What’s in the Name? Imprecise Designation of the Arbitral Tribunal in the Arbitration Clause

swiss lawWhen faced with an almost identical issue in the course of arbitration proceedings, Swiss and Russian arbitrators or courts seem to reach different conclusions.

A common issue in arbitration is an imprecise designation of the arbitral tribunal in an arbitration clause.  This article considers the effect of such flawed arbitration clauses in the light of contractual interpretation principles in Switzerland and Russia.

Interpretation of an Arbitration Clause in Switzerland

Pursuant to Swiss case law, inclusion of the exact name of an arbitral tribunal in an arbitration clause is not a minimum mandatory requirement.

However, an arbitral tribunal must be determinable. Whether the parties expressly agree the arbitral tribunal formation procedure or do so by reference to arbitration rules, it is equally valid.

Therefore, an imprecise or flawed designation of an arbitral tribunal should not result in the ineffectiveness of the arbitration clause if it is possible to determine by means of interpretation of the clause which arbitral tribunal the parties intended to designate.

Assuming the existence of the arbitration clause is not in question or has been established, Swiss courts interpret the clause broadly.

They will do so, firstly, by looking at the actual common intention of the parties, and, then, if the actual common intention of the parties is not certain, by using objective interpretation.

Decision of the Swiss Supreme Court

Decision BGE 129 III 675 concerns the interpretation of the term “Commercial court” in an arbitration clause.

A Croatian and a German party entered into a sale and purchase agreement.

The arbitration clause, headed “Arbitration” (in Croatian “ARBITRAZA”), provided that (translated from Croatian) “… it is hereby agreed the jurisdiction of Commercial court in Zurich (in Croatian “Trgovacki sud Zürich”), canton Zurich, Swiss material law shall apply.

After the Zurich Commercial (state) court (“Handelsgericht”) declined to accept jurisdiction, the claimant filed a request for arbitration with the Zurich Chamber of Commerce.  The arbitrator appointed by the ZCC accepted jurisdiction. The Swiss Supreme Court, when deciding the jurisdictional challenge, confirmed the jurisdiction of the arbitrator appointed by the ZCC and rejected the challenge.

The court reasoned that the parties – objectively interpreted – had intended to refer the matter to arbitration.  Therefore, the designation “Commercial court” in Zurich, was – objectively interpreted – not a state court but a reference to institutional arbitration.  As the arbitral institution was described imprecisely, the question was then which arbitration court the parties intended.

The court further reasoned that it was likely that the parties intended to refer the dispute to arbitration to the Zurich Chamber of Commerce, this being the only arbitral institution with its seat in Zurich which facilitated international arbitration proceedings.

Decision of Russia’s Supreme Arbitrazh Court (“Высший Арбитражный Суд РФ”)

Decision № ВАС 8147/12, OOO Kubik v OOO Regus Business Centre Metropolis, concerns the interpretation of  the term “a commercial court” in an arbitration clause. (See also Russian SCC to Consider a “Problematic” Arbitration Clause.)

The parties entered into a commercial lease agreement with an arbitration clause, drafted in English, providing that “… any dispute… shall be submitted to a commercial court and finally settled by it in accordance with the rules of the ICAC…  The place of arbitration shall be Moscow”.

The ICAC accepted jurisdiction and rendered arbitral award № 163/2009 against OOO Kubik.

  Upon Kubik’s application, the arbitral award was set aside by the Moscow Arbitrazh Court (“Арбитражный суд города Москвы”), whose decision was subsequently confirmed by the Supreme Arbitrazh Court (“Высший Арбитражный Суд РФ”).

The court reasoned that the arbitration clause did not expressly state the name of the ICAC as an arbitral tribunal empowered to settle disputes between the parties to the contract.  A mere reference to the ICAC Rules was not sufficient to confer jurisdiction upon the ICAC.

According to the court, the reference to the ICAC Rules meant that the arbitral tribunal was to be appointed pursuant to the ICAC Rules.  However, the ICAC was not meant, within the court’s understanding, to be the appointing authority.  Hence, the arbitral tribunal appointed by the ICAC had no jurisdiction.

It would seem that the interpretation of the arbitration clause by the Russian court was narrow.

Article 431 of the Civil Code of the Russian Federation (Contractual interpretation) provides that, first, the court should look at the literal meaning of the wording, failing which the court should determine the actual common intention of the parties.

Russian legal writing admits that, when it is not possible to determine the actual common intention of the parties, the court should use objective interpretation, i.e.  according to the understanding of a reasonable person.

However, in the Kubik v Regus matter, the Russian court did not go further than the literal interpretation of the arbitration clause, without determining the parties’ intention.

Let it be ad hoc

The Russian court applied a literal interpretation to the arbitration clause.  It came to the conclusion that the wording “a commercial court” and the reference to the ICAC Rules signified ad hoc arbitration in accordance with the ICAC Rules.

The court reasoned that nothing in the ICAC Rules prevents other arbitral tribunals from applying them.  Thus, ad hoc tribunals may also apply the ICAC Rules.

It is questionable whether the literal meaning of the wording “a commercial court” in this context is indeed an “ad hoc arbitration”.  One may criticise the court for not attempting to establish the parties’ intention.

The Swiss court, by contrast, considered that the wording “arbitration… in Commercial court” is to be interpreted objectively as a reference to institutional arbitration.

That which we call an arbitral tribunal by any other name would not necessarily smell as sweet.

About the Author:

Ekaterina Butler is attorney with a Swiss law firm LALIVE. Her main areas of practice are international arbitration, international taxation and estate planning. Ekaterina holds a degree in law and economics from the University of London, SOAS, and a degree in linguistics from the University of St. Petersburg, Russia. See full profile.

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