ARBITRATION : ARBITRATION CLAUSES : ESTOPPEL : JURISDICTION

ORAL CONTRACTS : STANDARD FORMS OF CONTRACT : CONTRACT NOTES : INCORPORATION OF ARBITRATION CLAUSE IN NOTE INTO CONTRACT : JURISDICTION OF COURTS TO HEAR CLAIM INITIALLY REFERRED TO ARBITRATION : art.6(1) EUROPEAN CONVENTION ON HUMAN RIGHTS : ARBITRATION ACT 1996

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    Where two oral contracts for the sale of barley did not incorporate, expressly or by prior course of dealing, an arbitration clause contained in a standard form contract, the claimant was not precluded from pursuing a claim for breach of contract in the courts even where it had initially referred the claim to arbitration.

    The applicant (W) applied for a stay of proceedings brought against it by the respondent (C). W had entered into two contracts with C for the purchase, in two parts, of its entire year crop of tipple malting barley. It was C’s unchallenged evidence that those contracts had been concluded orally and that W had sent C a contract note afterwards. That note purported to incorporate the Agricultural Industries Federation Limited (AIC) contract No.1/04 for grain and pulses which included an arbitration clause. W had sought to incorporate the same provision in its prior contract notes with C but C had never had its attention drawn to it. C took issue with the substance of the contract note and a subsequent note, but not with the incorporation of contract 1/04. Once the barley was harvested, W failed to take delivery of all of it and further rejected some. The barley that was either rejected or uncollected was re-sold at less than the contract price.

    C decided to bring a claim for breach of contract against W. Having sought advice from the National Farmers Union (NFU), C instructed an approved AIC arbitrator to act as arbitrators to the dispute. Nevertheless, C issued a claim against W and W presented the instant application, thereby challenging the court’s jurisdiction to hear the claim. W submitted that (1) contract 1/04 had been incorporated into the two contracts, it being utterly incredulous that C would not have known that grain merchants regularly used contract 1/04 to purchase grain; (2) C was estopped from bringing its claim on the basis that it had, having appointed an arbitrator, represented to W that it was bound by contract 1/04 to arbitrate the dispute.

    HELD: (1) Although an arbitration clause could be incorporated into a contract through reference to a set of standard printed terms, incorporation could not occur where the standard terms were first introduced by one party after all the essential elements of the contract had been agreed unless, expressly or by implication, the contract was varied so as to include them; which had not happened in the instant case. On the basis of C’s unchallenged evidence about what had been agreed between the parties at the outset, contract 1/04 was first raised in the contract notes. Accordingly, contract 1/04 did not form part of either contract at the outset. As to the parties’ prior dealings, incorporation of terms by a prior course of dealing was a question of fact and degree influenced by a consideration of previous contracts, Circle Freight International Ltd v Medeast Gulf Exports Ltd (1988) 2 Lloyd’s Rep 427 CA (Civ Div), SIAT di del Ferro v Tradax Overseas SA (1978) 2 Lloyd’s Rep 470 QBD (Comm), R v Cook (1954) 1 WLR 125 Assizes (Leeds), Henry Kendall & Sons v William Lillico & Sons Ltd (1969) 2 AC 31 HL, Hollier v Rambler Motors (AMC) Ltd (1972) 2 QB 71 CA (Civ Div) and British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd (1975) QB 303 CA (Civ Div) considered.

    There was no evidence as to how commonly contract 1/04 was used in the trade and only W’s scepticism about what C had to have known. The absence of any persuasive evidence about what were the usual terms on which grain merchants purchased grain coupled with the limited course of dealing between the parties was such that an impartial observer would conclude that contract 1/04 had not been incorporated by a prior course of dealing. (2) It was not possible to extract, from C’s conduct in appointing an arbitrator, an unequivocal representation that C had accepted that contract 1/04 applied nor that the appointed arbitrator derived his authority from it. Nor was it possible to conclude from the parties’ conduct an agreement that the arbitrators should have jurisdiction to decide not only the substantive dispute, but also any question of jurisdiction inherent in the question whether contract 1/04 had been incorporated. There was no representation that contract 1/04 applied and no ad hoc submission of that issue either, LG Caltex Gas Co Ltd v China National Petroleum Corp (2001) EWCA Civ 788, (2001) 1 WLR 1892, Gulf Import and Export Co v Bunge SA (2007) EWHC 2667 (Comm), (2008) 2 All ER (Comm) 161 and Baird Textile Holdings Ltd v Marks & Spencer Plc (2001) EWCA Civ 274, (2002) 1 All ER (Comm) 737 applied. Furthermore, an estoppel argument failed at the stage of establishing detriment since there was no evidence that W had suffered any pertinent disadvantage as a result of C deciding to bring a claim.

    C was not, accordingly, precluded from pursuing the action in the courts.(3) (Obiter) The court expressed a strong provisional opinion that the rules of arbitration in the AIC rules were compliant with the European Convention on Human Rights 1950 art.6(1) despite the preponderance of tribunal and board of appeal members drawn from the AIC as opposed to the NFU. The fact that a member of a trade tribunal derived experience from one sector of the industry did not, of itself, mean that he would lack independence or would be biased. If that were wrong, then the right to challenge an award under the Arbitration Act 1996 properly safeguarded parties’ interests and could fairly be equated to the right of judicial review, Bryan v United Kingdom (A/335-A) (1996) 21 EHRR 342 ECHR considered.

    Application refused

    [2009] EWHC 3065 (QB)

    CAPES (HATHERDEN) LTD v WESTERN ARABLE SERVICES LTD (2009)

    Lawtel: 18.1.10