## Facts

- Iraqi Ministry of Defense (through its Armament and Supply Directorate) contracted with two Italian defense companies, Fincantieri-Cantieri Navali Italiani S.p.A. and Oto Melara S.p.A., to supply corvettes for the Iraqi Navy.
- The contracts contained clauses requiring disputes to be finally resolved by arbitration under the rules of the Paris Chamber of Commerce, before three arbitrators (ICC-style arbitration in Paris).
- After Iraq’s 1990 invasion of Kuwait, UN Security Council sanctions were implemented through European and Italian measures that prohibited the relevant military trade; most corvettes had not yet been built or delivered.
- A dispute arose over contractual performance after the embargo made delivery legally impossible.
- The Italian companies sued Iraq in the Genoa Tribunal seeking termination of the contracts and damages, notwithstanding the arbitration clauses.
- Iraq objected to the Italian court’s jurisdiction and sought referral to arbitration.
- The Italian companies argued the dispute was no longer arbitrable under Italian law (Italian Code of Civil Procedure art. 806), contending the embargo transformed the dispute into one involving rights the parties could not freely dispose of.
- The Genoa Tribunal (first instance) held the dispute arbitrable and declined jurisdiction, reasoning that the claimants sought termination and damages rather than embargo-prohibited delivery.
- The Italian companies appealed to the Genoa Court of Appeal.

## Issues

1. Whether, after sanctions and embargo legislation, the dispute concerned “rights of which the parties may freely dispose” and was therefore arbitrable under Italian Code of Civil Procedure art. 806.
2. Whether the arbitration clauses remained valid and operative, or instead fell within the “null and void, inoperative or incapable of being performed” exception to mandatory referral under New York Convention art. II.
3. Whether public policy embodied in sanctions required an Italian court to retain jurisdiction rather than compel foreign-seated arbitration.

## Decision

- The Genoa Court of Appeal reversed the first-instance jurisdictional ruling.
- The court assumed jurisdiction and refused to refer the parties to arbitration.
- The court treated the arbitration agreements as invalid or inoperative under New York Convention art. II in light of sanctions and the resulting limits on party disposition of the relevant rights.

## Legal Principles

- Under Italian Code of Civil Procedure art. 806, arbitration is limited to disputes involving rights the parties may freely dispose of; overriding mandatory rules can remove that freedom and render the dispute non-arbitrable.
- International sanctions implemented domestically may be treated as public policy constraints affecting both the arbitrability of a dispute and the operability of an arbitration clause.
- A court may decline referral to arbitration under New York Convention art. II where the arbitration agreement is found “null and void, inoperative or incapable of being performed,” including where mandatory sanctions law is held to invalidate or disable the clause in the circumstances.
- In state-contracting contexts, entry into procurement contracts and agreement to arbitration generally support treating the state as acting in a private capacity for jurisdictional purposes, even if the dispositive question becomes arbitrability and sanctions-based public policy.

## Conclusion

The Genoa Court of Appeal held that sanctions and embargo measures transformed the disputes arising from arms-supply contracts into matters not freely disposable under Italian law, and on that basis refused referral to Paris arbitration, treating the arbitration agreements as invalid or inoperative under New York Convention article II and asserting Italian-court jurisdiction.


Fincantieri-Cantieri Navali Italiani S.p.A. (It.) v. Ministry of Defense, Armament & Supply Directorate of Iraq, Republic of Iraq, 21 Y.B. Com. Arb. 594 (Genoa Ct. App. 1994)