England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL,
		27th February 2013

Mr C Edelman QC:

The application

1. This is an application by the Claimant ("Lisnave") under section 67(1)(a) of the Arbitration Act 1996 to set aside a First Interim Final Award dated 10 July 2012 ("the Award") in which the majority arbitrators (Messrs Bruce Buchan and Edward Mocatta) upheld the case of the Defendant ("CST") that the Tribunal had substantive jurisdiction over the claim which CST brought against Lisnave in purported arbitration proceedings under the terms of a written Ship Repair Fleet Agreement dated 11 September 2007 ("the Fleet Agreement"). The dissenting arbitrator, Mr Simon Crookenden QC, would have held that the Tribunal lacked jurisdiction.
2. The application is supported by the witness statement of Mr McKenzie of Lisnave's solicitors, to which there was a response from Ms Bandara of CST's lawyers.

The Issue

3. The issue is whether the Fleet Agreement incorporates the arbitration clause in Lisnave's General Conditions of Contract for Dry Docking, Conversion, Maintenance and Repair of Vessels and Off-shore Units ("the General Conditions"), notwithstanding the absence of any reference within it to the General Conditions.

The facts

4. The evidence before the Court is the same as the evidence before the Tribunal (with the exception of the few additional documents exhibited by Ms Bandara). The only evidence relied on by either party for the purposes of the hearing before me was documentary.
5. Lisnave's tender of 5 September 2005 specifically referred to the General Conditions ("subject to our Comments, Conditions and Notes..." ; "Acceptance of order is subject to... Yard's General Conditions for Construction, Conversion or Maintenance and Repair Work").
6. The General Conditions set out the detailed conditions to apply to "all contracts for the drydocking, conversion, maintenance, repair and/or other work ... which [Lisnave] carries out or causes to be carried out on or for" the specific Vessel, unless otherwise agreed (see Article 1.1).
7. The General Conditions then set out detailed provisions regarding the scope and performance of the contract work (Article 2), including provisions relating to the use of sub-contractors (Article 2.5) and authority to agree variations to the contract work (Article 2.6). Article 3 contains detailed provisions concerning delivery and re-delivery of the subject Vessel, including a force majeure provision (Article 3.7). Article 4 regulates drydocking. Article 5 deals with title to spare parts and surplus materials. Article 6 deals with authority to require movement of the Vessel (Article 6.1) and tests and trials (Article 6.2-6.4). Article 7 deals with the pricing for contract works, and Article 8 deals with payment (including provision for a lien at Article 8.3). Article 9 deals with guarantee work (i.e. work required to remedy any defect in the repair work carried out by Lisnave). Article 10 contains limitation provisions restricting Lisnave's liability. Article 11 regulates the cancellation and termination of the contract work. Article 12 sets out the requirements for Lisnave to carry shiprepairers' liability insurance (Article 12.1) and for Owners to maintain Hull and Machinery and Protection and Indemnity insurance and full coverage for any liability to Lisnave (Article 12.2). Article 13 deals with responsibility for safety and pollution whilst the Vessel is at Lisnave's yard. Article 14 deals with communications and notices. Article 15 deals with arbitration and legal proceedings. In addition to including a provision for London arbitration (Article 15.2), Article 15 also includes a provision which permits Lisnave to institute legal proceedings in any court of competent jurisdiction where the Vessel, or sister Vessel, may be found or where the customer may have assets or legal representation (Article 15.5).
8. The Fleet Agreement was to apply for a period of 12 months from 1 October 2007, renewable on an annual basis thereafter. It was duly renewed until it expired on 30 September 2012. By the Fleet Agreement, CST and Lisnave agreed certain commercial terms to apply in the future to dry-docking and repairs to CST's managed fleet. In particular, the Fleet Agreement set out terms relating to additional work, penalty/bonus payments for late or early completion, an invoice price discount, and a fleet rebate. The Fleet Agreement did not itself provide for any dry-docking or repair work to be carried out.
9. Following the Fleet Agreement, 12 individual ship repair contracts were concluded for repairs at Lisnave's yard. As with the prior practice, the relevant contracting parties were the individual shipowning companies (not CST) and Lisnave. The individual ship repair contracts also incorporated the General Conditions.
10. The Fleet Agreement provided, in Clause J, for certain Fleet Rebates to be paid by Lisnave. The dispute which CST has sought to refer to arbitration is a claim by CST for Fleet Rebate said to be due under the Fleet Agreement in respect of the years October 2007/September 2008, October 2008/September 2009 and October 2009/September 2010.
11. Whilst the Fleet Agreement as drawn up did not itself contain an express arbitration agreement, CST's case is and was before the arbitrators that the arbitration agreement contained in Article 15.2 of the General Conditions was incorporated into the Fleet Agreement by virtue of the parties' prior course of dealing and/or because it was the clear intention of the parties that the Fleet Agreement was to be subject to Article 15.2 of the General Conditions.

The terms of the Fleet Agreement and the Arbitration Agreement

12. The Fleet Agreement provided as follows:

"This agreement is made on 11^th September 2007

Between:

Lisnave...

And

Chemikalien Seetransport GMBH
(hereinafter referred to as the "Owners")

B. Pricing

Dry-docking and repairs to the Owner's fleet of vessels will be carried out under the terms of this Agreement, and the Prices, Terms, and Conditions quoted for individual vessels as may be requested by the Owners.

C. Additional Work

Prices for additional work will be processed within 24 hours after receipt of request from Owners Representative.

D. Delivery

The Yard will quote the delivery time based on two shift working (Monday-Friday) and week-end working as required to meet vessel's commitments.

E. Penalty/Bonus

The Yard will accept a Penalty Clause for late delivery for work not completed by the agreed delivery time. The daily rate of Penalty shall be agreed on a vessel by vessel basis.

F. Payment terms

Total agreed invoice amount to be paid as follows:

- Forty (40) pct upon completion of repairs.

- Thirty (30) pct within 30 days after completion of repairs.

- Balance within 60 days after completion of repairs.

G. Organisation & Planning

The Yard will appoint an exclusive Project Management Team for the Management of the repair contract on each and all of the Owners' vessels.

... The Owners will provide the yard with a schedule of the vessels due for repairs during the period of this Agreement...

H. Service Engineers and Subcontractors

...Owners' subcontractors will be permitted to work on board vessel subject to mutual agreement on a case by case basis.

I. Vessel Discount

A discount will be applied to the Final Agreed Invoice Value for each vessel as follows:

Final Agreed invoice value	Discount
Below €500,000	Nil
€500,000 to €1,000,000	Three (3) percent
Over €1,000,000	Five (5) percent

J. Fleet Rebate

In addition to the Vessel Discount, the Yard will grant proportionately to each vessel on the accumulated net invoice value on a year by year basis as follows:

Accumulated final net invoice value	Rebate
0- Euro 1,000,000	Nil
Euro 1,000,000-Euro 3,000,000	Four (4) percent
Euro 3,000,000-Euro 5,000,000	Six (6) percent
Over Euro 5,000,000	Ten (10) percent

K. First Refusal

Based on the vessel repair schedule supplied by the Owners (Clause G) the Yardwill offer the Owner first refusal of drydock available and manpower capacity.

The Owner will grant first refusal to the Yard of any vessel trading in Yard's catchment area. "

13. The General Conditions provided as follows:

"Article 15

ARBITRATION AND LEGAL PROCEEDINGS

15.1 The Agreement shall be governed by and construed in accordance with the laws of England and Wales.

15.2 All disputes arising in connection with the Agreement shall be referred to arbitration in London and be conducted in the English language in accordance with the Arbitration Act 1996. ...

15.5 Lisnave may, notwithstanding any of the aforesaid provisions of this Article institute legal proceedings in any court of competent jurisdiction where the Vessel or any sister vessel is to be found or where the customer may have other assets or legal representation, in order to enforce its rights under the Agreement and in particular any claims for payment under Article 8.

15.6 In particular, but without limitation to the generality of the provisions of Article 15.5 above, Lisnave may, in its absolute discretion, institute proceedings in the Maritime Tribunal of the Judicial District of Lisbon, Portugal, in order to enforce its rights under the Agreement and in particular any claim for payment under Article 8. "

The course of the arbitration and the Award

14. CST gave notice of appointment of Mr Mocatta as its party-appointed arbitrator by Fleet Hamburg LLP's letter dated 30 January 2012. By a letter dated 3 February 2012, Lisnave gave notice of its appointment of Mr Crookenden QC as Lisnave's party- appointed arbitrator "expressly without prejudice to, and subject to, our client's position that there is no arbitration agreement between our respective clients and our clients' right to challenge the jurisdiction of the arbitration tribunal (and any decision by the arbitration tribunal that it has jurisdiction in any appropriate forum or court". On 20 February 2012, the two party-appointed arbitrators appointed Mr Bruce Buchan to be third arbitrator and chairman.
15. The parties agreed that it made sense for the Tribunal first to determine whether there was an agreement to arbitrate and the tribunal agreed to adopt that course.
16. In due course, written submissions were exchanged on the jurisdiction issue and, with the agreement of the parties, the Tribunal reached its decision on the basis of those written submissions.
17. By the Award, the majority (Messrs Buchan and Mocatta) held that the tribunal did have substantive jurisdiction and that the Fleet Agreement did incorporate the General Conditions and therefore did provide for arbitration. Mr Crookenden QC dissented, setting out in a Dissenting Opinion his reasons for concluding, in accordance with Lisnave's submissions, that the Fleet Agreement did not incorporate the General Conditions and did not provide for arbitration of disputes.
18. Lisnave issued its challenge to the Award by its Arbitration Claim Form issued on 27 July 2012. That challenge requires the Court to re-hear the issue and this is not an appeal against or review of the Tribunal's decision: Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan. [2010] UKSC 46, paras 26 and 96.

The law

19. It is agreed between the parties that the question of whether the General Conditions (including the arbitration clause in Article 15) have been incorporated into the Fleet Agreement is to be determined by reference to English law.

(a) Implied Terms

20. CST's case is that the arbitration agreement contained in Article 15.2 of the General Conditions was incorporated into the Fleet Agreement by virtue of the parties' prior course of dealing and/or because it was the clear intention of the parties that the Fleet Agreement was to be subject to Article 15.2 of the General Conditions. In his submissions, Mr Smith for CST made it clear that the reference to "the clear intention of the parties" was merely intended to encapsulate what lay behind the "prior course of dealing" principle rather than being an alternate way of putting the case.
21. It was not and could not be disputed by Lisnave that standard terms can be implied into a contract when parties have consistently on former and similar occasions adopted a particular course of dealing but Lisnave contended that the facts of this case did not justify the implication of Article 15.2.
22. In McCutcheon v David Macbrayne Ltd [1964] 1 WLR 125 (HL), Lord Reid stated the course of dealing principle as follows (p. 128):

"The only other ground on which it would seem possible to import these conditions is that based on a course of dealing. If two parties have made a series of similar contracts each containing certain conditions, and then they make another without expressly referring to those conditions it may be that those conditions ought to be implied. If the officious bystander had asked them whether they had intended to leave out the conditions this time, both must, as honest men, have said "of course not. ""

23. In SIAT v Tradax [1978] 2 Lloyd's LR 470 (affirmed by the Court of Appeal: [1980] 1 Lloyd's Rep 53), Donaldson J expressed the test at p 490 in similar terms:

" Would the parties have agreed that a particular term formed part of the contract if they were reasonable men looking at the matter objectively in the knowledge that no adverse consequences could flow from the answer... The term will only be contractual if the parties' answer would have been a definite "Yes". "Possibly" will not do. "

24. The incorporation of terms by a prior course of dealing is a question of fact and degree. It will depend, amongst other things, on the number of previous contracts, how recent they are, and the similarity in terms of subject matter and the manner in which they were concluded: see Capes (Hatherden) Ltd v Western Arable Services Ltd [2010] Lloyd's LR 477 at [35] per HHJ Havelock-Allan QC.
25. It is not necessary for the parties to the prior course of dealing to be exactly identical to the parties to the contract under consideration. In SIAT v Tradax at p490, Donaldson J stated:

"Does it matter that previously the buyers either dealt with a different Tradax company or in a different commodity and not on CIF terms? The Board of Appeal thought not and I can see no reason to disagree. It is noteworthy that the broker's telex never identified the Tradax company concerned. This was left to the sellers ' agents. I have no doubt that it was immaterial to the buyers. They were dealing with the Tradax organisation and which member of the clan was the seller really did not matter. "

26. The principles governing the implication of terms into contracts were recently examined by Lord Hoffmann in the Privy Council case of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988 and were referred to with approval and explanation by the Court of Appeal in Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Ltd [2009] 2 Lloyd's Rep 639. In Belize, Lord Hoffmann referred with approval (at paragraph 19) to the speech of Lord Pearson in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609 (with whom Lord Guest and Lord Diplock agreed) stating as follows:

"[T]he court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves"

27. At Paragraph 17, Lord Hoffmann also stated as follows:

"The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. "

28. At Paragraph 18, Lord Hoffmann went on to explain:

In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.

29. The question is not therefore whether it would have been reasonable for the parties to have agreed to incorporate into the Fleet Agreement the arbitration clause in the General Conditions. Rather, the question is whether the parties to the Fleet Agreement must have intended to include the arbitration clause in the General Conditions.

(b) Arbitration agreements

30. In Fiona Trust & Holding Corporation v Privalov [2008] 1 Lloyd's Rep 254 at paragraph 13 Lord Hoffmann said:

"In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrators' jurisdiction. "

31. The context for Lord Hoffmann's comments was the approach to be taken when construing arbitration agreements, but Mr Smith for CST relied on what he submitted was the logic underlying those comments as being equally relevant when considering whether or not an arbitration agreement is to be incorporated into a particular contract in circumstances where the parties to that contract have a pre-existing relationship which is of direct relevance to the contract. He also relied on Hamblen J's observations in Stellar Shipping Co LLC v Hudson Shipping Lines [2012] 1 CLC 476 that:

"56. Similar considerations apply by analogy here. Given the close connection between the COA and the guarantee, and between the parties involved, one would expect them as rational businessmen to agree a common method of dispute resolution. It is correct that since there are separate arbitration agreements there would, absent agreement, be separate arbitrations but one would expect, in the interests of efficiency, expediency and costs, for there to be common tribunals, as indeed there are. It would be surprising to find that the parties actively agreed that the COA was to be subject to English law and arbitration but that they wished to have any dispute under the linked guarantee determined by some unspecified court in some unspecified jurisdiction according to some unspecified governing law. "

Lisnave's case

32. Mr Lockey QC for Lisnave submitted that there are a number of reasons why CST is unable to establish that CST and Lisnave must have intended that the Fleet Agreement would incorporate Article 15.2:

(1) The Fleet Agreement is, on its face, a complete contract. It is self-contained and detailed. It appears to have been carefully drafted and properly executed. It is not comparable with the informal forms of contract considered in the course of dealing cases: for example, the contract concluded by telephone in the SIAT case.

(2) The Fleet Agreement is a different type of contract to the individual ship repair contracts. It does not form part of a series of individual ship repair contracts. It does not require any ship repair work to be carried out. The Fleet Agreement regulates a different commercial relationship, that between Lisnave and CST as the fleet manager. It is far from obvious why any of the provisions of the General Conditions which apply to individual ship repair contracts should be incorporated into the Fleet Agreement.

(3) The course of conduct on which CST relies did not involve contracts to which CST was itself a party. As fleet manager and agent of the individual shipowning companies, CST was not a party to any of the prior contracts and did not incur any liability under those contracts. Although in SIAT v Tradax the Court held that a course of dealing applied even though the dealings had been with different companies within a group, the facts of that case were very different from this case. In SIAT v Tradax. SIAT had traded with a number of individual Tradax trading companies in the Tradax group in 81 prior transactions. In each case, the relevant contract included the Tradax documents clause. It was held not to matter which Tradax trading company had concluded the 82^nd contract. Here, CST was the fleet manager and agent of the shipowning companies and was not another individual shipowning company, incorporated in Liberia or some other convenient location. It is a German company that was responsible for managing the fleet. There was no relevant course of dealing by reference to which CST as fleet manager, and Lisnave, agreed to submit their disputes to arbitration.

(4) The General Conditions by their own terms are limited in intended scope. The General Conditions are inapposite to apply to anything other than contracts for dry-docking and ship repair. They are not general conditions of trading, capable of general application. The General Conditions are entitled "General Conditions of Contract for Drydocking, Conversion, Maintenance and/or Repair of Vessels and Off-Shore Units". By their own terms, they are to apply to "all contracts for dry-docking, conversion, maintenance, repair and/or other work" carried out by Lisnave (Article 1.1). The Fleet Agreement is not such an agreement but is an agreement primarily concerned with the commercial terms on which repair services will be offered in the future and the provision of a fleet discount. It is far from obvious why the parties to the Fleet Agreement would have wished to incorporate any of the provisions from the General Conditions.

(5) Almost all of the terms of the General Conditions have no relevance to the Fleet Agreement and would make no sense if incorporated into the Fleet Agreement. Those provisions which regulate the repair work to be carried out by Lisnave, and the relative responsibilities of Lisnave and the vessel owner, have no applicability to the Fleet Agreement. Article 8 of the General Conditions, governing payment to Lisnave, has no applicability to the Fleet Agreement under which no payments to Lisnave are contemplated. Article 14.3 would make no sense if incorporated into the Fleet Agreement.

(6) The Fleet Agreement does not even include an agreement that the General Conditions should apply to future repair contracts for CST managed Vessels. Under Article B of the Fleet Agreement, Lisnave and the individual shipowning companies are free to agree any "Prices, Terms and Conditions" for future repair contracts. The fact that there is no commitment to apply the General Conditions to future repair contracts is inconsistent with the notion that the Fleet Agreement in some way incorporates all or even some of the General Conditions.

(7) Article 15 of the General Conditions is itself inapposite for incorporation into the Fleet Agreement:

a. Article 15.2 refers to the arbitration of all disputes arising "in connection with the Agreement". "The Agreement" is a defined term in the General Conditions: see Article 1.2. It means "the invitation to tender, Lisnave's tender and any amendments thereto, these General Conditions and any Special Conditions duly confirmed and agreed in accordance with the provisions of Article 2". It would make no sense to incorporate into the Fleet Agreement a provision which references invitations to tender, the tenders, amendments thereto and any Special Conditions.

b. Article 15.5 permits Lisnave to institute Court proceedings "in order to enforce its rights under the Agreement" and Article 15.6 permits Lisnave to commence proceedings in Portugal, notwithstanding the provision for arbitration in Article 15.2.

c. Insofar as CST contends that it is only part of Article 15 (ie Article 15.2) that is incorporated, without the definition of "the Agreement", it is far from obvious, that Lisnave and CST must have intended the Fleet Agreement to include part (but not all) of the dispute resolution provisions in the General Conditions.

(8) The Fleet Agreement is perfectly workable without any arbitration clause, still less the arbitration clause in the General Conditions which applies to individual ship repair contracts. Many perfectly workable commercial contracts are concluded every day without an arbitration clause. Furthermore, the fact that disputes between Lisnave and individual shipowning companies concerning an individual ship repair contract should be arbitrated does not compel the conclusion that disputes between Lisnave and CST concerning the subject matter of the Fleet Agreement must also be subject to the same method of dispute resolution, i.e. by arbitration.

(9) Ms Bandara's Witness Statement exhibits some further documents to support the proposition that "there is a close, and actually inextricable, relationship between the Fleet Agreement and the individual ship repair contracts" (paragraph 10 of the Witness Statement). Whether there is a "close" or even "inextricable" relationship between the ship repair contracts and the Fleet Agreement is beside the point; the closeness or otherwise of the relationship is not the test. In any event, the relative weakness of the link is illustrated by the fact that the Fleet Agreement did not even require the application of the General Conditions to specific individual ship repair contracts. The question in law is whether Article 15 is incorporated into the Fleet Agreement because that was what the parties must necessarily have intended.

(10) When CST pressed its claim under the Fleet Agreement, CST's lawyers invited Lisnave to agree London arbitration, implicitly acknowledging that this was not something which CST could compel. These invitations are not consistent with CST's current case that the Fleet Agreement obviously incorporated the General Conditions and Article 15.2 in particular.

(11) Even if there had been general words of incorporation in the Fleet Agreement, referring to the General Conditions, it is doubtful that this would have been sufficient to incorporate the arbitration clause, Article 15.2, as a matter of English law.

CST's case

33. Mr Smith relied on the following factors:

(1) At the time the Fleet Agreement was concluded, the parties had concluded some 8-12 individual ship-repair contracts and these contracts made it clear that Lisnave provided its services subject the General Conditions and/or that any contract with Lisnave was subject to acceptance of the General Conditions.

(2) CST having negotiated the ship-repair contracts, and CST and the ship-owning companies having an identity of interest, the parties to the Fleet Agreement and the ship-repair contracts were, for all practical purposes, one and the same. In any event, the decision in SIAT v Tradax makes it clear that in the context of the incorporation of terms via a prior course of dealing, it is not essential that the parties to the immediate contract must be exactly the same as the parties to the prior course of dealing. It is sufficient if they are part of the same "clan". CST, as manager of the fleet, is part of the same "clan" as the ship-owning companies whose vessels make up that fleet (indeed, CST, given their managerial capacity, could be said to be the head of that clan).

(3) The General Conditions are germane to the Fleet Agreement. The Fleet Agreement contains various General Conditions which clearly are intended to apply as between Lisnave and the ship-owning companies (for instance Article F can only be construed as applying to payments to be made to Lisnave under the ship-building contracts and not payments under the Fleet Agreement as CST undertakes no obligation in the Fleet Agreement to make any payments to Lisnave). The General Conditions likewise stipulate the terms which govern the underlying ship-repair contracts. Furthermore, Article 1.1 of the General Conditions should be construed so as to apply to contracts in relation to drydocking etc, thereby encompassing the Fleet Agreement. Accordingly, save to the extent that they contradict the terms of the Fleet Agreement, the General Conditions must be germane to the Fleet Agreement.

(4) Even if most of the General Conditions are not germane to the Fleet Agreement, this is not a bar to the incorporation of Article 15.2 into the Fleet Agreement. It is entirely justifiable to conclude that the parties intended to incorporate the arbitration agreement contained in Article 15.2 into the Fleet Agreement but none of the other General Conditions. It is a standard feature of the process of incorporating terms from one contract into another of identifying which terms in the former are germane to the latter and only incorporating such terms. As such, the fact that there are terms in the contract being incorporated which have no relevance to the incorporating contract cannot be regarded as a basis for asserting that no terms should be incorporated whatsoever.

(5) The Fleet Agreement was not a standalone agreement and had no independent purpose or vitality without the individual ship-repair contracts. Rather, the Fleet Agreement was premised on further individual ship-repair contracts being concluded and sought to regulate the terms of such agreements. The purpose of the Fleet Agreement must have been to dictate the terms on which Lisnave were to offer to perform repair works to CST's vessels. If Lisnave truly was free subsequently to offer to perform ship-repair works only on terms which were inconsistent with the Fleet Agreement, the Fleet Agreement would be an entirely meaningless transaction. Further, whilst the Fleet Agreement did not expressly provide that the General Conditions were to apply to the subsequent ship repair contracts, the parties were aware that Lisnave insisted on contracting subject to the General Conditions, and that the General Conditions included an English arbitration clause. As such, the Fleet Agreement was inextricably linked to the individual ship-repair agreements and there is no reason to think that the parties, so far as law and jurisdiction was concerned, would want to treat the Fleet Agreement any differently to the individual ship-repair contracts.

(6) This conclusion is consistent with the views expressed by Lord Hoffmann in The Fiona Trust to the effect that rational businessmen are usually to be assumed to intend for any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. The Fleet Agreement and individual ship-repair contracts form part of the same relationship between CST (whether acting in its own right or as agents for the individual ship-owning companies) and Lisnave, and hence it should be assumed that the parties intended any dispute arising out of that relationship to be decided by the same tribunal.

(7) Therefore, at the time the Fleet Agreement was concluded, the parties must have intended for any disputes thereunder to be resolved in the same way and in the same forum as any disputes under the individual ship-repair contracts, i.e. in arbitration by reference to English law as required by Article 15.2.

(8) A dispute under the Fleet Agreement is a dispute arising in connection with "the Agreement" for the purposes of Article 15.2. Article 1 of the General Conditions defines "the Agreement" as meaning "the invitation to tender, Lisnave's tender and any amendments thereto, these General Conditions and any Special Conditions agreed in accordance with the provisions of Article 2". Article 2.2 defines "Special Conditions" as "amendments to these general conditions". Accordingly, in circumstances where the Fleet Agreement clearly did vary the General Conditions (for instance Article 8 thereof relating to the time for payment of Lisnave's invoice), the Fleet Agreement amounted to "Special Conditions" and hence fell within the definition of "the Agreement" for the purposes of Article 15.2.

(9) Even if the Fleet Agreement does not fall within the General Conditions' definition of "the Agreement", this is not a bar to its incorporation into the Fleet Agreement. When incorporating terms from one contract to another it is permissible to apply a degree of verbal manipulation to those terms to bring them into line with the intentions of the parties to the latter contract. For instance, where a bill of lading purports to incorporate an arbitration or jurisdiction clause in a charter, the fact that that clause only refers to disputes under "the charter" being referred to arbitration is not a bar to its incorporation into the bill of lading. In such circumstances, the charter's arbitration clause will, within the context of the bill of lading, be construed or manipulated so as to be taken to refer to disputes under the bill of lading, see Stellar Shipping at paragraph 63(e).

(10) The views of the parties' lawyers, expressed some 4 years after the conclusion of the Fleet Agreement, can be of no assistance in ascertaining the parties' intentions at the time that agreement was concluded. In any event, the suggestion that CST's lawyers somehow acknowledged that Article 15.2 did not form part of the Fleet Agreement is incorrect.

(11) If there had been general words of incorporation, the inextricable links between the Fleet Agreement and the ship-repair contracts would mean that this is not a case where it was appropriate or necessary for the parties to have expressly referred to the arbitration agreement in the Terms and Conditions in order for the Court to be satisfied that they intended to incorporate it into the Fleet Agreement. In any event, an express reference in contract A to the arbitration agreement in contract B is not an immutable requirement for the incorporation of the arbitration agreement into contract A, see IRCP v Lufthansa Systems [2013] 1 Lloyd's Rep. 24 at paragraph 82 et seq.

34. The consequences of Article 15 of the General Conditions not being incorporated into the Fleet Agreement reinforce the point. Given that the effect of the Fleet Agreement was to regulate in advance the terms of any subsequent ship-repair contracts, a dispute as to the true meaning and effect of the provisions of the Fleet Agreement could arise under both the Fleet Agreement itself and under any subsequently concluded ship- repair contracts. For instance:

(1) Article F of the Fleet Agreement defines when payment of any sums due to Lisnave under any subsequent ship-repair contracts must be made.

(2) In circumstances where the subsequent ship-repair contracts were negotiated by CST, and where the terms of the Fleet Agreement would have formed part of the matrix of fact against which those contracts were concluded, the obligations contained in Article F of the Fleet Agreement must have formed part of the subsequent ship-repair contracts.

(3) Accordingly, to the extent that a dispute arose as to when the ship-owning companies were due to make payment to Lisnave Under the subsequent ship- repair contracts, that dispute would be capable of giving rise to an issue about the true construction of article F of the Fleet Agreement under both the Fleet Agreement and the individual ship-repair contracts.

(4) Article I of the Fleet Agreement is another example of a provision which could give rise to disputes under both the Fleet Agreement and any subsequent ship repair contracts as it clearly affects the overall amount that Lisnave would be entitled to charge the ship-owning companies under those contracts.

35. If Article 15 of the General Conditions was not incorporated into the Fleet Agreement:

(1) Any disputes under the Fleet Agreement would in all likelihood be subject to the jurisdiction of the Portuguese courts (by virtue of Lisnave being domiciled in Portugal and/or Portugal being the place of performance of the contractual obligation in question, i.e. the repair work to the vessels).

(2) Further, the Fleet Agreement would, in all likelihood, be subject to Portuguese law pursuant to Article 4 of the Rome Convention 1980. If the parties did not intend for the Fleet Agreement to be subject to the same jurisdictional regime as the individual ship-repair contracts, then there is no reason for concluding that the parties impliedly chose English law as the proper law of the Fleet Agreement or that the laws of England and Wales are the most closely connected with the Fleet Agreement (for the purposes of Articles 3-4 of the Rome Convention).

(3) Accordingly, if a dispute arose as to the true meaning and effect of the provisions of the Fleet Agreement then:

(i) In the event of that dispute arising under the Fleet Agreement, it would in all likelihood be decided by the Portuguese courts as a matter of Portuguese law.

(ii) In the event of that dispute arising under the individual ship-repair contracts, it would be decided by English arbitration as a matter of English law.

(iii) In such a scenario, there would be the risk of inconsistent judgments and the risk of the provisions of the Fleet Agreement bearing one meaning in the context of the Fleet Agreement itself and another meaning in the context of the individual ship-repair contracts.

(4) This cannot be what the parties intended, see the Fiona Trust and IRCP v Lufthansa [2013] 1 Lloyd's Rep. 24 at paragraphs 73 and 76, a decision of the High Court of Singapore.

Discussion

36. As Mr Lockey rightly pointed out, the case advanced by CST is a very unusual one. This is not a case of an informal contract which follows a succession of more formal contracts in which a set of terms has been incorporated but rather involves a formal and detailed contractual document which does not even contain a reference to the General Conditions. Furthermore, CST does not seek to argue for the incorporation of the General Conditions as a whole, as it is recognised that they are not relevant to the Fleet Agreement, but seeks only to pluck out from the General Conditions for incorporation the arbitration clause in Article 15.2. That is not to say, of course, that the principles on which terms can be implied into a contract cannot apply so as to achieve the result contended for by CST but these factors do make it necessary to exercise even greater caution than might otherwise be the case before the Court can reach a conclusion that the parties intended to incorporate into their contract a clause to which they had not referred in the contract itself.
37. Mr Smith sought to suggest that as in this case CST is seeking to incorporate a clause from Lisnave's General Conditions, in contrast to the usual "course of dealing" case in which the party seeking incorporation will be seeking the incorporation of its own standard terms, the Court ought to be less reluctant to imply terms into the contract than it might ordinarily be in a "course of dealing" case. However, this seems to me to misunderstand the reason for the inherent caution that a Court has in implying terms into a contract. That caution is not based on some concept of "contra proferentem" but is based on the more fundamental principle that a Court should accord priority to what the parties have expressly agreed and should not readily supplement what they have expressly agreed with terms which were not expressly agreed. Hence the refusal of the Courts to imply terms merely on the grounds that they would be reasonable terms for the parties to have included or on the grounds that the parties would have agreed to the terms had they not overlooked the point.
38. The possibility of oversight must always be borne in mind. There is a fundamental difference between implying a term or terms in circumstances where the parties regarded the application of the term(s) as being obvious and had not expressly mentioned the application of the term(s) because application of the term(s) had been assumed and intended by both parties (the classic 'course of dealing' case) and implying a term in circumstances where the parties cannot be regarded as having formed any intent about the matter and the most that can be said is that if they had thought about it, it is likely that they would have agreed to the application of the term(s).
39. Caution also needs to be exercised when applying what was said by Lord Hoffmann in the Fiona Trust case and by Hamblen J in the Stellar Shipping case as quoted earlier in this Judgment. It is one thing to seek to make sense, as a matter of construction, of arbitration clauses to which the parties have expressly agreed by reference to assumptions as to what the parties, as rational businessmen, are likely to have intended but it is an entirely different matter to apply that line of reasoning to the incorporation of arbitration clauses to which the parties have not expressly agreed. To adopt such an approach would run the risk of lowering the bar for the implication of terms to the standard of reasonableness rather than necessity or obviousness which are the requirements for the implication of a term under English law. The same caution falls to be applied to what was said in IRCP v. Lufthansa. I use the word "caution" because it is possible that the assumption as to what the parties, as rational businessmen, are likely to have intended can assist in answering the question as to whether the application of a term was so obvious that it went without saying but to avoid the risk of terms being implied merely on the grounds that they would be reasonable terms for the parties to have agreed, something more would be required than merely an assumption of likely intent based on the behaviour of a rational businessman. Even rational businessmen sometimes overlook things or have views or thoughts which do not accord with the norms of a rational businessman. Indeed, entrepreneurial success can sometimes be associated with what at the time might have seemed to be irrational risk-taking.
40. At one stage in his submissions, Mr Smith appeared to be advancing an argument that the "officious bystander" test could be satisfied by showing which one of several possible solutions would without doubt have been preferred by the parties. In that context, he referred to a quotation from Trollope & Colls Limited v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 contained in the judgment of Lord Clarke MR in Mediterranean Salvage & Towage Limited v. Seamar Trading & Commerce Inc [2009] 2 Lloyd's Rep 639 [18]. However, he ultimately accepted that in order to be faithful to the "officious bystander" test, the parties' intent as to the preferred solution must have been a pre-existing intent and cannot have been formed in response to the alternatives being put to them by the officious bystander. He was right so to accept, because if the latter was the position, the inference would be that the parties had overlooked the matter until their attention was drawn to it by the officious bystander and had only then formed an intent as to the term to be included in their contract. The Courts do not remedy such oversight by the implication of terms.
41. Focussing, therefore, on the question whether it is obvious that the parties intended Article 15.2 of Lisnave's General Conditions to apply to the Fleet Agreement, it seems to me to be impossible to conclude that it is obvious. Although Mr Smith was right to say that there is a strong inter-relationship between the Fleet Agreement and the ship- repair contracts that were to be entered into following the Fleet Agreement, the interrelationship is as to the effect of the terms of the Fleet Agreement on the terms of each individual ship-repair contract. The relationship does not flow the other way, in that the ship-repair contracts entered into after the date of the Fleet Agreement have no impact or effect on the Fleet Agreement.
42. The issue between the parties which CST has sought to refer to arbitration is whether Clause J of the Fleet Agreement confers rights on CST. If it does, then the accumulated net invoice value under the ship-repair contracts would affect the availability and amount of the rebate to be allowed under Clause J. However, that is very different from the type of effect that the Fleet Agreement has or seeks to have on individual ship-repair contracts.
43. Furthermore, whilst I have been asked to and do assume (because it is the subject of the substantive dispute between the parties) that Clause J of the Fleet Agreement can confer rights on CST in respect of the fleet rebate, Clause J is expressed on the basis that the rebate will be granted "proportionately to each Vessel". The premise therefore appears to be that the rebate would be allocated proportionately to each vessel whose invoice contributed to the accumulated net invoice value which gave rise to the fleet rebate. On a practical level, although I would expect CST to be coordinating the recovery of the fleet rebate, Clause J seems to me to be addressing the granting of a rebate against individual invoices and the parties with the primary interest in the recovery of the rebate would be the ship owners who were obliged to pay the invoice rather than CST which was not.
44. Mr Lockey submitted that the fact that lawyers could construct arguments for a basis on which CST might have a claim under the Fleet Agreement (in this case in relation to Clause J) should not detract from the reality that the Fleet Agreement is seeking to govern the terms on which ship-repair contracts are entered into and that the parties must primarily have been contemplating that any disputes arising from the terms of the Fleet Agreement would be disputes between Lisnave and the individual ship owners in relation to actual or proposed ship-repair contracts. I accept that submission.
45. Although I am prepared to proceed on the basis that there was at least the potential for some dispute between CST and Lisnave as to the application of the terms of the Fleet Agreement or as to their operation, it is not obvious that this would have been at the forefront of the parties' minds and it seems to me that, objectively, it is quite possible that they simply did not address their minds to the question, perhaps assuming that if there was any substantive dispute it would be primarily relevant to the rights and obligations of Lisnave and the ship owners under individual ship-repair contracts and could be dealt with under those individual contracts. Even if they had addressed their minds to the prospect of such a dispute, it is not obvious that Lisnave would have been willing to forego such right as it would have to sue or be sued in Portugal. Further, I regard Mr Smith's submissions as to the potential complications that could arise if Article 15.2 did not apply to the Fleet Agreement as requiring the parties to have had a legalistic thought process which it is not obvious to me that they would have had.
46. I also accept Mr Lockey's submission that the language of Clause B of the Fleet Agreement is not consistent with an intention to incorporate any part of the General Conditions. Although the course of dealing may have given rise to an expectation that the "Conditions" referred to in Clause B would be the General Conditions, it did not stipulate that the General Conditions as they existed at the time of the Fleet Agreement would apply and left open the possibility of variations to the General Conditions either being negotiated and agreed or being stipulated by Lisnave (the version of the General Conditions in force at the time of the Fleet Agreement was the "Lisnave Conditions (Re-Amended) - 9 Dec 03" version).
47. The above analysis is sufficient to answer the question posed by this application in Lisnave's favour. However, I would add that I accept and adopt the other reasons given by Mr Lockey as set out earlier in this Judgment for rejecting the incorporation of Article 15.2, save that I do not consider that the contents of the letters written by CST's lawyers after the dispute had arisen are either relevant or necessarily supportive of Lisnave's case and that it is unnecessary for me to consider what the position would have been had there been general words of incorporation of the General Conditions. The only aspects on which I need to elaborate are as follows:

(1) Article 1.1 of the General Conditions provides for the General Conditions to apply to all contracts "for" dry docking etc. and the Fleet Agreement is not a contract "for" such work, with the result that the General Conditions are inapposite for application to the Fleet Agreement. Mr Smith sought to get round this point by equating the word "for" with "in relation to" so as to encompass the Fleet Agreement. Such a watering down of the effect of the word "for" is not tenable in the context in which the word is used. In its context, "for" is plainly intended to mean and only to mean "for".

(2) I agree with Mr Lockey's submission and reject Mr Smith's contrary submission that the words "arising in connection with the Agreement" in Article 15.2 are not wide enough as they stand to apply to the Fleet Agreement. Mr Smith sought to rely on the inclusion in the General Conditions within the definition of "Agreement" of "Special Conditions" and the definition of "Special Conditions" as meaning "any conditions by way of amendment to or in addition to those General Conditions" as being sufficient to encompass the Fleet Agreement as a whole. That does not seem to me to be the appropriate construction. What the definition of "Special Conditions" does is to ensure that any terms adopted as part of the ship-repair contract by way of amendment to or in addition to the General Conditions will be within the ambit of the "Agreement" for the purposes of the General Conditions and therefore for the purposes of Article 15.2. Those words are not sufficient to apply to the Fleet Agreement which is merely the source of the supply of amendments or additions to the General Conditions for the purposes of a particular Ship-Repair Contract. That would not of itself prevent the incorporation of Article 15.2 into the Fleet Agreement because, as Mr Smith rightly pointed out, if it was obvious that the parties intended Article 15.2 to apply, it could be read into the Fleet Agreement with appropriate manipulation but the fact that CST's case requires Article 15.2 of the General Conditions not only to be plucked out of the General Conditions for incorporation into the Fleet Agreement but also to be manipulated so as to fit into the Fleet Agreement makes it all the less obvious that the parties intended the clause to apply.

(3) The plucking out of Article 15.2 of the General Conditions is all the more difficult when it appears as part of a set of dispute resolution provisions which include Articles 15.5 and 15.6. Mr Smith sought to treat Articles 15.5 and 15.6 as mere surplusage, reflecting what in any event would be Lisnave's rights in rem as a ship repairer. However, as Mr Lockey rightly pointed out, those provisions are wider than the rights in rem. Article 15.5 confers on Lisnave the right to institute proceedings in any Court of competent jurisdiction where "the Customer may have other assets or legal representation" and Article 15.6 confers "absolute discretion" on Lisnave to institute proceedings in the Maritime Tribunal of the Judicial District of Lisbon. These provisions would seem to me to form an integral part of the overall scheme of Article 15 and there is no particular reason why the parties should be regarded as having intended to select Article 15.2 alone for the purposes of the Fleet Agreement. Mr Lockey gave the example of Lisnave having overpaid a rebate and wishing to recover its overpayment. If it were to seek to do so under the Fleet Agreement, it is not obvious that it would have been intended by Lisnave and CST that such recovery should only be through the route of an arbitration under the incorporated version of Article 15.2.

(4) Whilst there was in existence at the time of the making of the Fleet Agreement a course of dealings between Lisnave and ship owners for whom CST acted whereby the General Conditions would be applicable to ship-repair contracts, that course of dealing was not directly relevant to the Fleet Agreement and in any event CST does not seek to contend for the general application of the General Conditions (and could not so contend because they are inapposite to the Fleet Agreement) but seeks only to draw out Article 15.2 of the General Conditions.

48. Although this is not an appeal against or review of the decision of the majority of the arbitral tribunal, as I am differing from their conclusion it is right that I should explain why I am differing from their conclusion. There appear to be two grounds for their conclusion. The first was that there is such a close relationship between the Fleet Agreement and the General Conditions, in that the terms of the Fleet Agreement amend, alter or supersede those contained in the General Conditions, that they must be interpreted as one contract. This was not an analysis which Mr Smith sought to advance and in any event it is not in my judgement a correct analysis. The role of the Fleet Agreement was certainly to amend, alter or supersede certain of the provisions of the General Conditions for the purposes of ship-repair contracts that might in the future be entered into but that does not cause any of the provisions of the General Conditions to flow in the other direction into the Fleet Agreement. To the extent that the Fleet Agreement modified the General Conditions, it would be the modified ship- repair contract that was subject to the modified General Conditions and the Fleet Agreement was not itself subject to the General Conditions and nor did it need to be.
49. The second ground for the decision of the majority was that, applying the "officious bystander" test, they would, from their experience, "be amazed were we to find that... either party to the [Fleet Agreement] had anticipated that Article 15 of the [General Conditions] would not apply to it". This conclusion sought to draw support from the existence of the course of dealing to which I have referred above and the application of Article 1.1 of the General Conditions to the Fleet Agreement on the basis that it applied to "all contracts" for dry docking etc. They acknowledged that it might be argued that the Fleet Agreement was not a contract for work as defined in Article 1.1 but stated that they would find that "difficult to accept" and that it was in any event supplementary to and thus closely related in subject matter to the individual ship- repair contracts. They drew support from the title of the Fleet Agreement as including the words "ship-repair" and the reference in the Fleet Agreement to CST as "the OWNERS".
50. Whilst deference must be shown to the experience of the Arbitrators, the test for the implication of terms by reference to the "officious bystander" test is an objective one and sets a high and exacting standard. Furthermore, for the reasons given above, I disagree with the Arbitrators' analysis of Article 1.1. I agree with the Arbitrators' conclusion that there was a close relationship between the Fleet Agreement and the prospective ship-repair contracts and that the use of the words "ship-repair" in the title of the Fleet Agreement reflects this but the nature of the inter-relationship was as I have already described and in any event the closeness of the relationship does not make it obvious that the parties must have intended that Article 15.2 of the General Conditions should be applicable to the Fleet Agreement. As for the reference in the Fleet Agreement to CST as "the OWNERS" (and other similar informal references to which Mr Smith drew my attention), it was common ground that CST was not and was known not to be the owner of any vessels and the assessment of the facts must be by reference to what the parties knew the position to be and not by reference to any false appellation.

Conclusion

51. For the reasons given above, Lisnave is entitled to the relief sought in its Arbitration Claim Form. The Award should be set aside and a declaration made to the effect that the arbitral tribunal does not have jurisdiction over CST's claim.