Earlier this week, the Presidium of the Supreme Commercial Court released the full text of its resolution in Bosch v. Avtosped (a case we covered earlier). Unsurprisingly, the court dismissed Bosch’s claims and referred them to arbitration.
However, the Supreme Commercial Court used the case to go over some basic rules that the Russian courts should apply when the respondent party asks them to refer the case to arbitration. The two most important issues the highest commercial court addressed are validity and enforceability of arbitration clauses and their interpretation.
Brief Overview of the Case
The dispute arose out of alleged damage caused to the goods Avtosped transported for Bosch. Under the contract between the parties any disputes arising under it had to be referred to a “court” of the respondent’s state pursuant to the “Rules of Conciliation and Arbitration of the International Chamber of Commerce” (1988 ICC Rules). Instead Bosch commenced proceedings before a Russian commercial court. In these proceedings Avtosped repeatedly asked the courts to refer the case to arbitration, but all lower courts ruled in favour of Bosch until the case came before the Supreme Commercial Court.
Russian Courts and Article II(3) of the New York Convention
Under the New York Convention if a party to an arbitration clause commences proceedings before a national court the other party may ask the court to refer the case to arbitration. The court should grant this request unless it finds that the clause is void, inoperative or incapable of being performed. Courts in different countries adopted two distinct approaches to application of this provision. For example, in France or Switzerland the court will assess the arbitration clause’s validity only prima facie deferring to the arbitral tribunal’s power to rule on its jurisdiction. In Germany, the court will conduct a full review of the clause’s validity.
The Supreme Commercial Court refrained from committing to either of these approaches. It held that if the respondent requests the court to refer the case to arbitration, the court should satisfy itself that the arbitration clause is (i) valid, (ii) enforceable, (iii) capable of being performed and (iv) the subject matter of the dispute is arbitrable. Importantly, the Supreme Commercial Court emphasised the criteria the courts should use in determining whether a dispute is arbitrable. They include the (i) private law nature of the underlying case and (ii) lack of express ban on referral of such disputes to arbitration.
Interpretation of an Arbitration Clause
Two important messages can be deduced from the Supreme Commercial Court’s decision.
First, the courts should look at the substance rather than form when interpreting an arbitration clause. If the parties referred to the ICC Rules of arbitration, which contain detailed rules governing both conduct and administration of arbitration, they do not need to expressly stipulate that the ICC ICA will administer the arbitration. In fact, the Supreme Commercial Court went so far as to state that this conclusion is “obvious”.
Second, if the parties enter into an arbitration agreement the court should presume that they agree to arbitration as the exclusive forum. To support this proposition the court cited the Brussels Regulation I. This statement probably reflects the underlying concern of the Supreme Commercial Court that any decision the Russian courts rendered in favour of Bosch would not have been enforced in Germany (Avtosped’s place of business).
In many respects the decision of the Supreme Commercial court is a welcome development. Perhaps, the most important message it sends to the lower courts is that they should be more open-minded in interpreting arbitration clauses.