Intention to Arbitrate or Pathological Arbitration Clause?

By Cai & Lenard, Ukraine
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Ukrainian courts’ practice still is not a pro-arbitration one. However, there is the understanding of difference between a pathological arbitration clause and a poorly drafted clause which though may be rescued.

Before we illustrate that statement with a court case, let us define the basic notion. Pathological arbitration clauses might be defined as those drafted in such a way that they may lead to disputes over the interpretation of the arbitration agreement, may result in the failure of the arbitral clause or may result in the unenforceability of an award (Defective arbitration clauses were first denominated as "pathological" in 1974 by Frederick Eisemann, who served at that time as the Secretary General of the ICC International Court of Arbitration. A Practical Guide For Drafting International Arbitration Clauses by R. Doak Bishop King & Spalding)

The Supreme Economic Court of Ukraine decided that the indication of the place of resolution of dispute may not be considered as valid arbitration clause. In its decision of 16 January 2007 in the case Ferum-Fracht LLC v. Schenker LLC (case No 47/89) the court stated that the parties had agreed to resolve disputes between them in Coburg, which is only the name of the city. According to the court “this did not allow to say that the parties agreed the seat of arbitration (arbitration institution or rules of selection of ad hoc arbitration), rules of resolution of the dispute or an arbitration clause referring to the rules of the particular arbitration institution – that makes the arbitration clause unenforceable”.

Basically, the court was able to admit that there was the parties’ intention to arbitrate the dispute. But this would not help to give effect to the agreement if it has such principle defects as inconsistency, uncertainty and ambiguity or if it is completely inoperable.

Even in the famous case Arab-African Energy Corp. v. Olieprodukten Nederland, B.V.2 Lloyd’s Rep decided more than 20 years ago, where the court in England validated the laconic arbitration clause: “English law-arbitration, if any, London according ICC Rules.”, the rules were indicated. The rules are the decision element that allows restoring an arbitration clause. Having the arbitration rules agreed (for example, UNCITRAL arbitration rules) the party initiating the arbitration is able to proceed step by step even in conditions of other party’s resistance.

ABOUT THE AUTHOR: Konstantin Pilkov
Konstantin Pilkov, MCIArb is a Head of International Arbitration Practice, Managing partner at the Cai and Lenard law firm in Kyiv, Ukraine. He is a member of the Chartered Institute of Arbitrators, the German Institution of Arbitration (DIS), the Austrian Arbitration Association, the Swiss Arbitration Association (ASA), the Ukrainian Bar Association and the European Arbitration Chamber. Mr Pilkov is listed as an arbitrator at the International Commercial Arbitration Court at the European Arbitration Chamber, the court of arbitration at the First Securities Trading Association (PFTS Association). Konstantin Pilkov is Vice-chairman of the Court of Arbitration at PFTS Association. Certified insolvency practitioner.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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