Critique of the Supreme Court's decision in Inox Wind v Thermocables (SCI: 05.01.2018)

Followers of this blog would've come across the previous post on the decision of the Supreme Court in Inox Wind v Thermocables. We had provided a comment on the decision in the form of power point presentations. Some readers did not like the idea of having to go through the power point presentations, although it was the easiest to make. The complaint was that the power point presentations lacked detailed analysis. In order to assuage feelings of dissatisfaction, we present critique of the said decision in the form of a blog post. For a descriptive comment on the decision, kindly bear with us and go through the presentation.

Prior to embarking on the exercise of raising questions on the judgement, it would do good to summarise what was held by the two judge Bench in Inox Wind.

• The decision of the Supreme Court in MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 held the field.
• MR Engineers relied on the 23rd edition of Russell on Arbitration and held that: "(iv) Where the contract provides that the standard form of terms and conditions of an independent Trade or Professional Institution (as for example the Standard Terms & Conditions of a Trade Association or Architects Association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference.”
• Meanwhile the English law had evolved. In Habas Sinai etc. AS v. Sometal SAL [2010] EWHC 29 (Comm.), English courts have held that where the contract seeks to incorporate standard terms of a party to the contract, the arbitration clause found in such standard terms will bind the parties. The 24th edition of Russell on Arbitration updates the English law on the subject by taking into consideration the decision in Habas Sinai.
• MR Engineers restricted applicability of arbitration clause only when the standard forms of trade associations/ professional bodies were incorporated by reference.
• English law had evolved to the effect that general reference in a contract to a standard form of one of the parties will incorporate the arbitration clause contained in the standard form.
• Therefore, MR Engineers is correct except insofar as exclusion of binding force of arbitration clauses found in standard terms of contract of one of the parties when parties referred to such terms in their contract. 
• On facts, the Thermocables was aware of the arbitration clause contained in INOX’s Standard Terms, which were attached to the Purchase Order. Therefore, arbitration clause was binding.

Critique

Some questions on the reasoning of the decision are in order:

1) The Supreme Court was not correct in stating that MR Engineers excluded parties' standard terms containing the arbitration clause from applicability. Para 24(v) of MR Engineers contemplated a situation where the contract stipulated that Conditions of Contract of one of the parties to the contract shall form a part of the contract. In such a case, MR Engineers stated, the arbitration clause therein would apply. Para 124(v) reads:

“(v) Where the contract between the parties stipulates that the Conditions of Contract of one of the parties to the contract shall form a part of their contract (as for example the General Conditions of Contract of the Government where Government is a party), the arbitration clause forming part of such General Conditions of contract will apply to the contract between the parties.”.

[ There is no difference in the present context between Conditions/ General Conditions of Contract and Standard Terms and Conditions. ] Doesn’t this mean MR Engineers covered even the situation before the court in the instant case and treats the arbitration clause as binding? If so, wasn't the entire analysis of English law by the court in Inox Wind an unnecessary exercise?

2) Having agreed with the decision of the English Commercial Court in Habas Sinai etc. AS v. Sometal SAL [2010] EWHC 29 (Comm.), that where A & B made a contract incorporating terms previously made between them in another contract, a general reference to the previous contract will bind the parties to arbitration clause in that contract, why did the Supreme Court in the present case state: “We are of the opinion that though general reference to an earlier contract was not sufficient for incorporation of an arbitration clause in the later contract, a general reference to a standard form would be enough for incorporation of the arbitration clause.”? (Para 24). 

Note that if the Supreme Court had held correct this particular portion of Habas Sinai, it would amount to overruling MR Engineers, since for MR Engineers the arbitration clause from the previous contract between the parties had to be directly referred to in the agreement. Another possible reason why the Supreme Court would not have addressed this aspect it because the question did not arise in the case before it.

3. The above argument raises another point of critique: MR Engineers was a decision rendered by a two-judge bench of the Supreme Court. If the two judge Bench in the instant case disagreed (even partly) with MR Engineers, the ideal course would have been to refer the matter to the Chief Justice for constituting a larger Bench to decide the important issue. Instead, the court has now sought not to follow a part of MR Engineers, which may not be consistent with the doctrine of precedents and judicial discipline. 

4. Look at what the court has done in this case. The contracts between the parties are of December 2012 and February 2013. On those dates, the decision of the SC in MR Engineers (which purportedly did not cover standard forms agreed between the parties) governed the field. By relying on the English case of Habas Sinai, the Court has applied English law to the parties when the Indian law should have governed the transaction! In other words, the parties could be hypothetically assumed to have acted drafted their agreement as per MR Engineers (given the Supreme Court's reading of MR Engineers), which meant that the parties would not have chosen to incorporate the arbitration clause even if they sought to incorporate other terms of the contract. Instead of recognising such a choice, would not the Court's reasoning be seen as imposing the developments in English law retrospectively on an agreement which was entered into between the parties based on Indian law prevailing as on that date (MR Engineers)?

Closing Remarks

In conclusion, although the eventual conclusion of the decision on facts seem to be right, the approach in reasoning seems to be wanting. In fact, the entire law on the issue requires reconsideration, especially as regards the sufficiency of a general reference to an earlier contract containing an arbitration clause in order to bind the parties to arbitration under the later contract.