In our case law, the Higher Commercial Court held in 2006 (Pž. 13602/2005) that the interpretation of an unclear arbitration clause—so as to ascertain the parties’ common intention to submit their dispute to arbitration—is most often carried out by applying the principle of effet utile (useful effect).
As the court noted, “pathological” arbitration clauses are a frequent phenomenon in international business law and a source of numerous misunderstandings and inconsistencies, typically arising from carelessness, error, or the parties’ lack of familiarity. The reasoning further explains that comparative arbitration law tends to favor salvaging the arbitration agreement where, by applying the rules of interpretation, it is established that the parties’ common intention was to submit the dispute to arbitration; in such cases, the principle of effet utile is most commonly employed. Like other contracts and individual contractual clauses, an arbitration agreement should be interpreted in a manner that reflects the parties’ will and the understanding of the market and honest commercial dealings.
As for comparative practice, here are a few examples. In ICC Award No. 7920 (1998), the arbitral tribunal faced an imprecise clause referring to a non‑existent international arbitration institution. Applying this principle, it was unequivocally determined that the parties intended arbitration rather than court proceedings.
In the English case Star Shipping A.S. v. China National Foreign Trade Transportation Corp ([1993] EWCA Civ J0520‑7), the court (among other issues) held that, where there are alternative interpretations of the same arbitration clause, courts will tend to prefer the interpretation that gives the clause effective and sensible meaning.
A more recent example is the judgment of the French Cour de cassation in Consorts Kiram v. Malaysia (591 FS‑Do) from November 2024, where, in assessing the validity of the arbitration clause, the court applied the principle of effet utile in line with the interpretation of the parties’ common intention and the principle of good faith. Where parties insert an arbitration clause into their contract, the French court concluded that it is appropriate to presume that their intention was to establish such a dispute‑resolution mechanism. This decision is truly specific, as it concerns a dispute arising from a contract dating back to 1878, in which the original contracting parties provided for disputes to be resolved by the British Crown’s Consul‑General in Borneo; the court’s task was therefore to determine whether the arbitration clause could still produce legal effect. As Al‑Karim and Gillingwater note (Investment Treaty Arbitration and International Law, Vol. 17, 2024), viewed in its proper legal‑historical context, the parties’ dominant intention was to submit their dispute to arbitration. However, in this particular case, effet utile did not lead to “salvaging” the clause, but rather to confirming that the clause had become invalid because its key element had ceased to exist.
Even where an arbitration clause meets all statutory requirements for validity, it may still be considered imprecise—or, as the literature puts it, “pathological.” The principle of effet utile serves in international commercial law to overcome such situations and to remove gaps caused by the parties’ inadvertence; that is, the interpretation that should be adopted is the one that allows the arbitration clause to remain effective, if it is established that this was the parties’ common intention.
Note: This text does not constitute legal advice; it reflects the author’s personal view only.
