TMI Blog2018 (1) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 trade association or a professional body is sufficient for incorporation of the arbitration clause. Justice Sushil Harkauli is appointed as the Arbitrator to adjudicate the dispute between the parties - appeal allowed. - CIVIL APPEAL No . 19 of 2018, (Arising out of SLP (Civil) No.31049 of 2016) - - - Dated:- 5-1-2018 - Mr. S.A. Bobde And Mr. L. Nageswara Rao JJ. For the Petitioner (s) : Mr. Anup Jain, AOR And Mr. Pulkit Shrivastava, Adv. For the Respondent : Mr. A.T.M. Sampath, AOR JUDGMENT L. NAGESWARA RAO, J. 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 (hereinafter referred to as the Act ). 3. The Appellant is a manufacturer of wind turbine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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. 7. This Court considered the scope of Section 7 (5) of the Act and held that a conscious acceptance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract between X and Y provides that the terms of payment to Y will be 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-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 there is a special reference to the arbitration clause so as to make it applicable. 8. Relevant passages from Russell on Arbitration 23 rd 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. 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) Arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. (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: The current position therefore seems to be that if the arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms and conditions, 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 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. 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 of a committee of three arbitrators, with one each to be appointed by the State of Kerala and the Respondent therein and the third t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 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 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 foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporation of charterparty arbitration clauses into bills 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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. (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 words of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 the earlier edition relied upon by this Court in M.R. Engineers case. 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 sufficie ..... 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