433. Cottonex Anstalt v Patriot Spinning Mills Ltd [2013] EWHC 236 (Comm)

Interpretation of incorporation clause

The facts

Cotton was sold CFR Chittagong, Bangladesh.

The contract was not performed.

Buyers contended that they were entitled to a payment from the Sellers in terms of an “invoicing back” clause (a standard industry provision allowing for a penalty irrespective of fault).

The invoicing back clause was found in the International Cotton Association by-laws.

Buyers claimed that the entire by-laws of the ICA had been incorporated by the following arbitration clause:

5.        Claims and controversial matters, that may occur in connection with the execution of the following contract, are to be solved by the representatives of the buyer and seller, having full power to act.  All disputes relating to this contract will be resolved through arbitration in accordance with the By-laws of the International Cotton Association Ltd.  This agreement incorporates the By-laws which set out the Association’s arbitration procedure.”

The by-laws and rules which contained a section dedicated to arbitration were placed before the court.

The invoicing back provision was found in the general provisions dealing with substantive matters.

Findings

In an appeal on a question of law, Hamblen J found that the incorporation provision was intended to refer to the arbitration section of the by-laws only, as a matter of plain language.

Commentary

In dealing with a business common sense argument put forward by the buyers, Hamblen J said:

It will only be appropriate to give effect to the interpretation which is most consistent with business common sense where that can be ascertained by the court.  In many cases it is only likely to be so where it is clear to the court that one interpretation makes more business common sense.  If, as frequently happens, there are arguments either way the court is unlikely to be able to conclude with confidence that there is an interpretation which makes more business common sense.  It is often difficult for a court of law to make nice judgments as to where business common sense lies”.

This quotation is consistent with Hamblen J’s personal reluctance to trump plain meaning with “business common sense”.

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