Arbitration, as known, has become a popular method of dispute resolution. However, in practice, during the contract formation, the arbitration may be indicated incorrectly.

For example, when the arbitration naming is ambiguous, or does not even exist. The arbitration clause can become “defective”.

Such cases occur not only in contracts between the local parties, but also in cross-border transactions with foreign contractors for the supply of goods, where the cost of the contract may exceed hundreds, and even millions of US dollars.

In result, arbitrations with the similar naming do not recognize their competence in disputes (since their naming is not directly mentioned in the clause). While state courts are obliged to return claims under contracts, which include the arbitration clause. Thus, the parties get deprived of the right to protection of their breached or disputed right.

However, there is a solution.

First way: Appointment of a competent arbitration body in accordance with the European Convention on International Commercial Arbitration.

The European Convention on International Commercial Arbitration (the — “Convention”) allows to protect the rights in arbitration even in cases of defective arbitration clauses. The parties have to contact the authorized body, which in Kazakhstan is the Arbitration Center “Atameken”.

The following requirements should be met:

  1. Arbitration body is not precisely determined (there is a defective arbitration clause);
  2. The parties of the arbitration clause are legal entities, registered in Member States of the Convention (e.g. Russia, Germany, France, Italy, Turkey, Hungary);
  3. The parties could not reach a single agreement on determining the particular arbitration body.

Atameken has a wide experience in appointing competent arbitration institutions based on the Convention. At the same time, such procedure is also followed by the collection of evidence base, which proves the absence of disputed arbitration and defective arbitration clauses.

Second way: Resolving the issue within the legal framework of the Republic of Kazakhstan.

If the contracting parties cannot apply the Convention, they can file a case to court, if the arbitration clause is recognized as void or unenforceable. The law ‘On Arbitration’ and the Normative resolution of the Supreme Court № 3 from 02.11.2023 (the — “NRSC”) include the applicable provisions.

According to the NRSC, the inability of enforcement of an arbitration agreement can be expressed, when an arbitration clause provides for permanent arbitration, which had ceased to exist by the time the dispute arose. In this situation, such disputes can be resolved in state courts in order determined by the Civil Procedure Code of the Republic of Kazakhstan.

This method is longer and more demanding. Although the practice on recognizing the defective arbitration agreements void or unenforceable in courts of the Republic of Kazakhstan is not wide, it should be still worth-considering.

Hence, resolving the dispute with a defective arbitration agreement (clause) is possible, although it is more time-consuming. Most importantly, it allows for a full protection of a breached or disputed right.

Authored by

Maxim Burak, Partner

Nurlybek Sultan Nusipzhanov, Associate

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