Case Note & Summary
The dispute arose from two contracts between the parties for the supply of HPS groundnut kernels. The first contract, dated January 12, 1980, included a clause referencing the FOSFA-20 contract, which contained an arbitration clause. The second contract, dated April 3, 1980, did not mention the FOSFA-20 contract. When disputes arose, Alimenta sought arbitration, while NAFED contended there was no valid arbitration agreement. The High Court partially allowed NAFED's petition under Section 33 of the Arbitration Act, ruling that the arbitration clause was incorporated into the first contract but not the second. Both parties appealed to the Supreme Court. The Supreme Court upheld the High Court's decision, affirming that the arbitration clause from the FOSFA-20 contract was incorporated into the first contract due to the parties' awareness of it. However, it ruled that the arbitration clause was not incorporated into the second contract as it was not a term of supply. The court emphasized that arbitration clauses are not inherently part of supply contracts and that parties may opt for different dispute resolution methods. The appeals were dismissed, and no costs were awarded.
Headnote
A) Arbitration Law - Incorporation of Arbitration Clause - Validity of Incorporation - Arbitration Act, 1940, Section 2 - The arbitration clause of an earlier contract can be incorporated into a later contract by reference, provided it is not inconsistent with the terms of the latter contract. The court held that the arbitration clause in the FOSFA-20 contract was incorporated into the first contract, as the parties were aware of it and it was not insensible or unintelligible (Paras 1(i), 1(ii)). B) Contract Law - Terms of Supply - Nature of Arbitration Clause - Arbitration Act, 1940, Section 2 - The court clarified that an arbitration clause is not a term of supply and does not automatically form part of contracts for the supply of goods. The parties may choose other methods for dispute resolution, and the normal incidents of supply do not include arbitration clauses (Paras 1(iii), 1(iv)).
Issue of Consideration
Whether the arbitration clause in the FOSFA-20 contract was incorporated into the subsequent contracts between the parties.
Final Decision
The Supreme Court dismissed both appeals, affirming the High Court's ruling that the arbitration clause was incorporated into the first contract but not into the second contract, as it was not a term of supply.
Law Points
- Arbitration agreement
- incorporation of arbitration clause
- supply contracts
- terms and conditions
- dispute resolution
