Pathological arbitration clauses represent a persistent challenge in arbitration practice. Although arbitration agreements are intended to provide certainty and an efficient mechanism for dispute resolution, poorly drafted clauses often produce the opposite effect. Ambiguous, inconsistent, or incomplete arbitration provisions frequently give rise to jurisdictional disputes, resulting in delays & additional costs before the substantive dispute can be addressed. In response, courts in many arbitration-friendly jurisdictions have increasingly adopted the doctrine of effective interpretation, seeking to uphold arbitration agreements where the parties’ intention to arbitrate can reasonably be discerned notwithstanding drafting defects.
The Supreme Court of Korea reaffirmed this approach in Case No. 2024Da243172. The dispute arose from a contract between a Korean company and a German company for the purchase of two steel pipe threading machines valued at €2.8 million. The bilingual contract contained a dispute resolution clause stating that disputes would be resolved in accordance with “Korean law or the International Court of Justice and Arbitration.” The clause was problematic because no arbitral institution bearing that name exists, while the use of the word “or” created uncertainty as to whether disputes were to be resolved through arbitration or litigation before Korean courts.
When a dispute arose, the Korean company commenced proceedings in Korean courts seeking termination of the contract and repayment of €2.52 million. The German company objected, arguing that the parties had agreed to arbitrate their disputes. While the court of first instance upheld the arbitration agreement and dismissed the action, the appellate court reversed the decision, holding that the clause was insufficiently clear to exclude litigation.
The Korean SC overturned the appellate court’s decision and reinstated the dismissal of the action. Rather than focusing on the clause’s drafting deficiencies, the Court examined the contract as a whole to determine the parties’ true intention. It attached significance to the fact that the provision appeared under the heading “Arbitration,” interpreted the reference to Korean law as a choice-of-law provision rather than a jurisdiction clause, and held that the erroneous reference to a non-existent arbitral institution did not invalidate the agreement. The Court ultimately concluded that the parties clearly intended to submit disputes to arbitration.
The decision reflects a judicial tendency to prioritise substance over form in arbitration matters. By focusing on the parties’ commercial intention rather than technical imperfections, the Court preserved the effectiveness of the agreed dispute resolution mechanism & reinforced the principle of party autonomy, which remains central to modern arbitration law. At the same time, the case serves as a reminder that careless drafting can generate years of unnecessary litigation & expense.
