Supreme Court sets aside arbitration clause due to ambiguity

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IMG_0649Summary

The Supreme Court recently decided(1) on whether an ambiguous arbitration clause was enforceable.

The court ruled that since the clause referred the dispute to a non-existent Danish arbitration association, the clause did not have the necessary clarity to be enforced. Thus, the court set aside the arbitration clause, declared itself competent and then decided on the merits of the case according to Danish law.

Since being issued, the judgment has been criticised by Danish legal professionals, who have stated that the decision is inconsistent with international case law. Furthermore, a Danish professor(2) has indicated that the restrictive interpretation laid down by the Supreme Court will have negative consequences for Denmark as an arbitration forum in the future.

Facts

A Danish shipping company, C, and an Icelandic company, D, entered into an agency agreement, in which it was stated that:

This Agency Agreement is governed by Danish law and any claim or dispute arising hereunder or in connection herewith shall be determined by arbitration in Copenhagen in accordance with the terms of the Copenhagen Maritime Arbitrators’ Association in force and effect at the time of the arbitration.

In 2010 C brought a case against D before the Copenhagen Maritime and Commercial Court, claiming payment of commission in a notice period, according to the agency agreement. The parties agreed that the ‘Copenhagen Maritime Arbitrator’s Association’ did not exist. D requested a dismissal of the action, submitting that the parties had agreed on settlement by arbitration in the contract.

Decision

The Supreme Court concluded that the arbitration clause should be set aside, and consequently, that the case was not to be dismissed. The court repeated the grounds given by the Copenhagen Maritime and Commercial Court – namely, that the court could not imply the necessary terms into the contract. Therefore, and since the arbitration clause did not have the necessary clarity, the court held that the arbitration clause was not enforceable.

The Supreme Court found the Danish courts (including the Supreme Court itself) competent to decide on all merits of the case. Ultimately, the Icelandic company ended up paying damages and costs to the Danish company.

Source: International Law Office

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