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21 March 2012
A few months ago the Supreme Court handed down a significant decision that addressed the much-debated issue of the incorporation of arbitration clauses by reference to contractual terms and conditions. In so doing, it has refocused attention on whether such clauses can be incorporated by reference to common charterparty forms contained within fixture recaps. This has been a point of contention for many years within the shipping industry, giving rise to many disputes and considerable uncertainty in the interpretation of charterparties and fixture recaps.
Reference by fixture recap to standard form charterparties is common practice in the industry; however, the incorporation of arbitration clauses by such means has remained an area of uncertainty in Italian law. The question is whether a general reference is sufficient for the arbitration clause to be validly incorporated, or whether the reference must specifically mention the arbitration agreement.
Although the case concerned an international sale agreement, rather than a charterparty, the impact of the decision - applied by analogy - will be crucial to the future interpretation of charterparties and fixture recaps.
An appeal to the Supreme Court was brought against the judgment of the Bari Court of Appeal that recognised an arbitral award rendered in London. Arbitration proceedings had been established on the basis of an arbitration clause contained in terms and conditions that had been generally incorporated, by reference, into the contractual agreement stipulated between the parties.
The Bari Court of Appeal ruled that the agreement to arbitrate was vaild; it therefore upheld the recognition of the London award. The appeal to the Supreme Court was based on the provision in Article 2.2 of the New York Convention 1958 that "agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams". It was argued that no such agreement had been reached, as mere reference to general terms and conditions does not amount to an 'agreement in writing' for these purposes. This literal and restrictive interpretation mirrors a protective approach towards the jurisdiction of the national courts.(1)
The Supreme Court upheld the validity of the arbitral agreement and rejected the appeal.(2) It based its decision on Article 833 of the Code of Civil Procedure, whereby an arbitration clause contained within general terms and conditions referred to in a written agreement is valid "as far as the parties knew or ought to have known about it by using ordinary diligence". The court went further in holding that this content and effect of Article 833 could be inferred from the wording of Article 2 of the convention. Furthermore, the court affirmed that such a rule "is to be placed on the path of an evolution intended to overcome formalistic hindrances within the ambit of international trade" for the express purpose of favouring international arbitration.
The definition of an 'agreement in writing' in Article 2 was found to be "wide-ranging" enough to be compatible with the incorporation of an arbitration clause by general reference to terms and conditions.
For companies that are active in international shipping with connections to Italy, it is no easy task to evaluate the future impact of this precedential decision. Italian operators and the Italian courts must establish what light has been shed on the interpretation of arbitration agreements that are contained in charterparties which are merely referred to in fixture recaps.
A first problem is that Article 833 of the code, on which the decision was partly based, has been repealed by Legislative Decree 40/2006, partly depriving the reasoning of its persuasive authority for the future. However, the reasoning is clearly intended to be valid even in the absence of Article 833, creating a direct link between Article 2 of the convention and the possibility of incorporating arbitration clauses by mere general reference to terms and conditions.
The court expressed a favourable view of internationa practices and its attitude to greater unifomity of approach with that fostered by other jurisdictions.
Hence, although the state of the law remains to some extent uncertain, and conflicting precedents can be cited, the decision lends some support to the argument that arbitration clauses contained in well-recognised charterparty forms can be validly incorporated by means of a general reference to the terms contained in fixture recaps, without the need for them to make specific mention of the arbitration agreement.
(1) This interpretation has found support in a number of judgments, including that of the Unified Divisions of the Supreme Court in Dreyfus Commodities Italia v Cereal Mangimi (11529, May 19 2009), in which it was held that for an arbitration clause to be incorporated by reference, such reference must be specific and must expressly mention the arbitration clause.
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