AGA Partners successfully represented a Swiss agri-trading company (“Buyer”) in a London-based commodity arbitration initiated by one of major Ukrainian agricultural holdings (“Seller”). The dispute arose based on an Ex Works sale contract and concerned an alleged failure of the Buyer to make a payment.
The contract incorporated a hybrid arbitration clause, which provided for dispute settlement in a major world arbitration forum in London in accordance with the rules of a different arbitration forum.
The parties took opposite views on which arbitration forum was more appropriate to hear the dispute. The Seller claimed that the choice of arbitration rules was decisive, whereas the Buyer insisted on the priority of choice of an arbitration forum.
The Tribunal considered the parties’ submissions and found that the arbitration clause was defective. It contained mutually exclusive terms that could not be enforced in full. The Tribunal decided to give force to the terms of the arbitration clause, which expressed the parties’ choice of an arbitration forum. The reference to rules of the commodity arbitration, where the proceedings took place, was ambiguous compared to the reference to an arbitration forum. Consequently, the Tribunal found that the ambiguous reference to arbitration rules did not confer it with jurisdiction to consider the dispute on its merits.
This case has proven that defective arbitration clauses create serious risks. A hybrid arbitration clause, being one of them, provides a defendant with an opportunity to defend his case by way of challenging the jurisdiction of a particular arbitration tribunal and/or validity of an arbitration award, once rendered on merits. We strongly advise our clients to avoid such risks and use model arbitration clauses, offered by most institutional arbitrations in the world.