While laying the cables supplied by the
Respondent-company, the Appellant discovered that the outer sheaths
of the cables of 150 sq. mm. were cracked. This forced them to stop the
WTGs so as to avert damage to expensive equipment. According to the
Appellant, the Respondent-company did not replace the cables. The
Appellant, therefore, was constrained to issue a notice dated 30.10.2014 D
proposing the name of a sole arbitrator in terms of the Standard Terms
and Conditions. In the absence of any response, the Appellant moved
the High Court of Judicature at Allahabad by filing an application under
Section 11 (6) of the Act.
5. The High Court dismissed the said application by holding that E
an arbitrator cannot be appointed as the Appellant did not prove the
existence of an arbitration agreement. The High Court relied upon the
judgment of this Court in M.R. Engineers and Contractors Private
Limited v. Som Datt Builders Limited, (2009) 7 SCC 696 to hold
that there is no special reference to the arbitration clause in the standard F
terms and conditions, so the arbitration clause cannot be said to have
been incorporated into the purchase order.
6. We have heard the counsel for the Appellant and Respondent.
The judgment of this Court in M.R. Engineers’ case (supra) was relied
upon by both the parties. Before proceeding further, it would be necessary G
to appreciate the ratio of the said judgment. A few facts necessary to
understand the dispute in the said case are that the Appellant therein
was a sub-contractor of the Respondent. The Appellant was entrusted
a part of the work by the Respondent-contractor which pertained to
‘construction of project directorate building’. It was mentioned in the
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90 SUPREME COURT REPORTS [2018] 1 S.C.R.
A sub-contract that it shall be carried out as per the terms and conditions
applicable to the main contract. A dispute arose between the parties
which made the Appellant therein to approach the High Court for
appointment of an arbitrator under Section 11 (6) of the Arbitration and
Conciliation Act, 1996. The High Court of Kerala rejected the application
on the ground that the arbitration clause in the main contract was not
B
incorporated by reference in the contract between the Appellant and
Respondent therein. In the appeal before this Court, the Appellant
submitted that his case was squarely covered by Section 7 (5) of the Act
and that the arbitration clause from the main contract was incorporated
by reference in the sub contract between him and the Respondent.
C
7. This Court considered the scope of Section 7 (5) of the Act and
held that a conscious acceptance of the arbitration clause found in another
document is necessary for the purpose of incorporating it into the contract.
It was further held that general rules of construction of contracts would
have to be followed as there were no guidelines in Section 7(5) regarding
D the conditions that need to be fulfilled before construing a reference to a
portion of a contract as a reference incorporating the whole of it along
with the arbitration clause contained in it. While distinguishing ‘reference’
to another document from ‘incorporation’, this Court observed that the
relevant factor was the intention of the parties either to adopt the document
in its entirety or to borrow specific portions of the said document. In
E
this connection, the Court held as follows: (M.R. Engineers’ case,
para 17-19)
“17. We will give a few instances of incorporation and mere
reference to explain the position (illustrative and not exhaustive).
If a contract refers to a document and provides that the said
F
document shall form part and parcel of the contract, or that all
terms and conditions of the said document shall be read or treated
as a part of the contract, or that the contract will be governed by
the provisions of the said document, or that the terms and conditions
of the said document shall be incorporated into the contract, the
G terms and conditions of the document in entirety will get bodily
lifted and incorporated into the contract. When there is such
incorporation of the terms and conditions of a document, every
term of such document (except to the extent it is inconsistent with
any specific provision in the contract) will apply to the contract. If
the document so incorporated contains a provision for settlement
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M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 91
[L. NAGESWARA RAO, J.]
of disputes by arbitration, the said arbitration clause also will apply A
to the contract.
18. On the other hand, where there is only a reference to a
document in a contract in a particular context, the document will
not get incorporated in entirety into the contract. For example, if a
contract provides that the specifications of the supplies will be as B
provided in an earlier contract or another purchase order, then it
will be necessary to look to that document only for the limited
purpose of ascertainment of specifications of the goods to be
supplied. The referred document cannot be looked into for any
other purpose, say price or payment of price. Similarly, if a contract
between X and Y provides that the terms of payment to Y will be C
as in the contract between X and Z, then only the terms of payment
from the contract between X and Z, will be read as part of the
contract between X and Y. The other terms, say relating to quantity
or delivery cannot be looked into.
19. Sub-section (5) of Section 7 merely reiterates these well- D
settled principles of construction of contracts. It makes it clear
that where there is a reference to a document in a contract, and
the reference shows that the document was not intended to be
incorporated in entirety, then the reference will not make the
arbitration clause in the document, a part of the contract, unless E
there is a special reference to the arbitration clause so as to make
it applicable.”
8. Relevant passages from Russell on Arbitration 23rd Edition
(2007) which were relied upon by this Court for interpretation of Section
7 (5) of the Arbitration and Conciliation Act, 1996 are as under: (M.R. F
Engineers’ case, para 20-21)
“20. The following passages from Russell on Arbitration throw
considerable light on the position while dealing with Section 6(2)
of the (English) Arbitration Act, 1996 corresponding to Section
7(5) of the Indian Act. (See pp. 52-55, 23rd Edn.): G
“Reference to another document.—The terms of a contract
may have to be ascertained by reference to more than one
document. Ascertaining which documents constitute the
contractual documents and in what, if any, order of priority
they should be read is a problem encountered in many
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92 SUPREME COURT REPORTS [2018] 1 S.C.R.
A commercial transactions, particularly those involving shipping
and construction. This issue has to be determined by applying
the usual principles of construction and attempting to infer the
parties’ intentions by means of an objective assessment of the
evidence. This may make questions of incorporation irrelevant,
if for example it is clear that the contractual documents in
B
question are entirely separate and no intention to incorporate
the terms of one in the other can be established. However, the
contractual document defining and imposing the performance
obligations may be found to incorporate another document
which contains an arbitration agreement. If there is a dispute
C about the performance obligations, that dispute may need to
be decided according to the arbitration provisions of that other
document. This very commonly occurs when the principal
contractual document refers to standard form terms containing
an arbitration agreement. However the standard form wording
may not be apt for the contract in which the parties seek to
D
incorporate it, or the reference may be to another contract
between parties at least one of whom is different. In these
circumstances it may be possible to argue that the purported
incorporation of the arbitration agreement is ineffective. The
draftsmen of the Arbitration Act, 1996 were asked to provide
E specific guidance on the issue, but they preferred to leave it to
the court to decide whether there had been a valid incorporation
by reference. (Para 2.044)
***
Subject to drawing a distinction between incorporation of
F an arbitration agreement contained in a document setting out
standard form terms and one contained in some other contract
between different parties, judicial thinking seems to have favoured
the approach of Sir John Megaw in Aughton, namely, that general
words of incorporation are not sufficient. Rather, particular
G reference to the arbitration clause needs to be made to comply with
Section 6 of the Arbitration Act, 1996, unless special circumstances
exist. (Para 2.047)
Reference to standard form terms.— If the document sought
to be incorporated is a standard form set of terms and conditions
H the courts are more likely to accept that general words of
M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 93
[L. NAGESWARA RAO, J.]
incorporation will suffice. This is because the parties can be A
expected to be more familiar with those standard terms including
the arbitration clause.” (Para 2.048)
21. After referring to the view of Sir John Megaw in Aughton
Ltd. v. M.F. Kent Services Ltd. [(1991) 57 BLR 1] that specific
words were necessary to incorporate an arbitration clause and B
that the reference in a sub-contract to another contract’s terms
and conditions would not suffice to incorporate the arbitration
clause into the sub-contract, followed in Barrett & Son
(Brickwork) Ltd. v. Henry Boot Management Ltd.[1995 CILL
1026] , Trygg Hansa Insurance Co. Ltd. v. Equitas Ltd. [(1998)
2 Lloyds’ Rep 439] and AIG Europe (UK) Ltd. v. Ethniki [(2000) C
2 All ER 566 (CA)] and Sea Trade Maritime Corpn. v. Hellenic
Mutual War Risks Assn. (Bermuda) Ltd. No. 2 [2006 EWHC
2530] , Russell concludes:
“The current position therefore seems to be that if the arbitration
agreement is incorporated from a standard form a general D
reference to those terms is sufficient, but at least in the case
of reference to a non-standard form contract in the context of
construction and reinsurance contracts and bills of lading a
specific reference to the arbitration agreement is necessary.”
9. This Court also discussed the scope of Section 7 (5) of the Act E
and summarised as follows: (M.R. Engineers’ case, para 24)
“24. The scope and intent of Section 7(5) of the Act may therefore
be summarised thus:
(i) An arbitration clause in another document, would get F
incorporated into a contract by reference, if the following
conditions are fulfilled:
(1) the contract should contain a clear reference to the documents
containing arbitration clause,
(2) the reference to the other document should clearly indicate an G
intention to incorporate the arbitration clause into the contract,
(3) the arbitration clause should be appropriate, that is capable of
application in respect of disputes under the contract and should
not be repugnant to any term of the contract.
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94 SUPREME COURT REPORTS [2018] 1 S.C.R.
A (ii) When the parties enter into a contract, making a general
reference to another contract, such general reference would not
have the effect of incorporating the arbitration clause from the
referred document into the contract between the parties. The
arbitration clause from another contract can be incorporated into
the contract (where such reference is made), only by a specific
B
reference to arbitration clause.
(iii) Where a contract between the parties provides that the
execution or performance of that contract shall be in terms of
another contract (which contains the terms and conditions relating
to performance and a provision for settlement of disputes by
C arbitration), then, the terms of the referred contract in regard to
execution/performance alone will apply, and not the arbitration
agreement in the referred contract, unless there is special
reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms
D and conditions of an independent trade or professional institution
(as for example the standard terms and conditions of a trade
association or architects association) will bind them or apply to
the contract, such standard form of terms and conditions including
any provision for arbitration in such standard terms and conditions,
E shall be deemed to be incorporated by reference. Sometimes the
contract may also say that the parties are familiar with those terms
and conditions or that the parties have read and understood the
said terms and conditions.
(v) Where the contract between the parties stipulates that the
F conditions of contract of one of the parties to the contract shall
form a part of their contract (as for example the general conditions
of contract of the Government where the Government is a party),
the arbitration clause forming part of such general conditions of
contract will apply to the contract between the parties.”
G 10. It was ultimately found that the intention of the parties was
not to incorporate the main contract in its entirety into the sub-contract.
Further, this Court held that the arbitration clause in the main contract
was inapplicable to the contract between the parties as the main contract
was between the Public Works Department, Government of Kerala and
the contractor in which the arbitration clause contemplated appointment
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M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 95
[L. NAGESWARA RAO, J.]
of a committee of three arbitrators, with one each to be appointed by the A
State of Kerala and the Respondent therein and the third to be nominated
by the Director General Road Development, Ministry of Surface Transport
Roads in Government of India. Appointment of a committee of arbitrators
with representatives of State of Kerala and the Government of India
was totally irrelevant for the contract between the contractor and the
B
sub-contractor.
11. Section 6 (2) of the Arbitration Act, 1996 which extends to
England, Wales and Northern Ireland is in pari materia with Section 7
(5) of the Arbitration and Conciliation Act, 1996 and it reads as under:-
“6. Definition of arbitration agreement. C
...
(2) The reference in an agreement to a written form of arbitration
clause or to a document containing an arbitration clause constitutes
an arbitration agreement if the reference is such as to make that
clause part of the agreement.” D
12. It will be useful to understand the interpretation of the
incorporation issue in England. The question whether the general words
of incorporation are sufficient to incorporate an arbitration agreement
arose for consideration of the High Court of Justice, Queen’s Bench
Division, Commercial Court in Sea Trade Maritime Corporation v. E
Hellenic Mutual War Risks Association (Bermuda) Limited, The
Athena [2006] EWHC 2530 (Comm). In the said case the difference
between incorporation in a single contract case and a two contract case
was recognized. If there is a reference to a secondary document in a
contract between two parties and that secondary document is a contract
to which at least one party is different from the parties to the contract in F
question, it would be a two contract case. In other words, if the secondary
document is between other parties or if only one of the parties to the
contract in dispute is party to an earlier contract to which a reference is
made, then it would be a two contract case. In such a contract general
reference to the earlier contract would not be sufficient to incorporate
G
the arbitration clause. However, if the reference is to standard terms in
a contract that would be a case of ‘single contract’ and the use of general
words to incorporate the arbitration agreement by a reference is
permissible. As the reference in that case was to a standard form of
contract which was a single contract case, Justice Langley held that the
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96 SUPREME COURT REPORTS [2018] 1 S.C.R.
A general words of incorporation were enough to incorporate an arbitration
clause.
13. The question of incorporation of the arbitration clause from
an earlier contract by general reference into a later contract came up
for consideration before the Queen’s Bench Division again in Habas
B Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL [2010]
EWHC 29 (Comm). The contract in the said case pertained to sale of
10,000 metric tons of steel scrap. There were several terms in the
contract under the headings material, quantity, price, shipment, discharge,
rate, payment and final weight. Apart from the said terms, the contract
contained a clause which was in the following terms: “All the rest will
C be same as our previous contracts.”
14. The dispute that arose in that case was whether general words
mentioned above were capable of incorporating an arbitration clause.
The difference in approach between cases in which the parties incorporate
the terms of a contract between the other parties or between one of
D them with a third party on the one hand and those in which they incorporate
the standard terms on the other hand, was noticed. The following broad
categories in which the parties attempt to incorporate an arbitration clause
were recognized by the Court, which are as follows:
“(1) A and B make a contract in which they incorporate
E standard terms. These may be the standard terms of one party
set out on the back of an offer letter or an order, or contained in
another document to which reference is made; or terms embodied
in the rules of an organisation of which A or B or both are
members; or they may be terms standard in a particular trade or
industry.
F
(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. Common examples are a bill of lading
G incorporating the terms of a charter to which A is a party;
reinsurance contracts incorporating the terms of an underlying
insurance; excess insurance contracts incorporating the terms of
the primary layer of insurance; and building or engineering sub
contracts incorporating the terms of a main contract or sub-sub
H contracts incorporating the terms of a sub contract.
M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 97
[L. NAGESWARA RAO, J.]
(4) A and B make a contract incorporating terms agreed A
between C and D. Bills of lading, reinsurance and insurance
contracts and building contracts may fall into this category.”
15. In Habas’s case (supra), Justice Christopher Clarke followed
the ratio in the case of ‘the Athena’ (supra) and held that in single
contract cases (categories 1 and 2), a general reference would be B
sufficient for incorporation of an arbitration clause from a standard form
of contract. In cases falling under categories 3 and 4 mentioned above
which are two contract cases, it was held that a stricter rule has to be
followed by insisting on a specific reference to the arbitration clause
from an earlier contract. Reliance placed on the judgment of Sir John
C
Megaw in Aughton v MF Kent Services [1991] 31 Con L.R. 60
was repelled in the following terms:
“53 I do not regard myself as bound by the decisions of the Court
of Appeal in Aughton v Kent and The Ethniki to reach a different
conclusion. Both were two-contract cases. Further the judgments
D
of Sir John Megaw and Lord Justice Ralph Gibson are, in part in
conflict so as to preclude either of them being binding authority
even in a two contract case. The agreement of Evans LJ with Sir
John Megaw’s “ analysis of the authorities with regard to
arbitration clauses and specifically with regard to the
incorporation of charterparty arbitration clauses into bills E
of lading “ was obiter.”
16. The point pertaining to the independent nature of an arbitration
clause being determinative of the dispute pertaining to incorporation was
also dealt with in the said judgment as follows:
F
“51 Like Langley J, however, 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, G
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
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98 SUPREME COURT REPORTS [2018] 1 S.C.R.
A 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,
B
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”.
17. For a better understanding of the single and two contract cases
and reference to standard form terms it is relevant to examine Russell
C
on Arbitration 24th Edition (2015) which is as under: (See pp. 52-54,
24rd Edn.)
“Reference to standard form terms, single and two contract cases.
If the document sought to be incorporated is a standard form set
of terms and conditions the courts are more likely to accept that
D general words of incorporation will suffice. This is because the
parties can be expected to be more familiar with those standard
terms, including the arbitration clause. In Sea Trade Maritime
Corp v. Hellenic Mutual War Risks Association (Bermuda) Ltd,
(The “Athena”) No.2 the Court drew a distinction between what
E is described as a “two contract case”, that is where the arbitration
clause is contained in a secondary document which is a contract
to which at least one party is different from the parties to the
contract in question, and “a single contract case” where the
arbitration clause is in standard terms to be found in another
document. Relying on dictum of Bingham LJ in Federal Bulk
F Carries Inc v. C. Itoh & Co Ltd (The “Federal Bulker”), Langley
J stated that:
“In principle, English law accepts incorporation of standard
terms by the use of general words and, I would add, particularly
so when the terms are readily available and the question arises
G in the context of dealings between established players in a
well-known market. The principle, as the dictum makes clear,
does not distinguish between a term which is an arbitration
clause and one which addresses other issues. In contrast, and
for the very reason that it concerns other parties, a “stricter
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[L. NAGESWARA RAO, J.]
rule” is applied in charterparty/bills of lading cases. The reason A
given is that the other party may have no knowledge nor ready
means of knowledge of the relevant terms. Further, as the
authorities illustrate, the terms of an arbitration clause may
require adjustment if they are to be made to apply to the parties
to a different contract.”
B
The Court therefore reinforced the distinction between
incorporation by reference of standard form terms and of the
terms of a different contract, and concluded that in a single
contract case general words of incorporation are sufficient,
whereas by its nature a two contract case may require specific
reference to the other contract, unless the secondary document C
is stated to be based on standard form terms containing an
arbitration agreement. In that case, presumably specific
reference to the arbitration clause would not be needed. As
discussed below, this approach has been endorsed in subsequent
cases, albeit drawing a slightly different but “material” distinction D
between incorporation of the terms of a separate contract –
standard or otherwise – made between the same parties which
are treated as “single contract” cases, even where there is in fact
more than one contract; and those where the terms to be
incorporated are contained in a contract between one or more
different parties which are treated as the “two contract” cases. E
(Para 2-049)
Extension of the single contract cases.
Recently, the courts appear to have extended the “single contract”
principle applicable to standard form contracts, where general F
words of incorporation will suffice, to other types of contract where
the same rationale can be said to apply. Thus, if the document
sought to be incorporated is a bespoke contract between the same
parties, the courts have accepted this as a “single contract” case
where general words of incorporation will suffice, even though
the other contract is not on standard terms and constitutes an G
entirely separate agreement. The rationale for this approach is
that the parties have already contracted on the terms said to be
incorporated and are therefore even more likely to be familiar
with the term relied on than a party resisting incorporation of a
standard term. Put another way, if general words of incorporation H
100 SUPREME COURT REPORTS [2018] 1 S.C.R.
A are sufficient for the latter, they should be even more so for the
former. The courts also appear to have accepted as a “single
contract” case a situation where the contract referred to is
between one of the parties to the original contract and a third
party, where the contracts as a whole “were entered into in the
context of a single commercial relationship”.(Para 2-050)
B
[Emphasis Supplied]
18. This Court in M.R. Engineers’ case, which is discussed in
detail supra, held the rule to be that an arbitration clause in an earlier
contract cannot be incorporated by a general reference. The exception
to the rule is a reference to a standard form of contract by a trade
C association or a professional institution in which case a general reference
would be sufficient for incorporation of an arbitration clause. Reliance
was placed by this Court on Russell on Arbitration 23rd Edition (2007).
The development of law regarding incorporation after the judgment in
M.R. Engineers requires careful consideration. It has been held in
D Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL
[2010] EWHC 29 (Comm) that a standard form of one party is also
recognized as a ‘single contract’ case. In the said case, it was also held
that in single contract cases general reference is enough for incorporation
of an arbitration clause from a standard form of contract. There is no
distinction that is drawn between standard forms by recognized trade
E associations or professional institutions on one hand and standard terms
of one party on the other. Russell on Arbitration 24th Edition (2015)
also takes note of the Habas’s case.
19. We are of the opinion that though general reference to an
earlier contract is not sufficient for incorporation of an arbitration clause
F in the later contract, a general reference to a standard form would be
enough for incorporation of the arbitration clause. In M.R. Engineers
this Court restricted the exceptions to standard form of contract of trade
associations and professional institutions. In view of the development of
law after the judgment in M.R. Engineers’ case, we are of the opinion
G that a general reference to a consensual standard form is sufficient for
incorporation of an arbitration clause. In other words, general reference
to a standard form of contract of one party will be enough for incorporation
of arbitration clause. A perusal of the passage from Russell on
Arbitration 24 th Edition (2015) would demonstrate the change in
position of law pertaining to incorporation when read in conjunction with
H
M/S. INOX WIND LTD. v. M/S. THERMOCABLES LTD. 101
[L. NAGESWARA RAO, J.]
the earlier edition relied upon by this Court in M.R. Engineers’ case. A
We are in agreement with the judgment in M.R. Engineer’s case with
a modification that a general reference to a standard form of contract of
one party along with those of trade associations and professional bodies
will be sufficient to incorporate the arbitration clause.
20. In the present case, the purchase order was issued by the B
Appellant in which it was categorically mentioned that the supply would
be as per the terms mentioned therein and in the attached standard terms
and conditions. The Respondent by his letter dated 15.12.2012 confirmed
its acceptance of the terms and conditions mentioned in the purchase
order except delivery period. The dispute arose after the delivery of the
goods. No doubt, there is nothing forthcoming from the pleadings or the C
submissions made by the parties that the standard form attached to the
purchase order is of a trade association or a professional body. However,
the Respondent was aware of the standard terms and conditions which
were attached to the purchase order. The purchase order is a single
contract and general reference to the standard form even if it is not by a D
trade association or a professional body is sufficient for incorporation of
the arbitration clause.
21. For the aforementioned reasons, the appeal is allowed and the
judgment of the High Court is set aside. Justice Sushil Harkauli is
appointed as the Arbitrator to adjudicate the dispute between the parties. E
Ankit Gyan Appeal allowed.
F
G
H
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