Reference of disputes to arbitration

Reference of disputes to arbitration

by George Coucounis

“An arbitration clause in an agreement is binding on the parties unless annulled by the Court

THE parties frequently choose arbitration as the appropriate procedure for resolving disputes that may arise between them during the execution of their agreement. In this respect, they ensure that the contract they sign contains a clause regarding the applicable law, the manner of resolving disputes by referring them to arbitration and the person who will appoint the arbitrator. The usual clause stipulates that in case of any disagreement or dispute between the parties, it will be referred to arbitration which will be conducted in accordance with the Arbitration Law, Cap.4, by an arbitrator appointed by the Chairman of the Cyprus Chamber of Commerce and Industry, unless the parties agree otherwise. This clause constitutes a separate agreement and is binding on the contracting parties unless an issue is raised and it appears at first sight that fraud has occurred before or during the drafting of the agreement. The only one competent to annul the arbitration clause is the Court to which a party must apply before coming under the jurisdiction of the arbitration.

Where disputes arise during the execution of an agreement and the parties do not reach an amicable settlement, anyone of them, on the basis of the arbitration clause, may apply to the person named to appoint the arbitrator to adjudicate the disputes that have arisen. After examining the application, the person named chooses the arbitrator and informs him whether he accepts his appointment as arbitrator. If his answer is positive, the person named shall notify the parties of his intention to appoint the arbitrator and shall invite them to inform him whether the proposed arbitrator meets the conditions laid down for his objectivity and impartiality and whether he is eligible to act as the arbitrator. A suitable, competent and experienced person who knows the procedure is chosen, who is independent and not related to the parties so that there will be no objection on their part. If there is no objection to his appointment, the arbitrator proceeds and invites the parties to a first preliminary meeting in order to determine the procedure to be followed, the submission and exchange of pleadings in order to complete the arbitration soon, as well as the place and time of conducting the arbitration.

Article 9 of Cap.4 refers to the power of the Court to provide remedy when the arbitrator is not impartial or when an issue of fraud is raised. In particular, sub-section 1 provides for when a party to an agreement applies to the Court for leave to revoke the arbitration agreement or for an injunction to restrain any other party or the arbitrator from proceeding with the arbitration. Sub-section 2 sets out the conditions for an objection by a party to have the arbitration clause annulled. Particularly, it states that where an agreement between any parties provides that disputes which may arise in the future between them shall be referred and a dispute which so arises involves the question whether any such party has been guilty of fraud, the Court shall, so far as may be necessary to enable that question to be determined by the Court, have power to order that the agreement shall cease to have effect and power to give leave to revoke any arbitration agreement made thereunder.

It appears that the fraud must take place in the time before the drafting and or during the drafting of the agreement and must be proved at first sight. Caselaw stipulates that the arbitrator cannot annul an arbitration clause; only the Court has jurisdiction to annul it and the party who objects must apply to the Court before coming under the jurisdiction of the arbitration. Consequently, a party filing an application to the arbitrator to annul the arbitration clause or for the arbitrator to cease to act as arbitrator or to adjourn or refer the dispute to the Court, takes part in the arbitration and his application will be dismissed, since the arbitrator does not have jurisdiction. On the other hand, by participating in the procedure, the party recognises the arbitrator’s jurisdiction and the validity of the arbitration clause and cannot lawfully challenge it. If he wishes to challenge the arbitrator’s jurisdiction, his choice is to refer the issue to the Court.