Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH

The incorporation of an arbitration clause by a prior course of dealing requires proof that the parties must have intended the clause to form part of the contract. It is insufficient that incorporation would have been reasonable, commercially convenient or preferred by rational businessmen. The court must give priority to the parties’ express terms and exercise particular caution where the contract is formal, detailed and self-contained, and the proposed clause is extracted from a wider set of terms which is otherwise inapplicable. A close commercial relationship between related contracts does not, without more, make incorporation obvious.

Lisnave sought under section 67(1)(a) of the Arbitration Act 1996 to set aside a majority arbitral award holding that a tribunal had jurisdiction over CST’s claim for fleet rebates. The Fleet Agreement contained no arbitration clause and did not refer to Lisnave’s General Conditions, although subsequent individual ship-repair contracts incorporated those conditions and their arbitration provision. The issue was whether Article 15.2 of the General Conditions had been incorporated into the Fleet Agreement by prior course of dealing or necessary implication.

1. The application succeeded. The court conducted a rehearing of the jurisdiction issue rather than an appeal or review of the tribunal’s decision, applying Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46. The award was set aside and a declaration was made that the tribunal lacked jurisdiction.

2. Terms may be implied from a consistent prior course of dealing, but incorporation remains a question of fact and degree. Relevant matters include the number, recency and similarity of previous contracts and the manner in which they were concluded. The test is whether the parties must have intended the term to apply, or whether its application was so obvious that it went without saying. Reasonableness, commercial convenience or a preference formed only after attention is drawn to the omission is insufficient.

3. The rational-businessmen presumption in arbitration-clause construction, discussed in Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd's Rep. 254, cannot automatically lower the threshold for implying an arbitration agreement to one of reasonableness. It may assist only in deciding whether incorporation was necessary or obvious.

4. Here the Fleet Agreement was a formal and detailed contract between Lisnave and CST, whereas the prior ship-repair contracts involved individual shipowning companies. The Fleet Agreement governed commercial terms for future repairs but did not itself require repair work. The General Conditions were expressly limited to contracts for dry-docking, conversion, maintenance, repair or other work. The Fleet Agreement was not such a contract.

5. It was not obvious that the parties intended to incorporate Article 15.2. CST’s case required the court to select one clause from a wider dispute-resolution scheme, disregard Articles 15.5 and 15.6, and manipulate the clause’s references to the defined term “the Agreement”. The close relationship between the Fleet Agreement and later repair contracts did not establish an opposite flow of terms from those repair contracts into the Fleet Agreement. Clause B also left the terms of future repair contracts open to agreement or variation.

6. The court therefore rejected the majority arbitrators’ reasoning. Their reliance on experience and the “officious bystander” test did not satisfy the objective and exacting standard for implication.

This was a first-instance application under section 67(1)(a) of the Arbitration Act 1996. The court reheard the jurisdiction issue and set aside the arbitral award.