10 August 2018

US judge sends 'hopelessly ambiguous' contract to London arbitration

An international shipping contract cries out for clarity as US judge tosses dispute over to London court.

A dispute over a ‘hopelessly ambiguous’ international shipping contracthas been sent to London by a US federal appeals court in a case that highlights the need for clarity when drafting commercial contracts.

Interpretive tangles

Overturning a previous judgment that the US would be the appropriate location for arbitration, Stanley Marcus, at the US Court of Appeals for the Eleventh Circuit, said the contract between Andromeda Steamship Corporation, based in Monaco, and Internaves de Mexico of Mexico City, ‘hardly represents a model of clarity’, and the parts specifying arbitration location were ‘hopelessly in conflict. The dispute arose after Andromeda agreed to furnish Internaves with a vessel to transport an electric transformer from Brazil to Mexico. Internaves claimed that Andromeda failed to tender the vessel on the agreed date, while Andromeda said Internaves never delivered the transformer. The parties agreed to arbitration but a contract outlining the terms was unclear about where it should take place. Both parties had initially intended London to be preferred location, with the most important part of the contract specified London and English law. In its initial judgment, the US District Court for the District of Florida said it was unclear between New York and London and therefore defaulted to ordering arbitration in Miami. Andromeda appealed, arguing had the court ‘waded through the contract’s interpretive tangles’, it would have discovered that the parties agreed to arbitrate in London.

Murky terms

Internaves said the contract’s ‘murkiness’ meant the district court properly ordered arbitration in Miami as it could not be clear what was intended. On appeal, judge Marcus found that the contract was divided into two parts. Part I contained terms 'specific to the parties’ transaction’ while part II consisted of ‘general boilerplate terms’, and ruled ‘the parties specifically wrote “London arbitration, English Law” into the contract, whereas any indication of the parties’ willingness to arbitrate in New York appears only among boilerplate script, and in that regard only by striking a provision with a line.’ He added, 'the parties created a contractual mechanism to resolve any ambiguity or conflict by declaring part I superior to part II in the event of conflict, and by designating in Box 25 the conclusive forum selection provision.’