Careful Drafting of the Arbitration Clause Remains Critical

Moscow Arbitrazh (Commercial) Court

Arbitration clauses are usually treated as one of the boilerplate terms of commercial contracts. They are frequently formulated off the top of one’s head and though major arbitration centres recommend standard clauses they are not always used.

In a decision rendered on 13 March 2012 the Moscow Circuit Commercial Court confirmed the lower court’s decision to annul an award from the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry (the “ICAC”) because the arbitration clause in question provided for the resolution of disputes under the ICAC Rules. This, the courts concluded, meant that the dispute should have been resolved by an ad hoc arbitral tribunal acting under the rules of the ICAC, rather than by an ICAC tribunal.

Facts

The dispute arose out of a lease agreement signed in 2008, which was apparently drafted in two languages (English and Russian) with the English version prevailing in case of discrepancy. However, both Russian and English versions of the contract, according to the courts’ interpretation, provided that the disputes were to be submitted to arbitration in accordance with the ICAC Rules.

In January 2011 an ICAC tribunal rendered an award in favour of the lessor, while dismissing a counterclaim of the lessee and the lessee’s objection to the jurisdiction of the tribunal. In March 2011 the lessor applied to enforce the award, while the lessee applied to have the award set aside. During the first “round” of proceedings the first instance court annulled the award, but this decision was quashed by the circuit court which instructed the lower court to consider the English version of the arbitration clause. During the second “round” which began in September 2011, the court decided that the English version did not justify a different conclusion and reaffirmed the decision to annul, with this later decision being upheld by the Moscow Circuit Court.

Analysis

The courts apparently considered that an arbitration clause needs to be interpreted strictly. Where the arbitral institution in question (the ICAC) was not clearly spelled out it was not sufficient to suppose that an ICAC tribunal would be competent to resolve the dispute merely by virtue of there being a reference to the ICAC Rules. Notably, however, neither the Moscow Circuit Court nor the Moscow Commercial Court explained how proceedings before an ICAC tribunal were different from proceedings before an ad hoc tribunal under the ICAC Rules.

However, the Moscow Circuit Court reversed the lower court’s finding that the arbitration clause in the contract was unenforceable. The lower court had concluded that an arbitration clause needs to specify the name of an arbitral institution or expressly provide that the arbitration would be ad hoc. However, the Moscow Circuit Court relied on the European Convention on International Commercial Arbitration to find that such a clause was enforceable to the extent that it provided that the dispute should be resolved by an ad hoc tribunal (it is not clear why the Convention was applied given that the dispute was between two Russian companies).

However, the overall approach adopted by the courts appears to be overly formalistic and it remains to be seen whether the decision will be challenged before the Supreme Commercial Court.

Sergey Usoskin

About the Author:

Sergey Usoskin is an advocate (member of the Russian bar) and a senior associate at Ivanyan&Partners. He has experience advising clients on and representing them in commercial and investment arbitration matters as well as before the Russian court (including the Supreme Commercial Court). He is a graduate of St Petersburg State University, Faculty of Law and University College London Faculty of Laws.

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