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08 July 2009
In ship agency contracts it is common practice to find clauses that refer disputes between the parties to arbitration and that make the contract subject to a specifically defined law. In most cases, the law is that of the principal's jurisdiction and this choice of law is favourable to the principal.
The EU Commercial Agent Directive (86/653/EEC) contains certain rules pertaining to commercial agency contracts and has been implemented in the EU member states. It does not necessarily apply to ship agency contracts in all states, but in Belgium it does. Belgium implemented the directive through the Law on Commercial Agency Contracts, which applies to agency contracts for 'services', which in turn covers ship agency representation. The articles that relate to the termination of agency contract are mandatory law in Belgium.
The Antwerp Commercial Court was required to decide on the validity under Belgian law of a clause referring all agency contract disputes - in this case including contract termination - to arbitration in another EU member state and making disputes subject to the law applicable in that country.
A ship agency contract was concluded between a Belgian ship agent and a foreign, EU-based shipping line. The contract referred disputes to foreign law and arbitration. The shipping line was based in a country that had recently joined the European Union and had implemented the directive in its most basic form. Unlike Belgium's implementing law, the legislation in the counterparty's country does not give the same extensive application to the directive, which results in ship agents falling outside the scope of the directive's protection.
The shipping line breached the agency contract and the agent claimed for compensation. Under Belgian law, the agent's claim was for redundancy, client compensation and additional compensation (for, among other things, the resultant dismissal of staff). The Belgian agent disregarded the contract clauses and brought the case before the court, relying for its damages claim on the Law on Commercial Agency Contracts.
In an interim decision of May 12 2009 the court held that "disputes falling within the scope of the Commercial Agency Law cannot be referred to arbitration, unless the Belgian law or equivalent foreign law is declared applicable to the agency contract". It held that if the contract clause in question were to be upheld, this would conflict with mandatory Belgian law. The court therefore considered the arbitration and choice of law clause invalid and dismissed the shipping line's reliance on referral to arbitration abroad.
The court concluded that although the law in itself is not a matter of Belgian or international public order, a court must consider its articles on contract termination to be binding upon the parties. The judge referred in passing to similar rules contained in, or applied in respect of, termination of distribution agreements or in relation to similar clauses in bills of lading.
Thus, a referral to arbitration abroad in respect of disputes relating to commercial agency contracts with a Belgian shipping agent is invalid under Belgian law unless such law or an equivalent foreign law will be applied in the arbitration.
This is believed to be the first time that a Belgian court has considered such a commonly used clause in a ship agency contract, which was clearly drafted in order to favour the principal's rights to the detriment of the agent under Belgian law.
The case is still pending and an appeal is expected.
For further information on this topic please contact Dirk Noels at Kegels & Co by telephone (+32 3 257 1771) or by fax (+32 3 257 1474) or by email (email@example.com).
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