In The Supreme Court of India Civil Appellate Jurisdiction: Judgment L. Nageswara Rao, J
In The Supreme Court of India Civil Appellate Jurisdiction: Judgment L. Nageswara Rao, J
In The Supreme Court of India Civil Appellate Jurisdiction: Judgment L. Nageswara Rao, J
Versus
JUDGMENT
L. NAGESWARA RAO, J.
Leave granted.
power cables and other types of cables. Two purchase orders dated
Terms and Conditions that were attached thereto. Apart from the
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other conditions, the Standard Terms and Conditions contain a
on record indicates that the Respondent accepted all the terms and
sheaths of the cables of 150 sq. mm. were cracked. This forced
In the absence of any response, the Appellant moved the High Court
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clause in the standard terms and conditions, so the arbitration
order.
6. We have heard the counsel for the Appellant and Respondent. The
necessary to understand the dispute in the said case are that the
the main contract. A dispute arose between the parties which made
Act, 1996. The High Court of Kerala rejected the application on the
ground that the arbitration clause in the main contract was not
7 (5) of the Act and that the arbitration clause from the main
7. This Court considered the scope of Section 7 (5) of the Act and held
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that a conscious acceptance of the arbitration clause found in
relevant factor was the intention of the parties either to adopt the
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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 there is a special reference to the arbitration clause so
as to make it applicable.”
(5) of the Arbitration and Conciliation Act, 1996 are as under: (M.R.
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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 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) 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:
9. This Court also discussed the scope of Section 7 (5) of the Act and
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forming part of such general conditions of contract will apply to the
contract between the parties.”
10. It was ultimately found that the intention of the parties was not to
Further, this Court held that the arbitration clause in the main
11. Section 6 (2) of the Arbitration Act, 1996 which extends to England,
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Division, Commercial Court in Sea Trade Maritime Corporation v.
The Athena [2006] EWHC 2530 (Comm). In the said case the
an arbitration clause.
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pertained to sale of 10,000 metric tons of steel scrap. There were
from the said terms, the contract contained a clause which was in
the following terms: “All the rest will be same as our previous
contracts.”
14. The dispute that arose in that case was whether general words
parties or between one of them with a third party on the one hand
and those in which they incorporate the standard terms on the other
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ratio in the case of ‘the Athena’ (supra) and held that in single
mentioned above which are two contract cases, it was held that a
“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, 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 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, 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
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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 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 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 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 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 rule” is applied in
charterparty/bills of lading cases. The reason 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.”
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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)
[Emphasis Supplied]
‘single contract’ case. In the said case, it was also held that in
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enough for incorporation of the arbitration clause. In M.R.
20. In the present case, the purchase order was issued by the Appellant
the parties that the standard form attached to the purchase order is
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of a trade association or a professional body. However, the
21. For the aforementioned reasons, the appeal is allowed and the
parties.
........................................J.
[S.A. BOBDE]
..……................................J.
[L. NAGESWARA RAO]
New Delhi;
January 05, 2018
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