The Supreme Court of Russia has recently in a judgment of 26 September 2018 surprised many international arbitration practitioners by holding that the standard ICC arbitration clause in a contract between Luxembourgish and Russian parties was not sufficiently clear evidence of the parties’ agreement that the ICC Court of International Arbitration was to administer their arbitration.
Similarly to the model arbitration clauses of many of the leading arbitral institutions, the standard ICC arbitration clause does not specifically state that the arbitration will be administered by the ICC Court of International Arbitration. Rather, a reference to arbitration under the ICC Rules has virtually without exception been understood to inevitably mean arbitration that is administered by the ICC Court and its Secretariat under the ICC Rules. The model ICC Arbitration clause stipulates: “[a]ll disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”
In the Russian case, the Luxembourgish claimant had obtained a favourable decision in an arbitration seated in Geneva, Switzerland. In the final arbitral award, the Russian company had been ordered to pay EUR 3.6 million in damages plus interest.
The Supreme Court of Russia denied the enforcement of the ICC award on the basis that the award was against the public policy of Russia and that the ICC Tribunal lacked jurisdiction because the arbitration clause failed to specify the arbitral institution that was to administer the arbitration.
A similar reasoning can be found in a judgement delivered by the Chinese Supreme People’s Court previously.
The Russian Supreme Court’s judgment marks a distinct departure from its previous judgments, on which it has upheld ICC and other standard arbitration clauses. We understand that the judgment will not be considered as a binding precedent in Russia but will nevertheless have at least a persuasive effect on future judgments.
We further understand that Mr Alexis Mourre, the President of the International Court of Arbitration of the ICC, has sent a letter to the Supreme Court of Russia requesting a clarification on the ruling of the Supreme Court of Russia deeming a standard ICC Arbitration Clause defective and unenforceable under Russian law.
Effect on Finnish businesses
Taking into consideration the unpredictability of the repercussions of the judgement in Russia, we would advise Finnish parties that are considering entering into an arbitration agreement with a Russian or Chinese counterparty to amend the standard arbitration clauses of any institutions, including the FAI, to state clearly that any disputes are to be referred to arbitration, administered by the named arbitration institution in accordance with the relevant institutions’ rules.
Whilst the recent judgment of the Russian Supreme Court concerned a standard ICC clause, the Russian courts may adopt a similar position towards any institutional standard arbitration clauses, as they also merely refer to arbitration under the given institution’s rules.
The FAI and SCC standard/model arbitration clauses use language that is similar to the ICC model clause and also omit the express reference to the institution itself:
We advise clients to contact D&I’s Dispute Powerhouse team and to seek further advice regarding tailor made arbitration clauses when dealing with Russian parties.
D&I’s Dispute Powerhouse is following up on the developments of the matter and will keep you updated.