• Arbitration Clauses Incorporated by Reference
  • November 6, 2015
  • Law Firm: Erdem Erdem Law Office - Istanbul Office
  • Introduction

    Standard contracts and general terms and conditions are commonly used in international trade to agree upon the details of the contracts, and to minimize negotiations. Standardized rules and contracts that are used in such a manner are incorporated via reference into the text of the main agreement concluded between the parties. Some of the standard contracts, such as those prepared by FIDIC and BIMCO, include arbitration clauses, as well. If the standard contract is incorporated into the main agreement, the arbitration clause within the standard contract is also incorporated, and the arbitration agreement between the parties is concluded as an “arbitration agreement incorporated by reference.”

    In General

    The conditions of conclusion of an arbitration agreement by reference are discussed in international law. Due to the fact that standard contracts are not separately signed by the parties, it can be claimed that the arbitration agreement does not fulfill the written form requirement[1]. Apart from the fact that such condition pertains to the form of the arbitration agreement, it is also closely related to the existence of the consent to arbitrate[2]. Eventually, the form requirements usually demonstrate the consent of the parties beyond a reasonable doubt.

    There are controversial opinions in Turkish law and comparative law concerning arbitration clauses that are incorporated by reference. This is especially clear in cases where there is no specific reference, but only a general referral to the standard contract that includes the arbitration clause. According to one of the opinions, the consent to arbitrate shall not be deemed explicit in cases where there is no direct or specific reference[3] to the arbitration clause, but only a general referral to the standard agreement or general terms and conditions, including the arbitration clause[4]. Due to the fact that the parties renounce their rights to apply to national courts by signing the arbitration agreement, the consent to arbitrate should be certain. The general referrals to the standard contracts only contain the provisions regarding substantive law; therefore, the necessity of an explicit reference to the arbitration clause must be sought. As per the opposing view, the explicit reference to an arbitration clause should not be mandatory in the practice of international trade[5]. With regard to the concept of “prudent merchant,” it is clear that the reference to a certain text renders such text as a part of the main agreement, and agreeing on the text means that the assenting person is aware of the contents of the documents, in their entirety.

    If the consent of the parties is examined, other elements may be used as evidence for the consent to arbitrate, as well as the explicit reference to the arbitration clause. For instance, attaching the referenced text to the main agreement may constitute evidence as the consent to arbitrate since this action shall enable the parties to be sufficiently informed of the arbitration agreement by access to the texts. In addition, factors such as experience of the parties, nature of the reference, practices of the relevant sector, and whether the parties have concluded similar agreements before may be taken into consideration in determination of such consent.

    Turkish Law

    In accordance with Article 4/2 of International Arbitration Law (“IAL”) that stipulates the written form requirement in Turkish law, “an arbitration agreement shall be deemed concluded by reference to a document including an arbitration clause, with the intent to render such document as a part of the main contract.” Therefore, incorporation of an arbitration agreement via reference is explicitly allowed in Turkish Law.

    The Court of Cassation applies this rule. Moreover, the Court of Cassation decided accordingly prior to the entry into force of the IAL. The 19th Civil Chamber of the Court of Cassation decided in 1997 that due to the fact that the parties agreed to resolve the disputes arising from the agreement as per the FOSFA rules that contain arbitration clauses and, as well, the parties shall be able to apply to arbitral tribunal and enforce the arbitral award[6]. Therefore, it can be deduced that the Court of Cassation decided in accordance with the New York Convention by interpreting it broadly[7].

    However, the New York Convention does not stipulate whether the arbitration agreements incorporated by reference fulfill the written form requirement. However, as per the “more favorable right” provision in Art. VII of the New York Convention, the regulation in Turkish law may be accepted as a more favorable right and, consequently, the arbitration agreement may be deemed valid[8].

    International Law


    The incorporation of the agreement to arbitrate by reference is accepted in international law as well. Article 7/2 of the UNCITRAL Model Law explicitly accepts this method. Despite the fact that the New York Convention does not contain explicit regulations regarding arbitration agreements incorporated by reference, it is clear that in practice, such method is globally accepted. This tendency also serves the aim to simplify a dispute resolution via arbitration, and to meet the requirements of international trade.

    In U.S law, incorporation of arbitration agreements by reference is considered as a matter in relation to the consent of the parties, and is evaluated in conjunction with other matters relating to such consent. In accordance with the U.S. Federal Arbitration Act, an agreement may validly incorporate an arbitration clause from another agreement. It is stated that in general, U.S. courts usually require less demanding evidence of the parties’ intentions to incorporate an arbitration clause than many other jurisdictions[9].

    Similarly, in French law, incorporation of an arbitration agreement by reference is also accepted[10]. However, in one of its decisions, the French Court of Cassation resolved that the existence of the arbitration clause should be mentioned in the main agreement, unless a longstanding business relationship which insures that the parties are aware of written conditions that normally govern their commercial contract exists[11].

    As per Swiss law, in order to incorporate an arbitration agreement by reference, the outcome of such reference should be reasonable and should comply with the bona fide principle[12]. German Civil Procedure Law also accepts the incorporation of an arbitration agreement by reference only if the reference is conducted in such a way that renders the agreement an inseparable part of the main agreement[13].

    Conclusion


    In international trade, it is common for the parties to refer to certain standard contracts and general terms and conditions. If such standard contracts contain arbitration clauses, the validity of the arbitration agreement is controversial. On one hand, some opinions indicate that the arbitration clause should explicitly be included in the reference; on the other hand, it is argued that incorporation via a general reference is sufficient for the arbitration agreement to be valid. The main point is the determination of the parties’ consents to arbitrate. In Turkish law, the IAL allows incorporation of an arbitration agreement by reference. However, it should be noted that, while referring to the standard contract, making an explicit reference to the arbitration clause is recommended in order to avoid disputes regarding the parties’ consent to arbitrate. Similarly, if the parties do not intend to refer the dispute to arbitration, this intent should be explicitly indicated, as well, while a standard contract is incorporated to the main agreement between the parties.



    [1] Turgut Kalpsüz, Tahkim Anlasmasi, Ünal Tekinalp’e Armaǧan, Bilgi Toplumunda Hukuk, Istanbul 2003, p. 1038.

    [2] Nuray Eksi, Milletlerarasi Deniz Ticaret Alaninda “Incorporation” Yoluyla Yapilan Tahkim Anlasmalari, Istanbul 2010, p. 47-48.

    [3] For a decision containing an explicit reference to arbitration clause please see the decision of 11th Civil Chamber of the Court of Cassation dated 01.07.2008, numbered 2007/1590 E. (file no.) and 2008/8780 K. (decision no.) (www.kazanci.com.tr).

    [4] Emre Esen, Uluslararasi Ticari Tahkimde Tahkim Anlasmasinin Üçüncü Kisilere Tesmili, Istanbul 2008, p. 164.

    [5] Kalpsüz, p. 1039. For a decision which allows incorporation of arbitration agreement by reference even though such reference is not explicitly made, please see the decision of the 11th Civil Chamber of the Court of Cassation dated 13.6.2005, numbered 2004/9458 E. (file no.) and 2005/6114 K. (decision no.) (www.kazanci.com.tr).

    [6] Please see the decision of 19th Civil Chamber of the Court of Cassation dated 08.05.1997, numbered 1998/9619 E. (file no.) and 1997/4669 K. (decision no.) (www.kazanci.com.tr).

    [7] Ercüment Erdem, Yabanci Hakem Kararlarinin Tenfizinde Yazililik Kosulu, XXVI Symposium of Commercial Law and Decisions of the Court of Cassation, p. 26.

    [8] Erdem, p. 26.

    [9] Gary B. Born, International Commercial Arbitration (Second Edition), Kluwer Law International 2014, p. 824

    [10] Esen, p. 160.

    [11] Born, p. 820, fn. 1006.

    [12] Esen, p. 152.

    [13] Kalpsüz, p. 1039.