Legalese – How is your drafting?

Published: 26/02/10

Whilst generic or broad references in agreements are often necessary (or an unfortunate by-product of expediently negotiated deals), a recent High Court decision has highlighted the importance of clear drafting to avoid misunderstandings between contractual parties (and unnecessary litigation). In this particular case, the High Court considered whether general words used in a contract were capable of incorporating an arbitration clause contained in other contracts between the parties. The relevant contract did not expressly contain an arbitration clause but rather referred to the words "All the rest will be same as our previous contracts". Interestingly, and despite the fact that some but not all of the previous contracts contained an arbitration clause, the High Court held that as the parties had previously included such provisions in their contracts and were aware of their existence, the arbitration clause could be incorporated. The case highlights the obvious fact that certainty is lost where general references and provisions are used in agreements but, more importantly, brings to life the real consequences which arise when certainty is challenged; if the commercial circumstances conspire, parties will litigate over even simple words like ‘All the rest will be same as our previous contracts’. While the party wishing to rely on the arbitration provision was clearly satisfied with the decision, this is unlikely to have been the case for the other party who may have assumed that the lack of such a provision in each previous contract meant it would not be applicable. Clearly, one way to have avoided all disputes about this clause would have been to set it out in its entirety (if, indeed, it was intended to include it in the first place).

By contrast, where the incorporation is of terms in a contract made between different parties (for example, where a bill of lading incorporates terms from a charterparty), it is more important to ensure that the parties intended to incorporate the arbitration clause, justifying a stricter test in such cases. Case: Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL [2010] EWHC 29 (Comm).

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