The Italian Supreme Court1 has upheld the validity of the jurisdiction clause contained in a letter of undertaking, in a decision which is the latest installment in the Italian side of the long running dispute between the insurers of the charterers of the vessel Front Comor and its owners (West Tankers).
The decision is a further success for West Tankers and their insurers (in addition to a string of favorable decisions obtained in the United Kingdom) and confirms the increasingly open approach to jurisdiction clauses that the Italian Cassazione has taken over the past few years.
The dispute is well-known and the various decisions handed down over the years have been widely commented on, therefore the facts need not be repeated in detail.
The dispute arose out of the collision of a West Tankers' vessel, the "FRONT COMOR", with a pier in Sicily belonging to Erg Petroli SpA, the Charterers.
The vessel suffered substantial damage and West Tankers commenced arbitration proceedings in England pursuant to the arbitration clause contained in the charterparty.
In 2003 Charterers' subrogated Insurers Allianz SpA and Generali, launched in turn proceedings against Owners before the Court of Syracuse (Sicily) to recover the sums which they had paid Charterers (the amount being rather substantial, above 15 millions of euro). The Owners obtained an anti-suit injunction from the English Court in 2005, but in 2009 the European Court of Justice ruled that anti-suit injunctions were incompatible with EU Regulation 44/2001.
In the meantime the arbitrators held that West Tankers were under no liability to Allianz.
West Tankers applied to the Court seeking the enforcement of the award in the same way as a judgment. The leave was granted, Allianz appealed and the Court of Appeal upheld the decision.
Finally, the Commercial Court has held that an arbitral tribunal is not deprived of jurisdiction to award equitable damages against a party that breaches an arbitration agreement by bringing proceedings in the courts of a Member State (although anti-suit injunctions against such proceedings are no more available).
The actions brought in Italy by the subrogated insurers have been less successful thus far, and the proceedings in Sicily are currently stalled.
In the aftermath of the accident Erg Petroli took steps to arrest the vessel, and subsequently accepted a letter of undertaking issued by Gard on behalf of owners insurers IF P&C. The LOU was subject to English law and jurisdiction.
The Italian insurers however in 2004 sought the arrest of the Front Comor in the Emirates in order to obtain further security, on the grounds that the amount of damages exceeded the figure indicated in the first LOU; it was eventually agreed that the original undertaking would be extended in order to cover all the claims put forward by Erg Petroli's insurers, and another LOU was issued in May 2004.
In 2008 the Italian insurers summoned IFP&C before the Court of Trieste seeking the enforcement of LOU, alleging that the second letter of undertaking was stand-alone and should be therefore considered as independent from the previous one.
IF P&C challenged the jurisdiction of the Court of Trieste on the grounds that the LOU contained a jurisdiction clause which was perfectly valid and binding pursuant to article 23 (1) a of Council Regulation EC 44/2001. The case was referred to the Italian Supreme Court for a ruling on the issue of jurisdiction.
The Italian Cassazione has held that the clause is valid and binding. In doing so the Court has confirmed the position taken by a previous judgment handed down in 20062, where the Cassazione held that a jurisdiction clause is valid pursuant to article 23 Regulation 44/2001 even it is included in the general terms of trade submitted by one party, and the contract has been signed but with no specific reference to the jurisdiction clause.
The Court found that an element supporting the view that the clause was valid and applying to the second LOU was the fact that when discussing the extension of the first LOU the Italian subrogated insurers had sought the deletion of the jurisdiction clause, but the attempt had failed and plaintiffs had eventually refrained from insisting is such a request.
In light of the decisions handed down over the last years it seems now rather settled that:
- the question of whether the requirements of Article 23 Regulation EC 44/2001 are satisfied is one of EU law and not national law.
- unless the parties have clearly opted for a non-exclusive jurisdiction clause, the election of forum should be considered as exclusive, and it is irrelevant whether the clause identifies the court in a jurisdiction (for instance when the clause refers to the courts of England, or the courts of England and Wales as having jurisdiction)3.
- a party who signs a document cannot rely on the fact that it ignored the existence of the clause, or had not read it, or was somehow acting under pressure.4
The peculiarity of this case here was that the second LOU did not contain the jurisdiction clause, but simply referred to all the clauses contained in the original one; the Supreme Court has considered that the reference contained in the second LOU was suitable to incorporate (among the other provisions) the clause, by mean of a "relatio perfecta" (i.e. a proper and full reference).
The judgment is therefore reminiscent of an issue frequently discussed in proceedings where the existence of a valid arbitration clause is at stake.
Under Italian case-law the validity of an arbitration clause stipulated by means of incorporation (i.e. by virtue of a reference to a different standard form) requires the so called "relatio perfecta", i.e. specific and clear reference to arbitration.
Italian Courts have generally held that a full proper incorporation is needed, and arbitration must be explicitly contemplated by the parties,5 but a few recent decisions have attenuated such a strict approach.
The Supreme Court6 held that the clause was valid even lacking express reference to the arbitration clause, provided that the parties knew or should have known about the arbitration rules, and the position has been confirmed by a further very recent decision of the Cassazione7 holding that a reference in a contract to standard rules containing an arbitration clause is suitable to give rise to incorporation, even if no specific mention of arbitration is made, in light of Article II of the New York Convention (which contains a wide definition of the notion of 'written agreement').
The decision is rather important, because it seems a further confirmation of the trend followed by Italian Courts increasingly in favor of the validity of choice of jurisdiction clauses, abandoning the approach often taken in the past when analyzing the formal and substantive requirements set out under article 17 of the Brussels Convention 1968.
This article first appeared on the International Law Office – www.internationallawoffice.com
1 Cassazione 9 March 2012, n. 3693, IF P&C Insurance Ltd. v. Allianz Sp.a and Assicurazioni Generali S.p.a.
2 Cassazione 27 September 2006, n. 20887, Saneco SA Toscoline S.r.l.
3 Cassazione 14 February 2011, n. 3568, Fondiaria-Sai assicuraz. c. Coscos
4 Cassazione 12 March 2012, n. 3855, Sanctuary Records Group Ltd c. Abraxas S.r.l.
5 Cassazione 19 May 2009, n. 11529 Louis Dreyfus Commodities Italia c. Mangimi Cereal
6 Cassazione 23 July 2009 n. 17312 Inter Eltra Kommerz und Produktion GmbH v Nigi Agricoltura srl
7 Cassazione 16 June 2011, n. 13231 Del Medico c. Iberprotein SL