Date: 14.04.1992
Country: USA
Number: 91 Civ. 3253 (CLB)
Court: U.S. District Court, S.D., New York
Parties: Filanto S.p.A. v. Chilewich International Corp.
A New York buyer entered into multiple contracts with an Italian seller in order to fulfil a master agreement that the buyer had concluded with a Russian ('the Russian master agreement'). The Russian master agreement contained a clause which required disputes to be arbitrated in Moscow. The buyer partly performed one of the contracts and the seller commenced action in New York claiming breach of contract. The buyer sought a stay of the action and arbitration in Moscow pursuant to the arbitration clause in the Russian master agreement. The issue in this case was whether the arbitration clause in the Russian master agreement had been incorporated into the contract between the buyer and the seller.

The Court, in order to grant the stay for arbitration pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958), had to establish whether the parties had concluded a written agreement to arbitrate as required by Art. II(a) of that Convention.

The Court held that the contract was governed by CISG as at the time of the conclusion of the contract the parties had their places of business in contracting States (USA and Italy) (Art. 1(1)(a) CISG). CISG was applied to determine whether there was a written agreement to arbitrate between the parties.

The Court found that the seller was bound by the arbitration agreement. The agreement was part of the buyer's original offer which the seller was deemed to have accepted. In reaching its conclusion, the court took into account the previous practices of the parties (Art. 8(3) CISG) and held that due to the extensive course of prior dealing the seller was under a duty to alert the buyer in a timely fashion of its objection to incorporating the arbitration clause (an objection made only 5 months after the offer was not timely). This all the more so since the seller knew that the buyer had already commenced performance by opening the letter of credit in its favor. The fact that the seller itself later on started performance by shipping part of the goods ordered constituted a further indication of its intention to accept the buyer's original offer (Art. 18(1) CISG). Equally, the seller's subsequent reliance on clauses in the master agreement which it had previously excluded, is yet another indication of its intention to be bound by all clauses of the master agreement (Art. 8(3) CISG).

The Court disregarded the seller's argument that in its reply to the buyer's original offer five months later it expressly objected to the incorporation of the arbitration agreement, thereby rendering its acceptance a counter-offer (Art. 19(3) CISG).

The Court noted in a footnote that Art. 11 and Art. 8(3) CISG essentially rejects both the Statute of Frauds and the parol evidence rule.

Accordingly, the Court issued final judgement and ordered a mandatory injunction to arbitrate in Moscow.