Evaluation of Pathological Arbitration Clauses under Turkish and English Law

Evaluation of Pathological Arbitration Clauses under Turkish and English Law

What are Pathological Arbitration Clauses?

Pathological arbitration clauses are poorly drafted or ambiguously worded provisions in arbitration agreements that may obstruct the proper initiation or conduct of arbitration proceedings. Common examples include failure to correctly name an arbitral institution or designate a specific institution altogether, and clauses that simultaneously confer jurisdiction on both arbitral tribunals and state courts. The term "pathological clause" was first coined by Frédéric Eisemann, a prominent figure in the field of international arbitration, to describe such defective clauses that jeopardize the enforceability of arbitration agreements.

The reason any ambiguity in the arbitration clause hindering the effective execution of the arbitration is because arbitration is an exception to the state’s power of judiciary. Arbitration clauses require that the intention of parties to arbitrate to be clear. In this article, the validity of pathological clauses under Turkish and English law will be compared based on judiciary decisions of each jurisdiction.

Evaluating the Validity of Pathological Arbitration Clauses under Turkish Law

Under Turkish law, court decisions have emphasized that for an arbitration clause to be valid, it must reflect the parties’ clear and unequivocal intention to arbitrate. Clauses that obscure or weaken this intent are considered null and void. (15. HD., E. 2016/1522 K. 2017/1522, T. 4.4.2017).

With regards to courts perspective for pathological clauses, in a notable case, the Court of Cassation held that an arbitration agreement referring to a non-existent institution or one that phonetically resembles an existing institution but is in fact fictitious is invalid ( Y9. HD., E.99/3348, K.99/4304, T.21.06.1999). The court found that due to the ambiguous and defective nature of the clause, it was impossible to determine where and under which rules the parties intended to arbitrate. As a result, it was concluded that there was no clear or mutual intention to arbitrate, rendering the arbitration agreement unenforceable.

However, the Turkish judiciary does not adopt a rigid approach and assesses each case on its own merits. In another decision, the Court of Cassation adopted a flexible approach on interpreting a pathological arbitration clause. The case concerned the enforcement of a foreign arbitral award rendered by the ICC Court of Arbitration in Turkey. According to the underlying franchise agreement, disputes were to be resolved by the International Arbitration Court in England. However, the claimant had referred the dispute to ICC arbitration in Paris. The reference to the International Arbitration Court in England was ambiguous because no such identifiable institution clearly exists. However, the Court emphasized the need to investigate whether the parties had indeed expressed a clear intent to arbitrate, particularly regarding the seat of arbitration. (19. HD., E. 2009/5703, K. 2009/8256 T. 12.05.2014). The Court concluded that before deciding on the enforcement of the ICC award, it must first be determined whether the parties’ reference to arbitration in England referred to any existing arbitral institution. As this investigation had not been conducted, the enforcement decision was overturned by the Court of Cassation.
Importantly, this decision reflects a more constructive and flexible approach by the Turkish Court of Cassation. Instead of immediately invalidating ambiguous clauses, it prioritizes interpreting the parties’ intention and seeks to uphold arbitration agreements if possible.

Evaluating the Validity of Pathological Arbitration Clauses under English Law

English law has a strong policy in favour of upholding arbitration agreements where the parties’ intention was to resolve disputes via arbitration. (Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb (Rev1) |2020| UKSC 38 at [95|). Courts are guided by the principle of giving effect to the parties’ contractual autonomy, including their choice to resolve disputes through arbitration. This policy supports London’s prominent status as a leading seat for international arbitration.

The validity of ambiguous arbitration wording was considered in Mangistaumunaigaz Oil Production Association v United World Trade Inc [1995], where the clause at issue read: “…arbitration, if any, by ICC Rules in London.” The defendant argued that the phrase “if any” created uncertainty, and rendered the agreement non-binding. However, the Commercial Court rejected this interpretation. It was decided that the phrase was either surplusage that could be disregarded or an abbreviated reference to “if any dispute arises.” This decision reflects the early, arbitration-friendly approach of the English courts, demonstrating a willingness to give effect to the parties’ intention to arbitrate wherever possible, rather than invalidating the clause due to ambiguity.

However, ambiguity in an arbitration clause can render the agreement invalid where it prevents the parties’ intention to arbitrate from being understood as clear and unconditional. If the wording of the clause introduces uncertainty as to whether arbitration is mandatory, it fails to meet the required standard of clarity and may not
be enforceable. In Kruppa v Benedetti [2014], the Commercial Court held that the clause in question did not amount to a binding agreement to arbitrate. The clause stated: “The parties will endeavour to first resolve the matter through Swiss arbitration. Should a resolution not be forthcoming, the courts of England shall have non-exclusive jurisdiction.” The court found that it was logically inconsistent to create a two-tier dispute resolution mechanism in which both arbitration and court proceedings were presented as binding options. The language indicated that arbitration was merely a preliminary or optional step, rather than a mandatory and exclusive method of dispute resolution. Accordingly, the clause failed to establish a valid arbitration agreement.

These decisions demonstrate that while English courts aim to respect the parties’ intent to arbitrate, clarity and consistency in drafting are critical. Ambiguity, especially where arbitration and litigation are both referenced without a clear hierarchy or sequence, can undermine the enforceability of the clause. Still, it is the party intention that defines the validity of an arbitration agreement.

Comments

Both Turkish and English legal systems require that the parties’ intention to arbitrate be clearly reflected in the arbitration agreement. Where such intention is explicitly expressed, the validity of the arbitration clause is generally upheld. Even in cases where the intention is not stated with perfect clarity, courts in both jurisdictions seek to interpret the clause in a manner consistent with the parties’ presumed intent.

This approach aligns with the widely recognised principle of favor validitatis, which prioritises giving effect to agreements wherever possible. In essence, the modern judicial trend in both systems supports preserving arbitration agreements where feasible, rather than allowing technical imperfections to defeat the underlying intention to arbitrate.