Habas Sinai VE Tibbi Gazlar Isthisal Endustri AS v Sometal SAL

Factual and Procedural Background

This opinion concerns an application by Company A, a Turkish company, under section 67 of the Arbitration Act 1996, seeking to set aside an Interim Final Award on Jurisdiction and Costs made by an LCIA Arbitral Tribunal. The Tribunal had determined that it had jurisdiction to entertain a claim made by Company B, a Lebanese company. The dispute arises from a contract dated 9 June 2008 ("the June Contract") under which Company B, through its agent Company C, agreed to sell steel scrap to Company A. The June Contract incorporated by reference terms from previous contracts between the parties using broad language: "ALL THE REST WILL BE SAME AS OUR PREVIOUS CONTRACTS." The central issue is whether such general words incorporated an arbitration clause providing for disputes to be resolved by London arbitration under United Kingdom law.

The parties had entered into fourteen prior contracts with varying terms and arbitration clauses. Some contracts contained explicit arbitration clauses, including the London arbitration clause, while others used phrases such as "the rest will be agreed mutually" or "the rest will be as per previous contracts." The Tribunal ruled it had jurisdiction, finding that the June Contract incorporated the London arbitration clause from the prior Company B contracts. Company A challenged this ruling, arguing that the incorporation was unclear and that the arbitration clause was not effectively incorporated by the general words used.

Legal Issues Presented

1. Whether general words of incorporation such as "all the rest will be same as our previous contracts" are capable of incorporating an arbitration clause into a contract.
2. If such general words are capable of incorporation, whether the particular words used in the June Contract effectively incorporated the London arbitration clause from prior contracts between the parties.
3. Whether the legal approach to incorporation of arbitration clauses differs between single contract cases (incorporating terms from previous contracts between the same parties) and two-contract cases (incorporating terms from contracts involving different parties).

Arguments of the Parties

Company A's Arguments

• For incorporation of an arbitration clause, there must be either an express reference to the clause or wording showing a clear intention to incorporate it; neither was present here.
• The phrase "all the rest will be same as our previous contracts" is ambiguous given the variety of prior contracts with differing arbitration provisions.
• The sequence of contracts shows inconsistent references to arbitration clauses, including contracts with no arbitration agreement or with terms to be agreed mutually, undermining any clear consensus to incorporate the London arbitration clause.
• The Tribunal erred by excluding earlier contracts without evidence of Company C's involvement or knowledge, and by interpreting the phrase by a process of exclusion.
• The existence of two contracts dated 6 May 2008, one without and one with the London arbitration clause, suggests the former was insufficient to incorporate the latter's terms.
• The reference in the June Contract to a specific clause (the "08/14" clause) shows the parties incorporated terms expressly when they intended to, indicating arbitration terms should be expressly incorporated as well.
• Post-June Contract conduct by Company B initiating proceedings in Turkey does not clarify incorporation of arbitration clauses and is inadmissible as an aid to construction.

Company B's Arguments

• The Tribunal correctly found that general words of incorporation are sufficient in a single contract context to incorporate an arbitration clause from previous contracts between the same parties.
• The words "all the rest will be same as our previous contracts" were intended to incorporate all additional terms, including the London arbitration clause found in prior Company B prepared contracts.
• Excluding the arbitration clause from incorporation would be illogical and contrary to commercial understanding, as the clause is part of the contract and not an onerous term requiring special notice.
• The sequence of contracts from contract 4 onwards shows repeated incorporation of the London arbitration clause, supporting the Tribunal's conclusion.
• The presence of two contracts on 6 May 2008, with the latter including the arbitration clause, supports the inference that the parties intended the Metkim contract to incorporate the terms of the Company B contract, including arbitration.
• The specific reference to the "08/14" clause in the June Contract does not exclude incorporation of other terms by general words.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by distinguishing between incorporation of terms from previous contracts involving the same parties ("single contract" cases) and incorporation from contracts involving different parties ("two-contract" cases). It emphasized that a more restrictive approach applies in the latter due to concerns such as third-party knowledge and the collateral nature of arbitration clauses.

Relying on established authorities, the Court acknowledged the traditional strict approach to incorporation of arbitration clauses in two-contract situations, notably in bills of lading and reinsurance contexts. However, it accepted the reasoning in The Athena (No 2), which held that in single contract cases general words of incorporation can suffice to incorporate arbitration clauses, as the parties are the same and the commercial context differs.

The Court rejected Company A's submission that the strict two-contract approach should apply here, finding that the June Contract and prior contracts were between the same parties, placing this case within the single contract category. It held that the parties' use of the phrase "all the rest will be same as our previous contracts" was apt to incorporate all additional terms from prior contracts, including the London arbitration clause.

The Court considered the sequence of contracts and found that the phrase could not reasonably be interpreted to exclude the arbitration clause, especially given the absence of evidence that the parties intended otherwise. It found no reason to exclude earlier contracts or to limit incorporation to only certain terms. The Court also rejected the argument that the presence of two contracts on 6 May 2008 indicated ambiguity, concluding that the parties intended the second contract to clarify the terms incorporated by the first.

The Court further noted that the express reference in the June Contract to a specific clause (the "08/14" clause) did not imply exclusion of other incorporated terms. It emphasized that the arbitration clause did not require linguistic manipulation to fit the incorporation and that a businessperson would reasonably understand that "all the rest" included the arbitration clause.

Finally, the Court dismissed reliance on post-contract conduct as irrelevant to the contractual construction issue and upheld the Tribunal's conclusion that the June Contract incorporated the London arbitration clause.

Holding and Implications

The Court dismissed the application by Company A to set aside the Interim Final Award on Jurisdiction and Costs.

The Court held that general words of incorporation in a contract between the same parties can validly incorporate an arbitration clause from previous contracts without the need for express reference to the arbitration clause itself. In this case, the phrase "all the rest will be same as our previous contracts" was sufficient to incorporate the London arbitration clause contained in prior contracts prepared by Company B.

The direct effect is that the LCIA Arbitral Tribunal has jurisdiction to determine the dispute between the parties. No new precedent was established beyond affirming the distinction between single and two-contract incorporation cases and endorsing a businesslike approach to incorporation in single contract scenarios.