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HFW advises Cottonex on un-stitching a Tribunal error

A team of Holman Fenwick Willan (HFW) lawyers has advised Cottonex Anstalt, a leading raw cotton manufacturer, in its successful application before the English Commercial Court (10 February 2014) on the matter of the correct approach to the question of contractual incorporation, when considering International Cotton Association (ICA) Bylaws and Rules.

ICA Bylaws and Rules are well-known to those operating in the cotton sector, in particular the "invoicing back" Rules. These provide for a contractual method of closing out cotton contracts based on the market price at the date of closure and irrespective of the issue of breach and who is to blame for its termination. The question before the Commercial Court in Cottonex Antstalt v Patriot Spinning Mills Ltd, was the extent to which the invoicing back Rules were incorporated into the specific cotton contract in question.

The Court held that the starting point in relation to the issue of contractual incorporation was the incorporating words used in the "host" cotton contract. In this case, the precise words used were: "This agreement incorporates the Bylaws which set out the Association's arbitration procedure…".

The error made by the Technical Appeal Committee Tribunal in its decision of 12 April 2013 was not to address the incorporating words of the host contract, but instead to proceed to consider the wording of the Rules alleged to be incorporated.

In his judgment of 10 February 2014, Mr Justice Hamblen concluded that the words of incorporation, whilst incorporating the Bylaws, did not, and did not need to, incorporate the invoicing back Rules.

As was pointed out by Rix LJ in Tradigrain SA v King Diamond Shipping SA1: "the first rule relating to the incorporation of one document's terms into another is to construe the incorporating clause in order to decide on the width of the incorporation".

Brian Perrott, HFW Partner, commented: "The International Cotton Association Bylaws and Rules are rarely scrutinised by the courts and form a self-contained regime for resolving disputes in a pragmatic and sensible fashion. This judgment is important in that it respects freedom of contract and the parties' right to shape their contractual regime and relationship."

Mr Justice Hamblen remitted the matter back to the Tribunal to determine the remaining questions.

The HFW team for Cottonex consisted of Partners Brian Perrott and Richard Merrylees, and Associate Simeon Newman. Charles Kimmins QC, 20 Essex Street, was instructed by HFW for the claimant.

For further information, please contact Tania Phayre, Head of Marketing Communications on +44 (0)20 7264 8546 or email tania.phayre@hfw.com.

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