Ambiguous Clause Successfully ‘Cured’

Russian courts have traditionally been cautious in dealing with ambiguous and too general arbitration clauses.

Where parties agree that their disputes “shall be resolved by arbitration” without more the clause is unlikely to be enforced.

However, Russia’s participation in the European Convention on International Commercial Arbitration (the “European Convention”) provides a very useful instrument to deal with such clauses. Specifically it entitles a party to an arbitration agreement to request a specifically designated body to ‘remedy’ many defects of an arbitration clause.

A recent decision of the Omsk Commercial Court illustrates a successful application of this mechanism. While the original arbitration clause between the parties had provided that all disputes shall be resolved by “arbitration court in Vienna”, the Russian court deferred to the European Convention’s body’s decision that the parties shall submit their disputes to the Vienna International Arbitration Centre.

The European Convention Mechanism

The European Convention applies to international trade disputes where both parties to the arbitration agreement (clause) have their seat or habitual residence in states that are parties to the convention. Many (but not all) European and CIS states, including Austria, Azerbaijan, Belarus, Belgium, Czech Republic, France, Germany, Italy, Kazakhstan, Poland, Russia, Spain, Turkey and Ukraine are parties to the convention.

Under Article IV of the European Convention if the parties agreed to refer their disputes to institutional arbitration, but failed to designate an institution, a party may apply to the President of the Chamber of Commerce of either the state of the seat of the arbitration or the state of the respondent’s seat for such a designation. The same procedure applies where the parties agreed to arbitration without indicating whether it should be institutional or ad hoc or where they failed to agree on a mechanism for appointment of arbitrators or other important issues in the arbitration agreement.

Omsk Commercial Court’s decision

LLC Omsk-Steklotara commenced proceedings against Sklostroj Turnov CZ s.r.o (“Sklostroj”) seeking termination of the equipment supply agreement between them and recovery of over 41 million euro advanced under the agreement.

Sklostroj applied to have the case referred to arbitration relying on a provision of the agreement under which all disputes shall be submitted to “arbitration court in Vienna” and proceedings should be conducted in English.

Omsk Commercial Court initially denied the application. It agreed with the claimant’s arguments that the arbitration clause was too ambiguous to be enforced. Specifically the court pointed out that the clause named neither the arbitral institution which would administer the arbitration, nor the state where the arbitration would be seated.

The court nevertheless agreed to postpone further hearings pending the outcome of Sklostroj’s applications to the Presidents of Chambers of Commerce of Austria and Czech Republic under the European Convention.  The court’s provisional decision that the parties had failed to agree on the seat of arbitration (notwithstanding the reference to Vienna) apparently necessitated engagement of the Chambers of Commerce of Austria (apparent seat of the arbitration) and Czech Republic (state of respondent’s seat).

The Presidents of both Chambers determined that the parties to the agreement should submit their disputes to the International Arbitration Centre of the Austrian Federal Economic Chamber in Vienna. Having satisfied itself that the European Convention applies to the case, Omsk Commercial Court deferred to these decisions and referred the parties to arbitration.

The full text of the decision of Omsk Commercial Court is available here (in Russian).