Headnote

Arbitration – Agreement to arbitrate – Validity - Incorporation by general reference to another document

Summary of facts

In 2010, a company (the Second Petitioner) was set up by way of a partnership agreement between the First Petitioner and an individual. By way of an amended partnership agreement (APA) to which the First Petitioner and the individual were parties, an investment company became a party to the APA and also a partner in the company. The APA included an arbitration agreement and also a provision which stated “If the assignee is not a party to this Agreement, it shall become one in writing and assume all rights and obligations corresponding to those of its predecessor by executing an undertaking to observe and implement the provisions and obligations of this Agreement in the manner provided by the Deed of Covenant”. In 2011 the Respondent concluded a Deed of Covenant (DCA) with the Petitioners and the other partners whereby the Respondent acquired a number of shares in the company and became a partner having the same rights as the other partners named in the APA. A dispute arose between the Petitioners and the Respondent in 2012 and the Petitioners filed a claim with DIAC. The appointed arbitrator declined jurisdiction to hear the dispute on the grounds that the Respondent was not a party to the arbitration agreement.

Held

The petition to cassation was dismissed.

Arbitration involves an explicit agreement to resolve a dispute through an arbitrator in place of the courts and whether the agreement takes the form of an arbitration clause or submission agreement, it must be in writing. Arbitration can be agreed upon by reference in the main contract to the document containing the arbitration clause, provided that the clause is expressly and clearly incorporated by reference (i.e. with specific mention of the arbitration clause contained in the document being cited). A general reference to the terms of the document without specific reference to the arbitration clause such that the parties are not made aware of its existence would not extend to the clause and there would be no arbitration agreement.

Judgment

It is settled that arbitration involves an explicit agreement to resolve a dispute through an arbitrator in the place of the courts and whether the agreement takes the form of an arbitration clause or a submission agreement, it must be in writing, i.e. contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of written communication. Arbitration can be agreed upon by reference in the main contract to the document containing the arbitration clause, provided that the clause is expressly and clearly incorporated by reference, i.e. with specific mention of the arbitration clause contained in the document being cited. A general reference to the terms of the document without specific reference to the arbitration clause such that parties are not made aware of its existence would not extend to the clause and there would be no arbitration agreement between the parties to the contract.

The trial court has full discretion to find and interpret the facts and weigh the evidence in the case, adopting the more trustworthy evidence while dismissing the rest, including contracts, agreements, writings and disputed terms according to the mutual intention of the parties, having regard to the facts and circumstances of the case, without review by the Court of Cassation, provided that its decision is soundly reasoned and its interpretation does not go beyond the plain meaning of such contracts and writings.

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The Court of First Instance, whose ruling was upheld on appeal, applied the above principles and dismissed the Petitioners’ action (to set aside the arbitral award declining jurisdiction over the dispute due to the absence of written agreement to arbitrate between the parties) on the following grounds: “It is clear to us that the Respondent had signed the Deed of Covenant incorporating the APA by reference; yet the terms of the Deed of Covenant do not indicate that the Respondent accepted or intended to be bound by the arbitration clause contained in the APA as the terms are general clauses of incorporation by reference that do not specifically mention the arbitration clause. Therefore, the Respondent cannot be held to the terms of the Partnership Agreement relating to arbitration.”

The Court of Appeal’s conclusions are sound and supported by sufficient evidence according to the proper interpretation of the Deed of Covenant the Respondent had executed, which does not indicate his acceptance of the arbitration clause in the APA. The main contract must make express, clear reference to the arbitration clause contained in a separate document, i.e. with specific mention of the arbitration clause contained in the document being cited. This is not the case with the Deed of Covenant executed on the Respondent’s behalf and the Petitioners’ contention is accordingly baseless. Based on the foregoing, the appeal is dismissed.