An important proposition in M.R. Engineers was a distinction Court made between “standard form contracts” and other contracts. Relying on observations in Russel on Arbitration, (23rd Edition, 2007) Court held, 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 association or a professional institution in which case a general reference would be sufficient for incorporation of an Arbitration Clause.
Recently, in M/s. Inox Wind Ltd. v. M/s. Thermocables Ltd., [Civil Appeal No. 19 of 2018] a Division Bench of SC has modified the rule.
“The development of law regarding incorporation, after M.R. Engineers, requires careful consideration…
A perusal of Russell on Arbitration, (24th Edition, 2015) would demonstrate a change in position of law pertaining to incorporation when read in conjunction with the earlier Edition relied upon by this Court in M.R. Engineers’ case.
The question, whether general words of incorporation are sufficient to incorporate an Arbitration Agreement, arose for consideration of High Court of Justice, Queen’s Bench Division, Commercial Court in Sea Trade Maritime Corporation v. Hellenic Mutual War Risks Association (Bermuda) Limited, Athena, [2006] EWHC 2530 (Comm). In the said case, difference between incorporation in a ‘single contract case’ (where the Arbitration Clause is in standard terms to be found in another document) and a ‘two contract case’ (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) was recognized.
Again, in Habas Sinai, [2010] EWHC 29 (Comm) the following broad categories in which the parties attempt to incorporate an Arbitration Clause were recognized by Court:
“(1) A and B make a contract in which they incorporate 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 organization of which A or B or both are members; or they may be terms standard in a particular trade or industry.
(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.
(4) A and B make a contract incorporating terms agreed between C and D.”
In Habas’s case, Justice Christopher Clarke followed the ratio in the case of Athena and held, in single contract cases (categories 1 and 2), a general reference would be 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, a stricter rule has to be followed by insisting on a specific reference to the Arbitration Clause from an earlier contract.
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 M.R. Engineers’ case, we are of the opinion, a general reference to a standard form of contract of one party will be enough for incorporation of the Arbitration Clause.
We are in agreement with 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.”
In Inox Wind, a purchase order was issued by Appellant in which it was categorically mentioned, the supply would be as per the terms mentioned therein and in the attached standard terms and conditions. Respondent confirmed its acceptance of the terms and conditions mentioned in the purchase order except the delivery period. The dispute arose after the delivery of the goods. Respondent was aware of the standard terms and conditions which were attached to the purchase order. The purchase order was a single contract and general reference to the standard form even if it was not by a trade association or a professional body was considered sufficient for incorporation of the Arbitration Clause.
The Last Word 