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07 May 2020
In a recent decision, the Supreme Court confirmed an arbitral tribunal's broad interpretation of the objective scope of an arbitration agreement contained in a quality assurance agreement (QAA) to cover disputes which were unrelated to the QAA but arose within the contractual relationship of the parties thereto.(1)
Following a tender process, a German company, B, awarded a South Korean company, A, a project for the supply of equipment within the automobile sector. The parties entered into a QAA, which provided that 'contract disputes' had to be resolved by International Chamber of Commerce (ICC) arbitration in Zurich. The parties also negotiated a corporate agreement and general terms and conditions (terms of purchase), but never signed these documents. Following A's decision to abandon the project, B started ICC arbitration to claim damages against A. In a partial award on jurisdiction and liability, the arbitral tribunal declared that it had jurisdiction to decide the dispute based on the arbitration agreement contained in the QAA and admitted A's liability. A challenged this award before the Supreme Court, arguing that the arbitral tribunal had wrongly admitted jurisdiction.
The Supreme Court confirmed the arbitral tribunal's broad interpretation of the arbitration agreement contained in the QAA, holding that it could not be inferred from the use of the term 'contract disputes' that the parties had intended to submit to arbitration only disputes arising directly out of the QAA and to exclude disputes concerning the actual supply obligation. While the QAA dealt with specific issues, it was part of the contractual arrangements governing the supply relationship. The fact that the unsigned corporate agreement and terms of purchase also contained arbitration clauses did not mean that independent dispute resolution mechanisms applied to individual claims within the same supply relationship. Rather, this fact corroborated the interpretation that the chosen dispute resolution (ie, ICC arbitration in Zurich) applied to the entire supply relationship. The Supreme Court also made it clear that it was not extending the QAA's arbitration agreement to other independent contracts, but rather that the applicant had to understand this agreement in good faith as applying to the entire supply relationship. Thus, the Supreme Court concluded that the term 'contract disputes' in the QAA's arbitration agreement had to be understood as covering all disputes concerning the supply obligation, including disputes on the existence of such an obligation.(2) Therefore, A's challenge was dismissed.
This decision is notable because it confirmed an award in which the arbitral tribunal interpreted an arbitration agreement contained in a contract as encompassing disputes arising under other (unsigned) contracts containing their own dispute resolution clauses in the context of a global transaction. This decision also confirms the Supreme Court's practice whereby it cannot easily be assumed that parties intended to provide for an arbitral tribunal's jurisdiction but that, once it is established that the parties agreed on the arbitral tribunal's jurisdiction, there is no reason to interpret an arbitration agreement narrowly.
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