Arbitration Agreement

Over many years, legal systems around the world have changed, developed, and expanded to be efficient and beneficial to all legal disputes. In other words, we need to keep pace with our developments and needs. And thus, new methods have been created to solve legal problems and disputes.

Those methods became important. As it can avoid any gaps or any inconvenience that might have been around in litigation. Alternative dispute resolution or ADR helps resolve conflicts, often without needing to go to court. There are five main types of dispute resolution, with the first four being alternative dispute resolution methods:

• Negotiation
• Mediation
• Arbitration
• Adjudication
• Litigation

And for this article, we are going to discuss and share some information about Arbitration.

What is arbitration?

Arbitration is a unique way to settle a dispute between two parties or more; it is when parties who are in dispute agree to submit their disagreement to a person whose expertise or judgment they trust. They each put their respective cases before the ’arbitrator’ who listens, considers the facts and the arguments, and then decides. The parties have mutually agreed that the decision should be final and binding on them, so it is.

 Now arbitration takes a huge place in our legal world. It has become a principal method to settle and resolve a dispute whether it is between States, individuals, and corporations in every aspect of international trade, commerce, and investment. Even though the uniqueness of the method of arbitration and how it does resolves disputes to obtain a binding and final reward without the need to attend to court law. If we looked more closely at it. We can see that it is simply an agreement.

Such agreement, in our case here ‘arbitration agreement ‘, is the cornerstone of the arbitration itself. Once it is fulfilled, it is legally binding and any dispute according to this agreement shall be settled by arbitration. Now there are important questions to ask, what is an arbitration agreement? And what are the key elements for an arbitration agreement to be valid?

Arbitration Agreement

An arbitration agreement is a particularly important part of the arbitration process. Without a valid arbitration agreement, there is no arbitration.

An “arbitration agreement” is a written agreement between two parties to arbitrate any and all disputes that have arisen or may develop between them regarding a specific legal relationship, whether or not it is contractual[1].

In an uncomplicated way to define arbitration agreement. It is a contract; a contract in which the disputing parties agree to waive their right to litigate, instead, they choose arbitration as a method to resolve their dispute that has or may arise.

And as for any contract. A few conditions and criteria need to be met before it becomes valid.

Key elements of an Arbitration Agreement:

 There are a few conditions that were established for the arbitration agreement;

 -The arbitration agreement shall be in writing.

Here it shows that the agreement that starts the arbitration process should be in written form.

However, the requirement that an arbitration agreement be in writing is also met by electronic communication if the information held there is accessible and usable for later reference. which comprises Any exchange of information using data messages is referred to as “electronic communication.” Information generated, communicated, received, or stored using electronic, magnetic, optical, or other means is referred to as a “data message.” Any approach that is simple and available to the tribunal is typically taken into consideration in writing.

 Additionally, if the arbitration agreement is included in a statement of claim and defence exchange where one party asserts the existence of an agreement and the other does not refute it, then the agreement is in writing.[2]

That shows a great deal of flexibility. The written form can be established in many ways, not limited to physical documents only. That is due to evolution, the huge changes that happen every day, and the significant use of technology in every aspect of our life. This more likely makes it easy for the parties who agreed to arbitrate and makes the process more simplified, where the written requirement is met.

It is also important to mention that the agreement to arbitrate could be fulfilled in many ways, whether in a separate document or as a clause in the agreement itself.

-Legal capacity

There is no doubt that the agreement is like any contract. In which a legal capacity is needed.

Since legal capacity is a wide term each state decides its own requirements for the legal capacity in their domestic law. This issue was brought to attention by the NYC convention; In which it explained that the parties to the agreement are under the law applicable to them were under some incapacity or the said agreement is not valid under the law to which the parties have subjected it the award shall not be recognized.[3]

The ruling in Fougerolle SA (France) v. Ministry of Defence of the Syrian Arab Republic by the Administrative Tribunal of Damascus serves as an illustration of a successful defence to enforcement based on invalidity.78 In a 31 March 1988 decision, the Administrative Tribunal of Damascus denied the enforcement of two ICC awards, stating that they were ‘non-existent’ due to the fact that they were issued ‘without the preliminary advice on the referral of the dispute to arbitration, which must be given by the competent Committee of the Council of State’.

And here arises the importance of legal capacity. Not only to enter into an arbitration agreement, but it is also to confirm such an agreement so the award can be applied[4]. And there is no effective arbitration unless there is a binding arbitral award on all parties.

-Mutual Consent

Since the arbitration agreement is considered the cornerstone of the arbitration process. And it fulfills several crucial functions. Then there must be mutual consent. In our case here for the arbitration clause. Mutual consent is needed. Which might seem logical. As for the arbitration concept, disputing parties waive their right to go to court as for any dispute mentioned in their agreement. This makes it safe to say that any party who wishes to resolve their dispute through arbitration needs to give their consent furthermore this consent shall be mutually agreed upon among disputing parties. This consent is essential. Without it, there can be no valid arbitration.

-Arbitrability

Arbitration is a method that the disputing parties agree to use in case any conflict arises. There is no essential need for the parties to be contractual parties or not. The Arbitration Agreement includes that any dispute that arose or may arise in the future is subjected to arbitration, and the dispute needs to be in respect of a defined legal relationship between them.

Now, is any dispute subject to arbitration? If not, what is the standard that decides whether a dispute is subject to arbitration or not?

Even if a dispute exists, it may not be sufficient. It must be a dispute ‘capable of settlement by arbitration’ in the words of the New York Convention.[5] Arbitrability means deciding which dispute may be subjected to arbitration and which disputes belong exclusively by the force of law to the domain of courts. 

A private arbitral tribunal should, in theory, have the same authority to settle any dispute as a national court judge. For example, “any persons may enter into arbitration agreements relating to the rights that they may freely dispose of” as stated in Article 2059 of the French Civil Code. Although Article 2060 further provides that parties may not agree to arbitrate disputes in a series of fields (e.g., family law), and ‘more generally in all matters that have a public interest. This limitation has been construed in a very restrictive way by French courts. Arbitration is a private proceeding with public consequences some types of disputes are reserved for national courts, proceedings are in the public domain.

They are not ‘capable of settlement by arbitration’ in this sense. National laws define the scope of arbitration. Based on its own political, social, and economic policies, each State determines which issues are appropriate for arbitration and which are not. Contracts between a foreign firm and its local agent, for instance, are legally protected in several Arab States and, in order to bolster this protection, disputes originating from such contracts may only be adjudicated by local courts.

The most that can be done here is to write down the categories of dispute that may fall outside the domain of arbitration. Generally speaking, cases involving criminal activity and those that have an impact on a person’s or a company’s standing (like bankruptcy or insolvency) are typically not arbitrable. Furthermore, under applicable law, disagreements about the issuance or legality of patents and trademarks might not be subject to arbitration.

These various categories of dispute are now considered in greater detail.[6]

-Legal Consideration in Drafting Arbitration Clauses

Drafting an arbitration clause is important for many reasons. As it allows both parties to document and mention their requests in their agreement. Drafting arbitration clauses requires careful attention to several legal considerations to ensure they are effective and enforceable.

And by that, there are a few points to be taken into consideration in drafting legal clauses:

 -Scope of Arbitration:

In an arbitration clause in a contract. What they do is to make it clear that the parties have agreed that any dispute that arises out of or in connection with the contract will be referred to arbitration, either ad hoc or under the rules of an arbitral institution. Arbitration clauses must anticipate the future because they are draughted and agreed upon prior to any issue ever occurring. If a dispute does emerge, it will (if necessary) be addressed through arbitration rather than the legal system. The second type of agreement is made after a dispute has arisen. As will be seen, this is the so-called “submission agreement,” and it will typically contain more information than an arbitration clause since, after a dispute has developed, it is able to specify the nature of the disagreement and the parties’ proposed resolution.

-Seat of Arbitration.

The seat of arbitration is a legal concept in which we refer to the jurisdiction in which the arbitration takes place.  It is the ‘legal place’ of an international arbitration

The seat is usually decided by the parties in their arbitration agreement. In the absence of such agreement, the seat is decided in this case by the arbitral institution, or the arbitral tribunal once appointed. The choice of the seat carries important legal and practical consequences. It affects the law governing an arbitration procedure, ‘lex arbitri.’  An arbitration procedure is mostly decided by party agreement (including an agreement to use an institution’s rules).

 Also, the lex arbitri can play an efficient gap-filling role in deciding procedural issues on which the parties have not reached an agreement.

This shows the flexibility of arbitration and why most of the disputing parties usually choose arbitration over the other methods of litigation. Most of the time, parties are more likely to choose the seat of arbitration that works best for their needs.

-Governing Law

One of the most unique qualities of arbitration is that the parties are free to choose the law governing their agreement. Therefore, the parties may tailor their own set rules according to their needs, which is a privilege we do not often see in court.

 Parties may choose the law applicable to the dispute’s substance and the law they consider fitting the arbitral proceedings perfectly. And choosing law usually means that the parties may also choose rules of law to govern their contract. That means the parties are not limited to choosing a national law, which is understood as the national law of a particular country. Instead, the term “rules of law” refers to a national legal rule such as transnational laws, international law principles or the rules of international conventions.

Apart from the freedom to choose the applicable law to govern the arbitral proceedings, the parties also have the autonomy to decide whether they want to have an ad hoc arbitration, i.e., an arbitration that they will have to administer all by themselves, or if they prefer to have an arbitral institution administer their proceedings.

An arbitral institution will assist in many factors, for instance, in finding suitable arbitrators, organizing the hearings or in dealing with communications with the arbitrators in exchange for a service fee. In addition to that, arbitral institutions often provide certain services, such as deciding over the challenge of an arbitrator.

For example, arbitral institutions like International Chamber of Commerce (ICC) that has its seat in Paris, the London Court of International Arbitration (LCIA), the International Centre for Dispute Resolution (ICDR) with its headquarters in New York, the Singapore International Arbitration Centre (SIAC) or the German Institution for Arbitration (DIS).

-Choice of Arbitrators

Unlike in state court proceedings, the parties may determine the composition of the panel deciding over their dispute. Parties have a right to choose a certain person with expertise ‘an arbitrator ‘who can look and consider the case before issuing an award. The parties may select arbitrators, who are not practitioner’s of the law, which might be of particular interest if, for example, assisting in understanding of technical issues is needed to find a fair solution to a dispute.

Usually, an arbitrator is chosen by the parties who must be independent and impartial. In case the parties have chosen to use institutions to organize the arbitration, the institution will normally watch over the impartiality and independence of the arbitrators.

The parties are free to decide the number of arbitrators, if not, the number of arbitrators will be three[7]. The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, in an arbitration with three arbitrators, each party shall appoint one arbitrator,

and the two arbitrators thus appointed will  appoint the third arbitrator; if a party fails to appoint the arbitrator within thirty days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within thirty days of their appointment, the appointment shall be made, upon request of a party, by the court or other authority.

If the parties cannot agree on an arbitrator in a single arbitrator arbitration, the court or another authority will appoint the arbitrator at the request of one of the parties.[8]

-Language and venue

Choosing the language is quite important in arbitration. Usually, arbitration takes a place between forging parties which makes it important to decide which languages to take a place during the arbitration

In arbitration, the parties are free to agree on the language or languages used in the arbitral proceedings. The arbitral tribunal will select the language or languages to be used in the proceedings if such an agreement is not successful. This agreement also applies to any written declaration or document made by a party, any hearing, and any judgement, award, or other correspondence from the arbitral panel.

In addition to that, parties are free to choose the place of arbitration. If not, the place of arbitration can be determined by the arbitral tribunal considering the circumstances of the case.

While including the convenience of the parties the arbitral tribunal may, unless otherwise agreed, meet at any place it considers proper for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.

-Confidentiality

in many arbitrations even the mere fact that arbitration proceedings between the parties exists is to be kept confidential. The confidentiality of the proceedings can protect the parties’ reputation in certain cases and prevents sensitive information from being shown to the public or to competitors.

The confidentiality principle in arbitration proceedings exists. Likewise, arbitral tribunals around the globe have come to split decisions. In practice, however, the dispute often is irrelevant for in most cases the parties either explicitly (by drafting a specific confidentiality agreement) or implicitly (by choosing institutional rules which have a confidentiality clause) agree on keeping their proceedings confidential.

-Costs

Since arbitration is a method to resolve a conflict, it is also important to decide the costs. Some provisions have mentioned some guidelines to assist in this matter. For example, to these coasts;

. The arbitral tribunal shall fix the costs of arbitration in the final award and if it is considered proper.

“Costs” include: The arbitral tribunal’s fees, which will be determined by the tribunal and will be specified for each arbitrator individually.

-The reasonable costs of expert testimony and other support necessary by the arbitral tribunal.
-The arbitrators’ reasonable travel and other expenses.
-the witnesses’ reasonable travel and other costs, to the extent that the arbitral tribunal permits such costs.

-The legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal decides that the amount of such costs is reasonable

– the International Bureau’s fees and costs, as well as the appointing authority’s fees and costs.

As for the arbitration itself. It is full of information and evolutions. Year by year the acknowledgement of arbitration expands.   as for its benefits, flexibility and privileges that are guaranteed to the disputing parties.  now Many individuals, firms and countries rely on arbitration, and who can’t, taking a closer look at it offers some kind of freedom and autonomy that can’t be denied.

Strating for choosing to arbitrate and choosing under which law your contract is subjected to choose the arbitrator to ensure the impartiality and independence and accuracy of the arbitral award considering the merits of the case.

 While all these amazing qualities and makes the arbitration distinguish unique on how it solves conflicts. Yet is this flexibility and uniqueness good for all kinds of disputes? Is arbitration flexible to what matter the parties will choose, or is there a hidden rigidity? If not, then can we ensure fairness avoiding iniquity while applying all this regulation?

Those are some of the questions that in taking place in our legal world trying to ensure that we have an international arbitration law that is considered and aware of all the disputes and conflicts and how to resolve them cause the minimum harm. As for today’s world, every moment is precious. And every change is considered a great step forward.

References:

[1] UNCITRAL MODEL LAW, ART.7

[2] UNCITRAL Model Law, option I, art7 . 2,3,4,5

[3] NYC Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (ART V.1.a)

[4]  Model Law, Art 36.

[5] NYC convention Article V,2.(a)

[6] Redfern and Hunter on International Arbitration (5^th ed .2009)

[7] PCA Rules Section II Article 7

[8] UNCITRAL MODEL LAW CHAPTER III.art11. (1,2,3)