The ICC standard arbitration clause potentially invalid in Russia

According to Russian media, the ICC has recently applied to the Russian Supreme Court ("SC") asking that it clarify the approach of Russian courts to the ICC standard arbitration clause demonstrated in one of their cases (No. A40-176466/17). In this case the Moscow Arbitrazh Court and appeal courts (including the SC), found that a reference to the arbitration rules of an arbitral institution was not sufficiently clear evidence that the parties had agreed on that specific institution to administer the resolution of their disputes.

Background

The dispute arose between Dredging and Maritime Management SA ("Claimant") and JSC "InzhTransStroy" ("Respondent") on the grounds of the Respondent's improper performance under a contract.

The contract contained the standard ICC arbitration clause: "All 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". Geneva, Switzerland was chosen as the seat of arbitration.

The Claimant brought arbitral proceedings and the ICC Tribunal issued an award in its favour for the recovery of EUR 3.6 m plus interest.

When the Claimant applied to have the award recognised and enforced in Russia, the Russian courts dismissed the application on two principal grounds:

1. The Respondent had been in insolvency, reached a settlement with its creditors and was supposed to pay the debts in instalments. The enforcement of the award would prejudice other creditors, therefore, it violates the Russian public policy. (We do not comment on this ground in this note.)
2. The standard ICC arbitration clause failed to provide for a specific arbitration court to administer the arbitration as it only referred to the ICC Rules and not to the ICC itself. Therefore, the ICC Tribunal lacked jurisdiction.

Comment  

Russian courts have upheld the ICC and other standard arbitration clauses on numerous occasions in the past. The conclusion in this case that a reference to a set of institutional rules does not indicate a clear intention to refer that dispute to a specific institution or arbitration court is therefore somewhat surprising. It is also an analysis which is difficult to support, particularly given that the first article of the ICC Rules agreed between the parties refers to the International Court of Arbitration of the International Chamber of Commerce as the administrative body for resolving disputes under those rules.

The approach is concerning given that a large number of contracts involving Russian parties contain the standard arbitration clauses published by the ICC or other recognised arbitral institutions. It is quite possible that a number of these standard clauses may refer to the rules of a particular arbitral institution but not expressly name the arbitration court.

It is not clear if the SC will respond to the ICC's request or if such request will become publicly available. The above judgments do not set a binding precedent under Russian law, but the case may well have a persuasive effect in future. Clarity would therefore be welcomed.

In the meantime, it would be advisable for those considering entering into an arbitration agreement with a Russian party to amend the recommended standard arbitration clauses of any arbitral institution to make it clear that any disputes are to be referred to arbitration, administered by the named arbitration institution in accordance with its rules.

For further information, please contact Alexei Panich, partner, Nick Peacock, partner, Alexander Khretinin, senior associate, or your usual Herbert Smith Freehills contact.