I. Introduction: 

In contemporary business landscapes, transactions often involve an intricate network of interwoven sub-transactions, reflecting the complexity of modern commerce. These transactions involve multiple stakeholders entering into multiple agreements, each contributing to a collective commercial objective. While some agreements in such transactions may have detailed provisions, including on dispute resolution, other agreements may simply address specific points and seek to incorporate other provisions from earlier agreements. Upon the occurrence of a dispute, a question often arises on whether the dispute resolution clause in an earlier agreement will be applicable for disputes arising under the later agreement. We examine the position under Indian law with reference to a recent judgement of the Indian Supreme Court, and also briefly explore the position in other Asian jurisdictions.

II. Position in India:

The Indian Supreme Court in the case of NBCC (India) Limited vs Zillion Infraprojects Pvt. Ltd., reiterated the position under Indian Law on incorporation of an arbitration clause by reference. 

NBCC (India) Limited (“NBCC”), a Government of India undertaking engaged in construction and other infrastructure projects, issued a tender for construction of a weir across Damodar River (“Project”). The tender documents included a General Conditions of Contract (“GCC”) that had been issued to NBCC by Damodar Valley Corporation. Zillion Infraprojects (“Zillion”) emerged as the successful bidder and was awarded a Letter of Intent dated 4 December 2006 (“LoI”) by NBCC in respect of the Project. The LoI specifically provided that all terms and conditions contained in the Tender Documents shall apply mutatis mutandis (to Zillion) except where they are expressly modified in the LoI. 

Disputes arose between the parties. The GCC, in clause 3.34, contained an arbitration clause which provided for arbitration by a sole arbitrator. Subject to the arbitration clause, courts in Kolkata were granted exclusive jurisdiction. On the other hand, the LoI, in clause 7, stipulated that courts in Delhi would have exclusive jurisdiction to resolve disputes under the LoI. Zillion invoked arbitration under Clause 3.34 of the GCC, and NBCC did not respond to Zillion’s notice. Consequently, Zillion filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”) before the Delhi High Court seeking appointment of an arbitral tribunal. 

The Delhi High Court allowed the application. NBCC had contented before the High Court that clause 7 of the LoI had expressly novated the arbitration clause in the GCC and therefore, the dispute should not be referred to arbitration. The Delhi High Court did not accept this contention and held that clause 7 only novated the choice of court mentioned in clause 3.34 of the GCC, and the arbitration clause continued to apply subject to such modification. Aggrieved by the order of the Delhi High Court, NBCC approached the Supreme Court.

NBCC argued that any dispute arising between the parties would fall before the exclusive jurisdiction of the civil courts in Delhi, inter alia on the grounds that:

1. Clause 7 of the LoI provided for redressal of disputes between NBCC and Zillion “only” through exclusive jurisdiction of civil courts in Delhi, and therefore modifies the dispute resolution mechanism provided under Clause 3.34 of GCC (Tender Documents).
2. A combined reading of clause 3.34 of the GCC and clause 7 of the LoI indicates a clear intention to exclude arbitration as a means of dispute resolution for disputes between NBCC and Zillion. 
3. A mere reference in the LoI to the terms and conditions contained in the GCC would not make the arbitration clause applicable to the LoI. Reliance was also placed on the Indian Supreme Court decision in M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd to contend that unless the arbitration clause in the GCC was specifically referred to in the LoI, the arbitration clause would not stand incorporated in the LoI.

To the contrary, Zillion contended that the Delhi High Court has rightly held the arbitration clause to be applicable, and that no interference was called for against its order. The Supreme Court commenced its analysis by examining its earlier decisions that dealt with the issue of incorporation of an arbitration clause by reference. 

In the M.R. Engineers case, the Supreme Court dealt with the interpretation of Section 7(5) of the Act (similar to Article 7(6) of the Model Law) on incorporation by reference. The Court laid down the following principles: 

1. An arbitration clause would get incorporated by reference if there is a clear reference to the documents containing the arbitration clause, such reference indicates an intention to incorporate the arbitration clause and the arbitration clause is capable of being applied to the dispute. When parties enter into a contract and only make a general reference to another contract, such a broad reference does not result in the inclusion of the arbitration clause from the referenced document into the contract between the parties.
2. When only a general reference to another document is made, the arbitration clause from such document may only be integrated into the contract if there is a specific mention of the arbitration clause in the contract.
3. If a contract stipulates that its execution or performance will adhere to another contract, which includes terms and conditions regarding performance and a provision for arbitration, then, only the terms of the referred contract regarding execution/performance will be applicable. The arbitration agreement within the referred contract will not be applicable unless specified.
4. If a contract specifies that the standard terms and conditions of an independent trade or professional institution will govern or apply to the contract, then those standard terms and conditions, including any provisions for arbitration contained within them, will be considered incorporated by reference. 
5. When the contract between the parties specifies that the conditions of contract of one party shall be included in their agreement, the arbitration clause contained within those general conditions of contract will be applicable to the contract between the parties.

In the subsequent judgement of Inox Wind Limited vs Thermocables Limited, the Supreme Court analysed the position under English Law. Referring to Sea Trade Martime Corporation v. Hellenic Mutual War Risks Association (Bermuda) Limited, The Athena, the Supreme Court explained the difference between incorporation by reference in a ‘single contract’ case and a ‘two contract’ case. It noted that if the parties to the document being referred to are the same, it would be a single contract case but if at least one of the parties to the document being referred to are different, it would be a ‘two contract’ case. It observed that after the decision in M.R. Engineers, the law had further developed, with English courts expanding the ‘single contract’ principle to include even standard forms/standard terms and conditions of one of the parties. Applying this to the facts before it, the Supreme Court in Inox held that an arbitration clause contained in a party’s standard terms and conditions that was attached and generally referred to in a purchase order would be applicable to disputes under the purchase order.

In NBCC v. Zillion, although a reference was made to standard terms, the standard terms were of a third party (i.e., Damodar Valley Corporation). Consequently, the Court held the present case to be a ‘two contract’ case. Further the court noted that the parties, by specifically stipulating an exclusive jurisdiction clause in the LoI, had made their intention of not incorporating the arbitration clause clear. Due to these reasons, the Indian Supreme Court overruled the Delhi High Court decision and held that the arbitration clause in the GCC did not stand incorporated into the LoI.

III. Other jurisdictions in Asia: 

English Law, as noted above, examines the issue of incorporation of an arbitration clause by reference on the touchstone of whether it is a ‘single contract’ case or a ‘two contract’ case. In most situations involving a ‘two contract’ case, a specific reference to the arbitration clause is required for a valid incorporation. Several arbitration friendly jurisdictions however have adopted a different approach. In Singapore for instance, the Court of Appeal, in International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd expressly deviated from English Law on this issue and ruled that the examination should be whether, having regard to the context and the objective circumstances surrounding the contract, the parties intended to incorporate an arbitration clause from a different contract. Therefore, even in a ‘two contract’ case, if on a contextual interpretation it is found that the parties did in fact intend to incorporate an arbitral clause, such clause would be valid and effective.

A similar approach has been adopted in Hong Kong. In Astel-Peiniger Joint Venture v. Argos Engineering, it was categorically held that a general reference to the terms of another contract is sufficient for the arbitration clause to be incorporated and that the contract/document referred to need not be between the same parties. It was further held that the analysis must be one of interpretation of the contract by ascertaining the intention of the parties.

Other jurisdictions however, have taken a more conservative approach to the issue. For instance, in DCC 1308/2020 the Dubai Court of Cassation was called upon to determine whether the general incorporation of the terms of the 1987 FIDIC Red Book Conditions of Contract (which is a commonly used standard form contract in construction projects) in a contract would also incorporate the arbitration clause contained therein. The Court of Cassation answered in the negative, holding that a general reference would be insufficient to hold that the parties had knowledge of the arbitration clause.

Comment and Conclusion:

Referring to and incorporating the terms of an existing contract is a commercial reality that is often unavoidable in a commercial transaction. While this is often seen in construction projects due to the involvement of several sub-contractors expected to operate within the bounds of a main contract, it may be unavoidable in other circumstances too. For instance, a person buying the shares of a party to an existing Shareholders’ Agreement in India is often called upon to execute a Deed of Adherence, confirming that it will be bound by all the terms and conditions of the Shareholders Agreement. If a specific reference is not made in the Deed of Adherence to the dispute resolution clause provided in the Shareholders’ Agreement, binding the new shareholder under such clause may prove to be problematic.

To avoid ambiguity and future litigation over the dispute resolution mechanism to be adopted by the parties in the event of a dispute, it is advisable to clearly and separately stipulate whether the arbitration clause in the contract being referred to is being incorporated.

Footnotes

[1] 2024 SCC OnLine SC 323 
[2] (2009) 7 SCC 696  
[3] UNCITRAL Model Law on International Commercial Arbitration, 1985 (as amended in 2006).  
[4] (2018) 2 SCC 519  
[5] [2006] EWHC 2530 (Comm). 
[6]  [2014] 1130 SLR  
[7] [1994] 3 HKC 328 
[8]  Dubai Court of Cassation Judgment No 1308/2020, 3 March 2021