1987 (1) TMI 482 - SC - Companies Law

Whether by Clause 11 in the first contract, the arbitration clause in FOSFA-20 contract can be said to have been incorporated into the contract? Held that - Even assuming that the subject-matters of FOSFA-20 contract and the f.o.b. contract are different, we do not think that any question as to the germaneness of the arbitration clause to the subject-matter would be relevant. It has been found by the learned Judge of the High Court that the Manager of NAFED, who had signed the first contract, was aware of the terms of the FOSFA-20 contract including the arbitration clause contained therein. It is, therefore, manifestly clear that by the incorporation of Clause 11 in the first contract, the appellant intended to incorporate into it the arbitration clause of FOSFA-20 contract. Thus where, as in the instant case, the parties are aware of the arbitration clause of an earlier contract, the subject-matter of which is different from the contract which is being entered into by them, incorporates the terms of the earlier contract by reference by using general words, we do not think there would be any bar to such incorporation merely because the subject-matters of the two contracts are different, unless, however, the incorporation of the arbitration clause will be insensible or unintelligible. In the instant case, the arbitration clause in FOSFA-20 contract will fit in the first contract. The first contract includes the terms and conditions of supply and as Clause 9 refers to these terms and conditions of supply, it is difficult to hold that the arbitration clause is also referred to and, as such, incorporated into the second contract. Appeal dismissed.

Issues Involved: Validity of arbitration agreement, Incorporation of arbitration clause, Interpretation of contract terms, Applicability of arbitration clause to different contracts.

Issue-wise Detailed Analysis:

1. Validity of Arbitration Agreement:
The primary issue was whether a valid arbitration agreement existed between the parties. NAFED contended that it was unaware of the arbitration clause in the FOSFA-20 contract and thus could not have agreed to it. The court found that NAFED, being the canalising agent for export, was presumed to be aware of the FOSFA-20 terms, including the arbitration clause. Therefore, the plea that NAFED was unaware of the arbitration clause was overruled.

2. Incorporation of Arbitration Clause in the First Contract:
The court examined if Clause 11 of the first contract, which stated "other terms and conditions as per FOSFA-20 contract terms," incorporated the arbitration clause from the FOSFA-20 contract. It was established that an arbitration clause from a previous contract can be incorporated into a later contract if it is not inconsistent with the new contract. The court found that the arbitration clause in the FOSFA-20 contract was incorporated into the first contract as the terms "this contract" in the arbitration clause would refer to the first contract after incorporation. The court rejected NAFED's reliance on the case of Hamilton & Co. v. Mackie & Sons, as the arbitration clause in FOSFA-20 was found to be intelligible and consistent when incorporated into the first contract.

3. Applicability of Arbitration Clause to the Second Contract:
The second contract contained Clause 9, which stated that all terms and conditions for supply not specifically shown would be as per the previous contract. The court held that Clause 9 referred only to terms and conditions related to the supply of goods and did not include the arbitration clause. The court reasoned that terms of supply typically involve aspects directly connected with the supply process, such as mode, process, and incidental expenses, and not arbitration clauses. Therefore, the arbitration clause from the first contract was not incorporated into the second contract.

4. Interpretation of Contract Terms:
The court analyzed the language used in the incorporation clauses of both contracts. It concluded that while general terms in the first contract allowed for the incorporation of the arbitration clause, the specific reference to supply terms in the second contract did not. The court emphasized that arbitration clauses are not inherently part of supply terms and must be explicitly included if intended.

Conclusion:
The Supreme Court affirmed the judgment of the Delhi High Court. It held that the arbitration clause from the FOSFA-20 contract was incorporated into the first contract but not into the second contract. Thus, the appeal by NAFED against the incorporation of the arbitration clause in the first contract was dismissed, and the appeal by Alimenta against the non-incorporation of the arbitration clause in the second contract was also dismissed. Both appeals were dismissed without any order as to costs.

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