Thursday 18 January 2018

Whether a matter can be referred to arbitration if there is mere reference of another Contract with an Arbitration clause?

Reliance may also be placed on M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Ltd. (1993) 3 SCC 137 laying down that “the intention to refer to arbitration by such incorporation must be clear and specific. The question whether or not the arbitration clause contained in another document is incorporated in the contract, is always a question of construction this depends on the intention of the parties to be gathered from the relevant documents and surrounding circumstances….In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred”.
That brings me to M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696. Supreme Court therein held “there is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract…. If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract… On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price.” Applying the said principle, the “Acceptance Contract” between the plaintiff and the defendant no. 1 refers to the website only in the context of “Cancellation Rules” and such a reference can incorporate only the “Cancellation Rules” as given on the website into the “Acceptance Contract” and not the other terms and conditions contained on the website. Supreme Court in the said judgment also held that “A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract”.”
In the High Court of Delhi at New Delhi
(Before S.P. Garg, J.)
M/s. Shree Ganesh Metals 
v.
Glencore International AG & Anr. 
CS(COMM) 154/2017
Decided on November 2, 2017
The Judgment of the Court was delivered by
S.P. Garg, J. (Oral)

IA No. 4550/2017 (u/S 45 of the Arbitration & Conciliation Act, 1996, filed by defendant No. 1)
1. In a suit for Declaration, Permanent Injunction and Recovery of $ 12 lacs (Rs. 8 crores approximately) filed by the plaintiff against the defendants, application under Section 45 of the Arbitration & Conciliation Act (hereinafter referred to as ‘The Act’) has been filed on behalf of the defendant No. 1 to invoke arbitration agreement. It is contested by the plaintiff.
2. Defendant No. 1's case in the application is that in the previous agreements dated 20.04.2011 (‘First 2011 contract’), 01.07.2011 (‘Second 2011 contract’), 23.11.2011 (‘Third 2011 contract’) and 11.01.2012 (‘2012 contract’), there were arbitration agreement between the parties. The parties were desirous of entering into a further agreement in 2016 for sale-purchase of 6000 metric tons of zinc from March 2016 to February 2017. The business modalities were initially reduced into writing in an e-mail dated 10.03.2016 (hereinafter ‘Business Confirmation E-mail’). It set out the commercial terms such as quality, quantity, quotational period, delivery term, price, payment, value of the letter of credit, performance bank guarantee amongst others. Besides the commercial terms, it recorded, “All other terms and conditions as per last contract between GIAG and Shree Ganesh Metals.”
3. It is further averred that by its e-mail dated 11.03.2016, the plaintiff expressly agreed to and accepted all terms of the Business Confirmation save and except the term relating to provisional pricing. The plaintiff responded: “We confirm the same terms as said just one thing that provisional price of both, either the LC or invoice will be average of last 5 LME days.”
4. Pursuant to the written confirmation from the plaintiff, agreement dated 11.03.2016, being contract No. 061-16-12115-S (‘2016 contract’) incorporating all the terms of the ‘Business Confirmation E-mail’ and the plaintiff's e-mail dated 11.03.2016 was entered into (Annexure D). It is urged that the 2016 contract, similar to all previous contracts between the parties, provided for resolution of disputes through arbitration vide clause 32.2. Not only that, the said agreement was acted upon and various correspondences, raising of invoices, letter of credit etc. occurred subsequent to that between the parties. Subsequently, differences and disputes arose between the parties and the plaintiff acted in breach of terms of 2016 contract. The applicant was constrained to encash the standby letter of credit of USD 1,003,000. Since there was an ‘arbitration agreement’ between the parties within the meaning of Section 44 read with Section 2(f) of the Act read with Article II of the First Schedule of the Act, this Court has no jurisdiction to entertain the plaintiff's suit. The parties are governed by the 2016 contract. The plaintiff has not challenged the ‘arbitration agreement’ it being null and void or inoperative. Prayer has been made to refer the plaintiff to arbitration to be held in accordance with Rules of London Court of International Arbitration as provided in the ‘arbitration agreement’ contained in clause 32.2 of the 2016 contract.
5. In the reply to the IA, it is vehemently pleaded that there was no ‘arbitration agreement’ between the parties as required under Section 7 of the Act. Terms and conditions referred under the agreement dated 11.03.2016 were neither accepted nor concluded as the said agreement was never signed by the plaintiff/non-applicant. There was no question of acceptance of arbitration clause for adjudication of any dispute. E-mail dated 10.03.2016 is of no consequence as it was written by Glencore India Pvt. Ltd. and not by defendant No. 1. It is further urged that business modalities were initially reduced into writing in the e-mail dated 10.03.2016. The issue to refer the dispute to arbitration was neither discussed nor approved by the plaintiff any time. No valid ‘arbitration agreement’ came into existence between the parties.
6. I have heard the learned Senior Counsel for the parties and have examined the file. Relying upon various authorities ‘Smita Conductors Ltd. v. Euro Alloys Ltd.’,(2001) 7 SCC 728; ‘Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.’, (2005) 7 SCC 234; ‘Alimenta S.A. v. National Agricultural Co-operative Marketing Federation of India Ltd.’, (1987) 1 SCC 615; ‘Virtual Studio Pvt. Ltd. v. TMT Investment Pte Ltd.’, 2014 SCC OnLine Del 7002; and, ‘Habas Sinai v. Tibbi Gazlar Isthisal’, 2010 Bus.L.R. 880, learned Senior Counsel for the applicant urged that a valid contract came into existence between the parties. The 2016 contract expressly contained the acceptance of the terms and conditions as per last contract i.e. contract of 2012. This contract of 2012 specifically provided for the ‘arbitration clause’ whereby the disputes arising between the parties were to be referred to the arbitration. At no stage, prior to the filing of present suit, the plaintiff objected to the arbitration clause. Rather various invoices were raised incorporating the contract number and these were never objected to by the plaintiff.
7. Learned Senior Counsel for the plaintiff urged that no concluded contract came into existence between the parties incorporating arbitration clause and the matter cannot be referred to the arbitration under Section 45 of the Act. Mere reference of contract number by the applicant in its communications cannot mean consent/agreement. Reliance was placed on ‘M.R. Engineers & Contractors Pvt. Ltd. v.Som Datt Builders Ltd.’, 2009 (9) SCALE; ‘U Can Fly Limited, Trading as Lycafly v. AVA SPA Holidays (I) Pvt. Ltd.’, 236 (2017) DLT 373; ‘World Sport Group (Mauritius) Limitedv. MSM Satellite (Singapore) PTE. Limited’, (2014) 11 SCC 639; ‘Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc.’ 2012 (9) SCALE; ‘Dr. Devendra M. Surti v.The State of Gujarat’, AIR 1969 SC 63; ‘Powertech World Wide Limited v. Delvin International General Trading LLC’, (2012) 1 SCC 361; ‘Registrar, Cooperative Societies, W.B. v. Krishna Kumar Singhania’, (1995) 6 SCC 482; and, ‘Trimax International FZE Ltd. Dubai v. Vedanta Aluminium Ltd., India’, (2010) 3 SCC 1.
8. Admitted position is that the parties had entered into various contracts in the years 2011 and 2012. There was a gap of four years thereafter before the parties revived their relations and opted to enter into an agreement in 2016 for the sale-purchase of 6000 metric tons of zinc from March 2016 to February 2017.
9. Contents of the e-mail dated 10.03.2016 incorporating various commercial terms including the one, “all the terms and conditions as per last contract between GIAG and Shree Ganesh Metals” are not in dispute. It is also admitted that by its e-mail dated 11.03.2016, the plaintiff agreed and accepted all terms of the business confirmation responding as “We confirm the same terms as said just one thing that provisional price of both, either the LC or invoice will be average of last 5 LME days.” Subsequently, e-mail was sent to the plaintiff by the defendant No. 1 stating “Thanks for business confirmation. Reverting with contract and proforma.”
10. The moot issue is whether from these three e-mails exchanged between the parties, it can be inferred with certainty that an ‘arbitration agreement’ came into existence between the parties. Undisputedly, the 2012 contract contained an arbitration clause 29.2, which reads as under:
“29.2. Arbitration
Any dispute arising out of or in connection with this Contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration, which Rules are deemed to be incorporated by reference into this clause. The seat, or legal place, or arbitration shall be London. The language to be used in the arbitration shall be English. The parties waive irrevocably their right to any form of appeal, review or recourse to any state court of other judicial authority.”
11. When the parties entered into negotiation for sale-purchase of 6000 metric tons of zinc in 2016, no concluded contract bearing signatures of the plaintiff came into existence. Contract No. 061-16-12115-S (Annexure ‘D’) dated 11.03.2016 incorporating comprehensive terms and conditions of the transaction bears signature only on behalf of the defendant No. 1. The terms and conditions contained therein apparently were not accepted, signed or stamped by the plaintiff or its duly authorized person. Business Confirmation E-mail dated 10.03.2016 incorporating detailed terms and conditions of the agreement begins with:
Dear Mr. Aggarwal,
Further to discussions and your below mail, please following are the final terms at which GIAG can offer Zn metal to Ganesh Metals: XXXX
12. Apparently, it was an offer made to the plaintiff for its acceptance. The plaintiff vide e-mail dated 11.03.2016 did not accept the offer in its entirety and responded as “We confirm the same terms as said just one thing that provisional price of both, either the LC or invoice will be average of last 5 LME days.”
13. Nothing is on record if this change in the offer was expressly accepted by the defendant No. 1. It responded by another e-mail, “Thanks for Business Confirmation. Reverting with contract and proforma.” Nothing is on record to show if the contract containing detailed terms and conditions was exchanged thereafter and it was accepted by the plaintiff. The defendant No. 1 did not insist to get plaintiff's signatures on the contract accepting all the terms and conditions. Seemingly the defendant No. 1 started acting upon the said unsigned contract.
14. From the exchange of e-mails reproduced above, it cannot be inferred that the plaintiff had expressly or impliedly agreed to all the terms and conditions incorporated in 2012 contract. The e-mails sent by the applicant to the plaintiff did not specifically record the terms and conditions as contained in 2012 contract. In fact, there was no reference of 2012 contract in the various exchanges that took place between the parties.
15. Besides this, had a valid and concluded contract containing arbitration clause been come into existence between the parties as per 2012 contract, there was no occasion for alteration of the terms and conditions of clause 29.2 in the 2012 contract. Contrary to that, annexure ‘D’ the agreement contains clause No. 32.2, which reads as under:
“Clause 32.2.
Any dispute arising out of or in connection with this Contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration, which Rules are deemed to be incorporated by reference into this clause. The seat, or legal place, of arbitration shall be London. The language to be used in the arbitration shall be English. The number of arbitrators shall be three (one arbitrator to be appointed by each party, and the third to be chosen by the two party appointed arbitrators).”
(Emphasis given)
16. On comparison of both the clauses, clause 29.2 in the 2012 contract and clause 32.2 in the 2016 contract, there is change in the terms and conditions of the arbitration agreement. Since there was changes in the 2012 contract as incorporated in the 2016 contract, this was never accepted by the plaintiff. It is well settled that the intention to refer to arbitration must be clear and specific. It is the duty of the Court to construe correspondence with a view to find out if there was any meeting of mind between the parties which could create a binding contract between them. Unless from the exchange of e-mails, it can unequivocally and clearly emerge that the parties were ad-idem to the terms, it cannot be said that an agreement containing arbitration clause had come into existence. The parties should have a clear intention, at the time of contract, to submit any disputes or differences as may arise to arbitration then alone the reference contemplated under Section 45 of the Act can be enforced.
17. Mere reference of contract number by the applicant in its communications cannot be taken as consent by the plaintiff for arbitration clause. In ‘U Can Fly Limited v. AVA SPA Holidays (I) Pvt. Ltd.’, (supra), this Court held:
“29. Reliance in this regard can be placed on Alimenta S.A. v. National Agricultural Co-operative Marketing Federation of India Ltd. (1987) 1 SCC 615laying down “when the incorporation clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses etc.” It was held that the arbitration clause is not a term of supply and there is no necessity in law that when a contract is entered into for supply of goods, the arbitration clause must form part of such a contract. Accordingly, only those terms and conditions were held to have been incorporated into the second contract and not the arbitration cause. Similarly here, the “Acceptance Contract” which the defendant no. 1 made the plaintiff sign, cannot incorporate therein the arbitration clause on its website by referring to the website under the clause “Cancellation Rules”. Thereby, only the terms and conditions of the website as pertain to cancellation and which are specified on the website in a separate clause would get incorporated in the “Acceptance Contract”.
30. Reliance may also be placed on M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Ltd. (1993) 3 SCC 137 laying down that “the intention to refer to arbitration by such incorporation must be clear and specific. The question whether or not the arbitration clause contained in another document is incorporated in the contract, is always a question of construction this depends on the intention of the parties to be gathered from the relevant documents and surrounding circumstances….In the absence of clear intention of both the parties, agreement for arbitration cannot and should not be inferred”.
31. Reference in this context may be made to Owners and Parties Interested in the Vessel M.V. “Baltic Confidence” v. State Trading Corporation of India Ltd.(2001) 7 SCC 473 also concerned with the incorporation of arbitration clause in a Standard Charter Party Agreement in a contract of carriage of goods and where the arbitration clause was held to have so stood incorporated. However the Bill of Lading in that case read as follows “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.” The defendant no. 1 herein however deviated from inserting such a clause in its contract and having done so cannot be heard to contend that the arbitration clause on its website stands incorporated in the “Acceptance Contract”.
32. That brings me to M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696. Supreme Court therein held “there is a difference between reference to another document in a contract and incorporation of another document in a contract, by reference. In the first case, the parties intend to adopt only specific portions or part of the referred document for the purposes of the contract. In the second case, the parties intend to incorporate the referred document in entirety, into the contract. Therefore when there is a reference to a document in a contract, the court has to consider whether the reference to the document is with the intention of incorporating the contents of that document in entirety into the contract, or with the intention of adopting or borrowing specific portions of the said document for application to the contract…. If a contract refers to a document and provides that the said document shall form part and parcel of the contract, or that all terms and conditions of the said document shall be read or treated as a part of the contract, or that the contract will be governed by the provisions of the said document, or that the terms and conditions of the said document shall be incorporated into the contract, the terms and conditions of the document in entirety will get bodily lifted and incorporated into the contract… On the other hand, where there is only a reference to a document in a contract in a particular context, the document will not get incorporated in entirety into the contract. For example, if a contract provides that the specifications of the supplies will be as provided in an earlier contract or another purchase order, then it will be necessary to look to that document only for the limited purpose of ascertainment of specifications of the goods to be supplied. The referred document cannot be looked into for any other purpose, say price or payment of price.” Applying the said principle, the “Acceptance Contract” between the plaintiff and the defendant no. 1 refers to the website only in the context of “Cancellation Rules” and such a reference can incorporate only the “Cancellation Rules” as given on the website into the “Acceptance Contract” and not the other terms and conditions contained on the website. Supreme Court in the said judgment also held that “A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract”.”
18. In the light of above discussion, the application under Section 45 of the Act to invoke the ‘arbitration clause’ is unmerited and is dismissed.
CS(COMM) 154/2017 & IA No. 2509/2017 (u/O 39 R-1&2 CPC)
19. Written statement/reply shall be filed by the defendants within two weeks with advance copy to the otherside.
20. Replication/rejoinder, if any, shall be filed within a week thereafter.
21. List before the Joint Registrar on 29th November, 2017 for completion of pleadings, filing of documents and affidavits of admission/denial of the documents.
22. List before this Court on 19th December, 2017 for framing of issues and disposal of the captioned IA.
23. Order ‘dasti.’

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