Supreme Commercial (Arbitrazh) Court of Russia upholds pathological ICC arbitration clause (Bosch v Avtosped)
Last year, the Supreme Commercial (Arbitrazh) Court of Russia upheld a pathological arbitration clause that, although specifying that the parties’ disputes were to be resolved pursuant to the ICC Arbitration Rules, was silent on the parties’ choice of administering institution. In his latest article, Mikhail Samoylov discusses the court’s decision and its implications.
Facts and background
In 2009, Avtosped Internationale Speditions GmbH (Avtosped) and Bosch Thermotechnology (Bosch) en-tered into a contract of freight for forwarding services in international road transportation.The contract con-tained the following arbitration clause:
‘If the parties fail to reach an agreement, the case should be referred to a court at the defendant’s location and the dispute shall be settled under the laws of that state under the «Rules of Conciliation and Arbitration of the International Chamber of Commerce» by one or more arbitrators appointed in accordance with the said Rules. The award shall be final and binding and shall not be subject to appeal.’
Accordingly, the arbitration clause referred explicitly to the ICC Arbitration Rules, but did not state whether the International Court of Arbitration of the ICC and/or the ICC Arbitration were to administer the arbitration.
Pursuant to the contract, Bosch instructed Avtosped to deliver cargo to Kemerovo (a city in Western Siberia, Russia). During transportation, the cargo was damaged and, despite the existence of the above clause, Bosch commenced court proceedings before the Arbitrazh Court of the Kemerovo region and claimed RUB 4,932,159 in damages.
The decision of the Arbitrazh Court of the Kemerovo region
Article 148 (1)(5) of the Commercial Procedure Code of the Russian Federation provides that:
‘The commercial court leaves a statement of claim without consideration if, after its acceptance for judicial proceedings, it establishes that here is an agreement between the parties on the consideration of the given case by an arbitration tribunal, if one of the parties, no later than on the day of filing its first application on the merit of the dispute with a commercial court of the first instance, raises an objection on this ground against the consideration of the case in a commercial court, save for the instances, when the commercial court establishes, that this agreement is invalid, has lost effect or cannot be executed.’
Relying on the article set out above, Avtosped objected to the case being heard by the court. Nevertheless, the Arbitrazh Court of the Kemerovo region decided to hear the case and rendered a decision in favour of Bosch. The court’s decision was confirmed subsequently by both the 7th Appellate Court and the Federal Arbitrazh Court of West Siberian region. Among other things, these two courts referred to art II (3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and found that the arbitration clause was unenforceable because it was unclear and it was impossible to understand the real intentions of the parties with respect to the arbitral institution chosen for the resolution of the dispute.
This stance contrasts with another, more arbitration-friendly, approach to a similar pathological arbitration clause. In Regus v Kubik, the Federal Arbitrazh Court of Moscow region held that an arbitration clause that referred to the Rules of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC), but failing to refer to the institution itself, meant that the parties had chosen to resolve their disputes by ad hoc arbitration in accordance with the Rules of the ICAC as there is no prohibition on the use of the Rules of the ICAC by other arbitral institutions or in ad hoc arbitration.
The supervision complaint to the Supreme Commercial (Arbitrazh) Court of Russia
Following these decisions, Avtosped submitted an application for supervisory review to the Supreme Com-mercial (Arbitrazh) Court of Russia, which decided to review the case.
In July 2013, the Supreme Commercial (Arbitrazh) Court overturned all of the decisions of the lower courts. Accordingly, Bosch’s statement of claim was left without consideration in accordance with art 148 (1)(5) of the Commercial Procedure Code of the Russian Federation and the dispute was submitted to arbitration in accordance with the parties’ arbitration agreement.
Key points of the court’s decision
The Supreme Commercial (Arbitrazh) Court examined, firstly, whether the subject matter of the dispute was arbitrable. The court held that it was arbitrable as, pursuant to the Russian law, there is no restriction on the resolution of disputes in relation to freight contracts by arbitration. The dispute arose out of a private, com-mercial contract between two parties and was, therefore, arbitrable.
Next, the Supreme Commercial (Arbitrazh) Court tested the arbitration clause for written form as well as va-lidity and enforceability. The court found that the arbitration clause was in writing, was not invalid, unen-forceable, inoperative or incapable of being performed.
Finally, the issue of execution of the arbitration clause was examined. The lack of a clear reference to the arbitration institution (in this case, the ICC) did not make the clause unenforceable because it referred to the Arbitration and Conciliation Rules of International Chamber of Commerce which describe the procedure for the formation and functioning of the arbitral tribunal, as well as the procedure for resolution of disputes by this arbitral tribunal. Since the parties agreed that ‘the case should be referred to the court at the place of business of the defendant’, the arbitration clause clearly demonstrated that the parties agreed that any dis-putes should be resolved by arbitration in accordance with the Rules of Arbitration and Conciliation of the International Chamber of Commerce and the venue of arbitration should be Russia or Germany (where the court found the defendant’s places of business to be).
The Supreme Commercial (Arbitrazh) Court’s decision is a good example of an arbitration-friendly approach being taken by the Russian state courts. It is hoped that other Russian courts will take note of this approach. The case is also a lesson in how an imperfectly drafted arbitration clause can result in wasted time and costs for parties involved in dispute resolution.