Scope of an arbitration agreement matters

The importance of carefully drafting an arbitration clause was once again highlighted by the Supreme Court of Uzbekistan in case No. 4-12-2102/22.

Case facts

Two Uzbek resident companies whose shareholders are Chinese investors entered into a real estate lease agreement for a property located in a Free Economic Zone (FEZ) for a term of 3.5 years.

Clause 11.1 of the agreement provided that disputes arising from the performance of the contract should first be resolved through amicable negotiations and failing settlement, disputes should be referred to the HKIAC.

A dispute later arose, and the claimant (lessee) filed a claim before economic court seeking to invalidate the contract on the grounds that (i) the agreement had not been registered within competent state body and (ii) the lessor was not an FEZ resident and therefore lacked the right to lease the property.

The court of first instance, based on the defendant’s written and oral submissions made at the initial hearing that the parties had agreed to resolve all disputes through arbitration, left the claim without consideration pursuant to Article 107(1)(2) of the Economic Procedural Code.

Supreme Court’s Reasoning

The Supreme Court took a different view. The arbitration clause covered only disputes arising from the performance of the contract, not all disputes between the parties. Since the claimant sought invalidation of the contract itself—rather than enforcement or performance-related claims—the dispute fell outside the scope of the arbitration agreement.

As a result, the lower court’s ruling was overturned and sent back for reconsideration.

Takeaway

Simple but critical: draft arbitration clauses as broadly as possible.

A narrowly drafted clause can exclude key matters (such as validity challenges) and create unintended jurisdictional risks. The easiest way is to use model arbitration clauses that publicly available on institution’s website.

At Fairlex Consulting we are committed to deliver most favorable results to our clients any litigation or Uzbek law governned arbitrations. Feel free to contact us at info@fairlex.uz .