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Swiss Rules play a trick, of Why Ukrainian state courts do not recognize “arbitration in Geneva”?

With this post we continue the Ukraine – arbitration-friendly jurisdiction set of comments. We already discussed how Ukrainian courts treat ad hoc arbitration and what is their perception of the Arbitration Institute of the Stockholm Chamber of Commerce. This time the arbitration under the Swiss Rules is in our focus.

Arbitration Swiss1 Swiss Rules play a trick, of Why Ukrainian state courts do not recognize “arbitration in Geneva”?


As you know, in order to promote institutional arbitration in Switzerland and to harmonize the existing rules of arbitration, the Chambers of Commerce and Industry of Basel, Bern, Geneva, Neuch?tel, Ticino, Vaud and Zurich have adopted the unified "Swiss Rules of International Arbitration", which replace the formerly different rules of international arbitration of these Chambers. The Rules can be downloaded in English and other languages on the Swiss Chambers' Court of Arbitration and Mediation website.

We suppose that there is no secret for you as well that the standard arbitration clause recommended by the Swiss Chambers sounds as follows:

Any dispute, controversy or claim arising out of or in relation to this contract, including the validity, invalidity, breach or termination thereof, shall be settled by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers of Commerce in force on the date when the Notice of Arbitration is submitted in accordance with these Rules.

The number of arbitrators shall be ... (one or three);

The seat of the arbitration shall be in ... (city in Switzerland, unless the parties agree on a city abroad);

The arbitral proceedings shall be conducted in ...(insert desired language).

In some cases the implementation of that standard arbitration clause plays a trick if an award is one to be enforced in Ukraine. In our previous posts we already mentioned the formal approach of Ukrainian state courts in the matter of checking the validity and enforceability of an arbitration clause. As the Supreme Economic Court of Ukraine stated in 2002, the courts should take into account the parties’ right to agree about arbitration of a dispute. It means that “the parties of the foreign trade agreement have the right to agree therein or by way of execution of a separate agreement (arbitration agreement, arbitration clause) to submit arbitration disputes which may arise out of that agreement for settlement to an arbitration (third-party tribunal) whether conducted by a tribunal administered by a permanent arbitral institution or set up specifically for a given case – ad hoc). That agreement should clearly define the body chosen by the parties: the International Commercial Arbitration Court, the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry or other arbitration in Ukraine or abroad.” It means that if the parties agreed to settle disputes in an institutional arbitration, they have to clearly specify that institution. In our case we assume that the Ukrainian court would be happy to see one of the Chambers that adopted the Swiss Rules (Basel, Bern, Geneva, Neuch?tel, Ticino, Vaud and Zurich) indicated in an arbitration clause. As we can see the standard arbitration clause does not mention the chamber.

 There is an interesting detail, we want to share. You may read in the “Administration of the Rules by the Swiss Chambers of Commerce and Industry Memorandum “ that  “as soon as a Chamber has received a Notice of Arbitration, it shall verify whether the arbitration agreement under which the Notice of Arbitration is filed refers to the Swiss Rules and to the Canton in which the Chamber is located.” This internal requirement relates to the algorithm of processing the documents by secretariats of chambers, but it also makes reasonable our position that it is better to indicate the Chamber even using the standard arbitration clause recommended by the Chambers.

Otherwise this may cause problems if you have to enforce an arbitration award in Ukraine, because Ukrainian courts in the majority of cases would treat an arbitration agreement referring to the Swiss Rules as that one referring to an institutional arbitration, however without proper indication of and arbitral institution.

Let us illustrate the above statement with some holdings that Ukrainian courts came to.

In the case ZTMK v. BEARCO S.A.  (case No. 24/81/10) the court of first instance in its decision of March 23, 2010 expressly indicated that the arbitration institution (Arbitration Court of the Swiss Chamber of Commerce – as specified in the respective contract) to which the parties agreed to refer did not exist, and thus the arbitration clause was unenforceable.

The other case shows that it is not enough for the arbitration clause to become enforceable to agree on arbitration and indicate the canton where the arbitration has to take place, even if the chamber of that canton is among those that adopted the Swiss Rules. In the case Atem LLC v. S.A.S (case No. 17/355, decision of October 12, 2010) the economic court ruled that the arbitration clause, according to which the disputes had to be resolved by the arbitration court  and the hearings had to take place in Geneva, was unenforceable because the parties failed to indicate the precise name of the arbitration institution.

It may seem that Ukrainian courts do not like Geneva, because in similar circumstances they had no critical comments concerning arbitration in Zurich and even Nyon.

In the case Europcell GmbH v. Luch (case No. 41/250-07) the Dnipropetrovsk Region Economic Court with its ruling of January 16, 2008 terminated the proceedings on the grounds that the parties agreed in the contract “to settle the disputes in the International Commercial Arbitration Court in Zurich”. Clearly, that was more correct indication of the arbitral institution, but not enough to be honest if we take the formal approach.

Let us present the last illustration of unpredictability of Ukrainian court system’s position in the matter of enforceability of arbitration agreements.

In the case Poverkhnost TV v. National TV Company of Ukraine (case No. 12/335) the court in its ruling of December 25, 2007 recognized an arbitration agreement as valid, though the agreement stated only that “any dispute between the parties to the agreement shall be considered by the arbitration court in Nyon, Switzerland”. As you can see the Swiss Rules were not mentioned. Moreover, Nyon is not one of the cities of residence of any of the Swiss Chambers.

 What is the result of the analysis of the above “court practice”? The right answer is the following: If you are dealing with Ukrainian jurisdiction, be aware that you need to indicate an arbitral institution in your arbitration agreement precisely as it is named officially, even if an arbitration clause recommended by that institution allow you to indicate only the rules.

Posted by Konstantin Pilkov, MCIArb

logo Swiss Rules play a trick, of Why Ukrainian state courts do not recognize “arbitration in Geneva”?

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