Arbitration Law - Validity of International Arbitration Agreements PDF

Course Name: Arbitration law VALIDITY OF INTERNATIONAL ARBITRATION AGREEMENTS Dr. Selma Mezetovic Medic, MJur (Oxon) [email protected]  Let’s discuss Will any arbitration agreement be efficient? Does every arbitration agreement mean there will be an arbitration (in case...

Course Name: Arbitration law VALIDITY OF INTERNATIONAL ARBITRATION AGREEMENTS Dr. Selma Mezetovic Medic, MJur (Oxon) [email protected]  Let’s discuss Will any arbitration agreement be efficient? Does every arbitration agreement mean there will be an arbitration (in case there is dispute between the parties)?  INTERNATIONAL ARBITRATION AGREEMENTS: LEGAL FRAMEWORK The efficacy of an arbitration agreement depends on the parties’ ability to enforce that agreement Parties sometimes reconsider the commitment to arbitrate after disputes arise — they seek either to litigate their dispute in local courts or to obstruct the arbitral process Why would the parties do that? Isn’t it in their interest to arbitrate?  INTERNATIONAL ARBITRATION AGREEMENTS: LEGAL FRAMEWORK Possible challenges of international arbitration agreements arise in variety of procedural settings and can be regarding: ○ existence, ○ validity, or ○ scope of international arbitration agreements  CHALLENGES TO EXISTENCE, VALIDITY AND SCOPE OF INTERNATIONAL ARBITRATION AGREEMENTS (a) claims by a party that it never consented to any agreement, including any arbitration agreement, with its counter-party, and therefore that no agreement to arbitrate exists (EXISTENCE)  CHALLENGES TO EXISTENCE, VALIDITY AND SCOPE OF INTERNATIONAL ARBITRATION AGREEMENTS (b) claims that any arbitration agreement between the parties is invalid, either on grounds of formal invalidity (e.g., failure to satisfy requirements for a written or other form) or substantive invalidity (e.g., unconscionability, termination, frustration, fraud) (VALIDITY) International arbitration agreements are subject to requirements of FORMAL and SUBSTANTIVE validity How to decide if an arbitration clause is a valid clause?  VALIDITY OF INTERNATIONAL ARBITRATION AGREEMENTS – Formal validity Article II(2) New York Convention 1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. 2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.  VALIDITY OF INTERNATIONAL ARBITRATION AGREEMENTS – Formal validity Written form requirement Article II(1) NY Convention applies only to “agreements in writing” defined by Article II(2) to include “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”  VALIDITY OF INTERNATIONAL ARBITRATION AGREEMENTS – Substantive validity These grounds for challenging the substantive validity of arbitration agreements are exclusive – they provide exceptions to the presumptive validity of arbitration agreements Incapacity of the parties Duress, misrepresentation Fraud Mistake  How to decide if an arbitration clause is a valid clause? Validity depends on the applicable law Some options for applicable law to arbitration agreement: 1. Choice of law by the parties 2. Law applicable to the rest of the contract 3. Lex arbitri (seat of arbitration) When would the agreement be invalid? Depends on the applicable law Incapacity of the parties Not in written form Duress, misrepresentation Fraud Mistake Problems related to standard terms and conditions The applicable law requires certain elements in the arbitration clause  CHALLENGES TO EXISTENCE, VALIDITY AND SCOPE OF INTERNATIONAL ARBITRATION AGREEMENTS (c) claims that, while the parties agreed to arbitrate some disputes, they did not agree to arbitrate the dispute which has actually arisen (e.g., the parties’ arbitration agreement covers disputes relating to a lease agreement, but not claims for libel or unfair competition) (SCOPE)  Example Two companies, one from KSA and one from France have concluded a contract for the purchase of exclusive construction materials. The arbitration clause in their contract is the following: “All disputes within this contract shall be settled by arbitration under ICC Rules seated in Paris. Each party shall select one arbitrator and the two arbitrators shall select the presiding. All decisions shall be made unanimously. The language of arbitration will be English.” The KSA company is the buyer and it uses this special construction materials to build luxurious villas in UAE. The dispute arises because the French company starts selling construction materials to other companies working in the region. The KSA company files a claim against the French company in arbitration because of unfair competition as it believes that the French company's behavior is jeopardizing its position on the UAE market. The French company claims that the arbitration clause is invalid and that unfair competition falls outside the scope of the arbitration clause. What do you think about French company’s two claims?