Dispute Resolution Group - Second Case Review 2010

Arbitration

Habas Sinai ve Tibbi Gazzlar Isthisal Endustri A.S. v Sometal S.A.L. [2010] EWHC 29 (Comm)

Incorporation of arbitration clause from earlier contracts between the same Parties

Clyde & Co successfully represented the Defendant. It is well established by caselaw that in a two-contract situation, where A and B make a contract incorporating terms agreed between A (or B) and C, or between C and D, general words of incorporation will not be construed as incorporating an arbitration clause (instead, there must be a specific reference to the arbitration clause in the incorporating clause). In this case, although there were multiple contracts involved, they were all entered into between the claimant and the respondent and Clarke J concluded that this was therefore not a "two contract" case. He also held that a less restrictive approach to incorporation should be adopted by the court where A and B enter into a contract in which they incorporate standard terms or (as here) they make a contract incorporating terms previously agreed between them in another contract (or contracts) to which they were also both parties. Although lawyers would understand that an arbitration clause is a separate contract collateral to the main contract, "a businessman would have no difficulty in regarding the arbitration clause...as part of a contract and as capable of incorporation, by appropriate wording, as any other term of such a contract, and it is...to a businessman's understanding that the court should be disposed to give effect". Accordingly, general words of incorporation are capable of incorporating terms which include an arbitration clause, without specifically referring to it.

The judge then considered whether, on the particular facts of the case, there had been incorporation. The contract in question had used the phrase "all the rest will be the same as our previous contracts". Clarke J agreed that the term was, in context, ambiguous, but the parties must have intended it to have some effect. It should not be assumed that the parties intended to refer to all their previous contracts. In this case, the last of the contracts between the parties which had not included the arbitration clause was concluded almost 3 years ago. If regard was had (as it must be) to the sequence of contracts, it was clear that the words of incorporation in a later contract were apt to incorporate the arbitration clause.

Damages

Sylvia Shipping Co Ltd v Progress Bulk Carriers Limited [2010]

Test for remoteness of damages

The generally accepted test for remoteness of damages is whether the loss claimed is of the kind or type which it would have been within the reasonable contemplation of the parties, at the time that the contract was made, as being not unlikely to result (the "orthodox" approach). However, after the recent House or Lords case of The Achilleas [2009], doubts have arisen as to whether that test is sufficient. In The Achilleas, two of their lordships decided the case on the orthodox approach. However, two of them decided it on the "broader" approach, namely, not only must the parties be taken to have had the type of loss within their contemplation, they must also be taken to have assumed legal responsibility for that type of loss. The remaining judge gave a judgment which contained elements of the reasoning of both approaches

In this case, Hamblen J concluded that the rationale of assumption of responsibility had the support of the majority in The Achilleas. He said: "The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be "unusual" cases...in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations".

In The Achilleas, the House of Lords had held that where there was a breach of a contract (which caused the shipowners to fail to deliver a vessel in time), the owners were not entitled to the difference between the original and the renegotiated rates of hire. In this case, shipowners had breached their contractual maintenance obligations and so a sub-charter made by the charterers was cancelled. The arbitrators held that the charterers were entitled to the loss of profit on the cancelled sub-charter. Hamblen J held that the arbitrators had not made any error of law. This was not one of those "unusual" cases in which it might be said that assumption of responsibility had to be addressed.

On a separate note, the judge also reiterated that on an appeal from an arbitration award, the only documents which should be put before the court should be the award itself and the relevant contract. Unless clearly incorporated by reference, other...