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Referral of disputes to arbitration

coucounis
An arbitration clause in an agreement is binding on the parties unless annulled by court

Parties frequently choose arbitration to resolve disputes that may arise during the execution of an agreement. It is ensured 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 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 able 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, any one of them may apply to the person named to appoint an arbitrator to adjudicate the disputes that have arisen. After examining the application, the person named chooses the arbitrator. If they accept the appointment, the person named shall notify the parties of their intention to appoint the arbitrator and shall invite them to say whether the proposed arbitrator meets the conditions of objectivity and impartiality and whether they are 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. If there is no objection to their appointment, the arbitrator proceeds and invites the parties to a first preliminary meeting to determine the procedure to be followed, the submission and exchange of pleadings, 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, subsection 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. Subsection 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 shall be referred to an arbitrator and a dispute which so arises involves the question of 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. Case law stipulates that the arbitrator cannot annul an arbitration clause; only the court has jurisdiction to 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 court, takes part in the arbitration and the application will be dismissed. 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 they wish to challenge the arbitrator’s jurisdiction, they must refer the issue to the court.

 

George Coucounis is a lawyer practicing in Larnaca and is the founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]

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