Arbitral agreement.

Пропустил 2 лекции 17.02.2014.

We finished the issue what should be detalization in specifying arbitral tribunal. It is indeed a question of practical importance. There are 2 different approaches - russian and foreign.

Our judicial practice of SCA - there was a special informational letter of the Presidium with regard to pecuniary case of consideration of cases with involvement of foreign persons (1990s).

There was an example when both litigants - the plaintiff and the respondent - insisted that they entered into arbitration agreement. But noone could specify exactly what arbitration court they chose. SCA accepted this case and resolved it on the merits. The court said that there was no agreement on arbitration form. The letter confirmed that such approach is justified one arbitral form was uncertain.

Meanwhile in foreign countries the approach is quite different. For instance, in US or UK both in doctrine and in practice it is sufficient if the parties agreed writing only word - "arbitration". The question arises - what if the arbitration agreement consists only of this word - "arbitration"? What arbitration form is meant by this word?

According both to international conventions and UNCITRAL Model Law as well as our National law on ICA there are 2 kinds of arbitration forums - a constituted arbitration institution (permanent arbitration) and arbitration ad hoc. Arbitration ad hoc is up to the parties to create procedural rules on arbitration. But there are UNCITRAL Rules on ad hoc arbitration as a guidance for the parties. The only word "arbitration" means that parties actually agreed upon ad hoc arbitration created under UNCITRAL Arbitration rules 2010.

In our country it will be insufficient, but in the west it's quite sufficient. In our country it is much more preferrable to the parties to specify arbitral forum as precisely as possible. Why is it so important? Let's take our CCI of Russian Federation - there are several arbitral forums of this Chamber - ICAC, IMC (maritime comission), Arbitration on resolution of economic disputes. It is necessary to specify which arbitration exactly was agreed by the litigants.

If you look into case-law of ICAC of CCI of Russia you will see that in three or four instances this forum refused to recognise its competence just because it was unclear that parties exactly chose the forum. That's why there is an advice by prof. Musin that we should better specify the forum as precisely as possible.

Another example. There is a voluntary arbitration court of SPb CCI. There is no other arbitration court of this chamber. It is much simpler to refer dispute to our forum although some complication may arise. The problem is what will be the concequences of some error in the headline in the name of arbitral forum?

The first case for Arbitration of SPb CCI was related to this question. Arbitration of SPb CCI was created in December, 1995. Prior to that there was no arbitration forum of this chamber. The problem was as follows.

A contract have a foreign counterpart (Denmark) and Russian counterpart (SPb). This contract was singed in 1993 and had an arbitration clause chose arbitration forum of SPb CCI: "Спор должен быть разрешен арбитражным судом при ТПП СПб". А в России этот суд называется "Третейский суд при ТПП СПб".

The dispute related to this contract did arise in December, 1995 (the day after Arbitration of SPb CCI was created). When they received the statement of claim from a foreign plaintiff it was, firstly, necessary for them to resolve an issue of jurisdiction.

Btw, the russian respondent submitted his statement of defence where, inter alia, it emphasized such issue. Firsly, the arbitration clause in the contract provided for "arbitrazhniy sud pri TPP SPb" while the official name was "treteysky sud". Furthermore, the contract containg this arbitration clause had been entered into in 1993, but that time such a forum did not exist at all. And the dispute arose in some late stage.

But since in the moment when the contract with this arbitration clause had been entered into there was no such arbitration forum. Due to the fact that arbitration clause provided for a forum which did not exist at that moment, the Arbitration of CCI SPb had no jurisdiction.

Musin, Egorov and some arbitrator from Moscow tried to define whether they have a competence to resolve this dispute. Indeed, in 1993 when this contract was entered into our arbitration forum didn't exist. On the other hand there was no dispute for resolution that time. The dispute arose couple of years later when the forum had already existed. They unanimously decided that they did have a competence to resolve this dispute.

The foreign party won this dispute and applied for enforcement in state arbitration court. Court issued the executive document. Therefore, court confirmed the award.

What about the name of arbitration forum contained in the clause? In the rules of Arbitration of CCI SPb it is stated that although the name is incorrect but both parties meant Arbitration of CCI SPb the clause is valid.

Btw, we mentioned yesterday (17.02) that the arbitration clause may be a part of civil law contract. But the legal nature of this clause is procedural.

And we've already discussed about it yesterday that it may be declared void (due to its contractual nature) if there was fraud, misunderstanding etc., i.e. the same grounds of invalidity which are created for civil law contracts. But an arbitration agreement is a procedural agreement. Why we apply to it grounds of invalidity from civil substantive law? Just because of analogy of lex. There is a gap contained in procedural law regarding the validity of procedural agreements. So the analogy of lex should be applied.

There was a case in SCA about 10 years ago. It dealt with the following issue. A trial court (district court of general jurisdiction) discovered some gap in GPK, it applied by analogy of lex some rule contained in UPK. The Presidium of SCA did confirm that such application is acceptable.

We should bear in mind that we can apply the rules on invalidity from GK to very limited extent. If we take the civil law transaction which was declared null and void we will see that GK also regulates the concequences of the declaration of transaction null and void - restitution. The regulation on the concequences of invalid transaction is inapplicable with respect to procedural agreements, including arbitral agreements.

There is a very interesting ruling of the Presidium of SCA issued 19 June, 2012. There was a contract. It contained an arbitration clause: Any dispute in connection with this contract which cannot be resolved by negotiation shall be resolved in accordance with rules of conciliation and arbitration by arbitrators of ICC. This arbitration clause does not limit the right of Sony Ericcson (foreign counterpart) to apply a competent state court with a claim for recovering the specific expences.

How do you assess this arbitration clause?

This is a very famous case which was widely discussed. Yes, there is some inequality in the clause but it was an agreement of parties.

The Presidium stated as follows. As it was stated by ECHR the parties should have equal procedural rights (equality of arms). Given this approach of the European Court an agreement related to dispute resolution cannot provide only one litigant with a right to application to the state court and deprive another party of this right. Hence, the Presidium declared that arbitration clause null and void.

Significance of arbitration clause in international contracts - we should look Vienna Convention 1980.

Our Civil code prohibits reservation between an offer and an acceptance (Art.439 - an acceptance should be completed and bezogovorochnim).

According to the Vienna Convention 1980 the rule is flexible. In case of insignificant differences between the offer and the acceptance the contract shall be deemed concluded on the conditions indicated in the acceptance unless other party immediately objects such acceptance. How to distingush substantial and insubstantial differences between the offer and the acceptance.

In travaux prepartoires of Vienna Convention 1980 there is a list of substantial differences: payment, currency etc. and, inter alia, conditions related to dispute resolution. It means that arbitration clause in contract under this Convention should be deemed as substantial.

At the same time as we repeatedly noted yesterday due to its procedural nature an arbitration clause even being included in the civil law contract is independent from this contract.

So we should consider in detail the problem of its independence.

Art.16 of the Model Law on ICA which is identical to the rule of our Law on ICA: tribunal may assess the validity of arbitration agreement, including the clause containing in the contract. The clause shall be deemed as independent for the purpose of such assessment. A decision by tribunal that the contract is null and void does not mean per se that the clause is also invalid. Therefore the independence of the clause is limited to the question of validity of the main contract and the clause. In other cases the clause is just a part of civil law contract.

When, for instance, Musin as a chaiman of arbitration of CCI SPb received from the executive secretary the statement of claim containing an arbitration clause prior to the accepting this statement he should to assess whether this dispute is capable to be resolved by an arbitration at all. It's only a very beginning (he should asses whether the dispute is private or public).

Furthermore, the specific wording of arbitration clause should be assess in order to decide whether the specific forum has jurisdiction to resolve the specific dispute.

When preparing an arbitral award the arbitrators should explain why they are competent to resolve this dispute. Also there may be a dispute between the parties whether the tribunal is competent to resolve the dispute. If such dispute arises the tribunal should resolve this jurisdictional issue.

It may resolve it in 2 ways: in some preliminary decision (decision on jurisdiction) or in the award.

Art.16 of the Model Law (Section 3) - the arbitral tribunal may rule on jurisdiction either in preliminary decision or in award. If in preliminary stage the tribunal decides that it has jurisdiction the party may request the state court to assess such a decision on jurisdiction.

If both parties agreed that the tribunal does have a jurisdiction there's no dispute. If one party objects the jurisdiction of the tribunal then this objecting party has an option. It may request the arbitral tribunal to resolve an issue on its jurisdiction as a preliminary matter. To what extent (if any) such motion of the party is binding for the tribunal? Should it resolve the issue on jurisdiction as a preliminary metter? Yes, it shall decide whether it has jurisdiction, but in the preliminary ruling or in the award?

It is up to the discretion of the tribunal.

May the tribunal decide an issue of jurisdiction on its own initiative? It may, but when the proceedings commenced it already decided this issue.

Coming back to preliminary ruling and the award. Art.16(3) states that such a ruling by state court shall be subject to no appeal. That's interesting since in GPK and APK a challenge of the ruling (opredelenie) separately from the judgment is admissible if (i) it is provided by the Code, or (ii) this ruling precludes further proceedings.

So it is specifically stated in the Law on ICA (including our Russian Law 1993) that a preliminary ruling concerning competence of the tribunal may be challenged to the state court which is entitled to issue its own ruling whereby the state court may either confirm that the tribunal does have jurisdiction or to confirm that it doesn't have jurisdiction.

Under Art.16(3) of the Law on ICA such a ruling of the state court may not be challenged. But state court should act in accordance with procedural law (GPK, APK). So we need to look at this Codes to understange whether such ruling of state court is subject to challenge.

Art.234 of APK deals with the challenge of arbitral award. The state court should issue a ruling whereby it satisfies the motion of losing litigant to reject the award or to refuse it. Part 5 of this article stipulate - a ruling in such situation may be appealed to the state arbitration of cassation court within 1 month. A possibility to challenge such a ruling exists. At least under APK.

Art.240 (or 204) of APK relates to a ruling of state court in a case of issue of enforcement. Part 5 provides that such ruling on execution may be appealed to cassation instance with 1 month.