Incorporation of contractual terms by course of dealing

In Addax Energy SA v Petro Trade Inc [2022] EWHC 237 (Comm), the High Court was asked to decide whether there was a good arguable case that an English jurisdiction clause had been incorporated into an oral contract following the defendant’s challenge of the claimant’s service out of the jurisdiction. In determining the case, the court provided a helpful summary of the general principles on course of dealing.

Background

The underlying dispute relates to the sale, by the claimant Addax Energy SA (Addax), and purchase, by the defendant Petro Trade Inc (Petro Trade) of petroleum. Addax and Petro Trade entered into a secured distribution agreement in 2015 (SDA) which anticipated that the parties would enter into subsequent sales contracts.

Addax and Petro Trade entered into various supply and spot contracts, which were often agreed informally by telephone and were sometimes followed by a recap email confirming the essential agreed terms and a written ‘spot contract’. The spot contract contained more extensive written terms, including an English governing law clause and an English jurisdiction clause.  The dispute arose in relation to two sales contracts and who was liable for some allegedly missing petroleum.   Petro Trade challenged the jurisdiction of the court to decide the claim in respect of one of the contracts in dispute (referred to as the Term Agreement for which the claimant claimed more than USD 2 million).

The Term Agreement was allegedly entered into in January 2018 during a telephone call and it was a point of dispute whether a recap email or spot contract had been sent.  In 2021, Addax served a claim on Petro Trade outside of the jurisdiction without the permission of the court on the basis that the Term Agreement contained an English jurisdiction clause. Petro Trade, however, challenged service, arguing that Addax lacked a good arguable case that the contract contained such a jurisdiction clause.  The question for the court here was whether at the time of the January conversation an English jurisdiction clause had been incorporated because of a previous course of dealing.

Decision

Petro Trade’s jurisdictional challenge was unsuccessful.

Mrs Justice Cockerill noted that cases involving incorporation of contractual terms by course of dealing turn on their facts. The judge referred to Chitty:

“Conditions … may be incorporated by a course of dealing between the parties where each party has led the other reasonably to believe that they intended that their rights and liabilities should be ascertained by reference to the terms of a document which had been consistently used by them in previous transactions.”

Mrs Justice Cockerill held that it was clear from authorities cited by the parties that a course of dealing does not need to be extensive or entirely consistent.  Rather, the question is whether there is “sufficient consistency for that test set out in Chitty to be satisfied” and that will be a question of fact.

In this case, the judge concluded that there was a course of dealing between Addax and Petro Trade. It was common ground that the parties, throughout their trading relationship, had traded informally and over the phone discussing the essential terms only with confirmation of trade terms following afterwards in written form, sometimes accompanied by spot contracts. Mrs Justice Cockerill also noted that the terms of the spot contract containing the jurisdiction clause were effectively contemplated between the parties when they negotiated the SDA. There had previously been numerous contracts on terms containing an English jurisdiction clause had been included prior to the Term Agreement.  Where a spot contract had been produced, they were on “very substantially identical terms” and there had been no issue raised between the parties about those terms.

Taking matters all together, Mrs Justice Cockerill concluded that there was a “plausible evidential basis” for the inclusion of a jurisdiction clause in the contract by course of dealing.

Key takeaways

This case is a useful reminder of the risks arising from oral contracts. It is always preferred to record the terms of a contract in writing.  Where that is not practical at the time (as is often the case with spot contracts) being clear as to which terms are agreed is of particular importance to avoid arguments further down the line.  Attempting to incorporate terms on the basis of a course of dealing will turn on the facts and so can lead to significant uncertainty over the parties’ contractual relationship.

The author would like to thank Giulia Barbone for her assistance in preparing this post.