Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi as v Sometal Sal

Hearing dates: 18 th December 2009

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE CHRISTOPHER CLARKE :

This is an application by HabaŠ Sinai ve Tibbi Gazlar Isthisal Endustri A.S. (“HabaŠ”) under section 67 of the Arbitration Act 1996. HabaŠ, a Turkish company, seeks to set aside an Interim Final Award on Jurisdiction and Costs made by an LCIA Arbitral Tribunal (“the Tribunal”) by which the Tribunal decided that it had jurisdiction to entertain the claim made by Sometal S.A.L (“Sometal”), a Lebanese company. On such an application the Court is not involved only in reviewing the decision of the Tribunal: Azov Shipping v Baltic Shipping Co (No 1) [1999] 1 Lloyd's Rep 68.

The underlying contract

By a contract in writing dated 9 ^th June 2008 (“the June Contract”), typed on a sheet of paper with the letter heading of a company whose abbreviated name is “Metkim” (hereafter “Metkim”) 1, Sometal S.A.L. (“Sometal”), for which Metkim acted as agent, agreed to sell 10,000 m.t. of steel scrap ex Romania & Bulgaria CIF FO Memrut Bay, Turkey. The contract contained a number of terms under the headings Material, Quantity, Price, Shipment, Discharge Rate, Payment, Final weight and NOR Tenderence (sic) and then ended with the words:

“ALL THE REST WILL BE SAME AS OUR PREVOUS CONTRACTS”

The issues

There had been 14 previous contracts between the same parties. The issues that presently divide them are whether general words such as these are capable of incorporating an arbitration clause and whether, if they are, the effect of these words as between these parties was to incorporate a London arbitration clause in the following terms:

“All disputes, or controversies, or differences, which may arise between buyer and seller under this contract, shall be settled in London, according to London Arbitration Rules, by the United Kingdom Law”.

I call this “the London arbitration clause”. The parties have agreed that, if this clause forms part of their contract, then the dispute between them, which is as to the validity of Sometal's claim for more than US $ 5 million on account of HabaŠ’ alleged repudiation of the contract by failing to take delivery of the scrap, is to be resolved by an LCIA arbitration.

HabaŠ contends, firstly, that for a clause such as the London arbitration clause to be incorporated into a contract there must either be an express reference to the clause or wording that shows a clear intention to incorporate it, and that in the present case neither requirement is satisfied. Secondly, even if general words are capable of incorporating such a clause, the words used in the present case are inapt for the purpose. Sometal submits that there are no such requirements and that the Tribunal was right to find that the parties had intended to incorporate the London arbitration clause.

The previous contracts

The first 3 of the previous 14 contracts were on paper with HabaŠ’ letter heading. The next 11 were either on a form drawn up by Sometal or on paper with Metkim's letter heading.

The sequence of contracts was as follows.

(i) 23 January 2004: a contract prepared by HabaŠ which provided:

“Should any dispute arise during the conclusion or execution of this contract, the parties will endeavour to settle any disputes in amicable fashion. Should the parties be unable to reach an amicable solution, the disputes should be submitted to the Court of Arbitration with UNCITRAL Arbitration Rules”.

(ii) 24 May 2004: a contract prepared by HabaŠ which contained the same clause.

(iii) 5 September 2005: a contract prepared by HabaŠ which contained a clause in which the first sentence was as in the two previous contracts but in which the second sentence read:

“Should the parties be unable to reach an amicable solution, the disputes shall be submitted to the Court of Arbitration in Istanbul according to the Turkish laws”.

(iv) 23 March 2006: a two-page contract prepared by Sometal which contained the London Arbitration Clause as the second of two clause 10s.

(v) 14 March 2007: a one-page contract on Metkim's letter heading which provided, after the operative clauses dealing with Material. Quantity, Price, Shipment, Payment etc:

“The rest will be agreed mutually”

(vi) 3 May 2007: a contract like that of 23 March 2006 prepared by Sometal which contained the London Arbitration Clause.

(vii) 9 August 2007: a one-page contract on Metkim's letter heading which provided:

“The rest will be as per previous contracts”

(viii) 11 September 2007: a one-page contract on Metkim notepaper, which also provided:

“The rest will be as per previous contracts”.

(ix) 25 October 2007: A one-page contract on Metkim notepaper, which again provided:

“The rest will be agreed mutually”

(x) 3 April 2008: A contract prepared by Sometal like that of 23 March 2006 which contained the London Arbitration Clause.

(xi) 9 April 2008: A contract prepared by Sometal like that of 23 March 2006 which contained the London Arbitration Clause.

(xii) 14 April 2008: A one-page contract, on Metkim notepaper, which provided:

“The rest will be agreed mutually”

(xiii) 6 May 2008: there were two contracts with this date, which provided as follows:

i. The first contract in time was on Metkim notepaper, was signed by HabaŠ on that date, and provided:

“All the rest will be same as our previous contracts”

ii. The second contract, prepared by Sometal, which was signed by at least one of the parties on 12 May 2008 and thus superseded the earlier contract, contained the London Arbitration Clause.

(xiv) 27 May 2008: a (one-page) contract, on Metkim notepaper,

which provided:

“All the rest will be same as our previous contracts”

(xv) 9 June 2008, the June Contract: a (one-page) contract, on Metkim notepaper which provided:

“All the rest will be same as our previous contracts”

In respect of each of the contracts which provided that “The rest will be agreed mutually”, or “The rest will be as per previous contracts,” or “All the rest will be same as our previous contracts”, other than the first contract of 6 May 2008, there is no evidence of any later agreement that disputes should be determined by arbitration. The Metkim prepared contracts, like the Sometal prepared contracts set out the terms relating to Material, Quantity, Price and Shipment but, unlike the Sometal contracts, did not set out terms relating to quality, demurrage, force majeure or law and arbitration.

The ruling of the Tribunal

The Tribunal (Sir Simon Tuckey, Chairman, Mr Mark Hamsher and Mr Stephen Jagusch) heard HabaŠ’ challenge to its jurisdiction as a preliminary issue. In paragraphs 13 and 14 of its Award it recorded the distinction made by the Courts between (a) cases where what was sought to be incorporated were the terms of a separate contract between two other persons or between one of the parties and a third party, on the one hand, where, as it held, specific reference to the arbitration clause or demonstration of a clear intention to incorporate the arbitration clause was required, and (ii) other cases of incorporation where general words would suffice and where no specific evidence of clear intention to incorporate the arbitration clause was required. It then held that the present case fell into the latter and not the former category

On the issue as to whether the words used did in fact incorporate the London arbitration clause, the Tribunal referred to the fact that the June contract, like the other Metkim prepared contracts, did not refer to important commercial terms such as quality and demurrage and asked itself whether the reference to terms “as our previous contracts” should be limited to terms such as those, as HabaŠ contended. It answered that question in the negative, deciding that the intention of the parties was to incorporate any terms from previous contracts which added to the terms set out in the short form Metkim prepared contracts. It then defined the question that it had to answer as being: is it clear where one has to look to discover what those terms were?

The Tribunal then decided that the parties could not possibly have intended to refer back to the HabaŠ prepared contracts (contracts 1–3) because Metkim had not been involved in making those contracts, each of which was subject to Turkish law and the last of which had been made in September 2005. It then held that the parties could not have intended to refer to the previous Metkim prepared contracts because those contracts either contained no relevant additional terms at all (in the case of contracts 5, 9, and 12 where the terms were to be agreed) or themselves referred to previous contracts (in the case of contracts 7, 8, 13 and 14). That left only the Sometal prepared contacts, which contained additional terms including the London arbitration clause.

As a result, the Tribunal concluded, the parties, by incorporating “all the rest” of the terms in “our previous contracts” in the June Contract clearly intended to refer to the additional terms to be found in the Sometal prepared contracts. The Tribunal thought that, if there was any doubt about the matter, it was resolved by what happened in relation to contract 13. In that case a Metkim prepared contract providing “all the rest will be same as...