The arbitration clause

This clause is related to the problem of the settlement of disputes arising from the non-performance or the improper performance of international trade contracts.
Generally, in all systems of law the courts of law have jurisdiction to settle these disputes, especially the court of law from the place where the headquarters of the defendant are situated. However, there are some exceptions provided by the procedural law of the states. Thus, for example, the court of law from the place where immovable goods are situated has exclusive jurisdiction to hear disputes concerning these goods.
The settlement of disputes by the courts of law has some disadvantages for the merchants, as follows:
1. the period of time until the dispute is settled is very long and impedes the existence of proper commercial relations between partners;
2. the procedural legal rules (rules concerning the proceedings before the court of law) are very complicated and the parties do not know them. As a consequence, they must be assisted by lawyers before the court of law and lawyers are very expensive.
Due to these disadvantages, the merchants prefer alternative ways for the settlement of disputes, such as the arbitration.
The commercial arbitration represents a jurisdictional way of settling commercial disputes. It means that the hearing and the settlement of the dispute between parties is performed by a person or persons chosen or agreed to by them. The parties to a commercial contract may choose the arbitration in order to settle the dispute only if the procedural law of their country allows them to do so. For example, in Romania, the Code of civil procedure allows the parties to choose the arbitration in order to settle disputes.
The commercial arbitration may be classified according to several criteria, as follows:
A. According to the elements used by arbitrators in order to settle the dispute, the arbitration may be:
1. Arbitration in jure (by law) when the arbitrators settle the dispute by applying the provisions of the law;
2. Arbitration ex aequo et bono (by equity). It is used mainly in disputes concerning unnamed contracts and complex contracts, for which there is no specific regulation in the systems of law. Therefore, it is very difficult to determine their applicable law. Thus, the arbitrators settle the dispute by applying the general principles of law, such as the principle of good faith, the principle of equity and so on, for the purpose to ensure a fair trial and to provide a fair solution.
B. According to the permanence of the arbitral body, the arbitration may be divided in two categories, as follows:
1. Occasional or ad-hoc arbitration when the arbitral body is set up for a special dispute and it lasts only during the settlement of that dispute.
2. Permanent or institutionalized arbitration when the arbitration body is permanent, such as a court of arbitration having its own structure, organization and internal rules of functioning.
The permanent arbitration bodies may be classified according to two criteria, as follows:
A. According to their material jurisdiction (jurisdiction related to the subject-matter of the dispute) the arbitration bodies may be:
1. General arbitration bodies which may settle any kind of disputes, related to any category of international trade contracts. For example, the International Court of Arbitration of the International Chamber of Commerce from Paris; the International Court of Arbitration of the Romanian Chamber of Commerce and so on.
2. Special arbitration bodies which may settle only the disputes arising from specific categories of contracts. For example, the London Court of Arbitration which may settle disputes related to the carriage of goods by sea, the Bremen Court of Arbitration that settles disputes related to the commerce of cotton and so on.
B. According to its territorial jurisdiction, the arbitration bodies may be:
1. Universal arbitration bodies which may settle disputes between commercial partners belonging to any state in the world. For example, the International Court of Arbitration of the International Chamber of Commerce from Paris;
2. Regional arbitration bodies which may settle only the disputes between partners belonging to a specific area of the world – for example, the Asian arbitration from Kuala Lumpur.
3. Bilateral arbitration bodies that have jurisdiction to settle the disputes between parties belonging to two states – for example, American-Canadian Arbitration Commission, French-German Arbitration Chamber.
4. National arbitration bodies having international jurisdiction. Most arbitration bodies are included within this category. They are usually attached to national Chambers of Commerce. For example, the Royal Arbitration Institute from Stockholm, Berlin Arbitration Commission, Athens Arbitration Commission and the International Court of Arbitration of the Romanian Chamber of Commerce.
Any permanent arbitration body has its own rules concerning the proceedings before it. These rules of proceedings are harmonized with a uniform set of arbitration rules created by the UN Commission on International Trade Law (UNCITRAL) or by the International Chamber of Commerce from Paris. They must also observe the procedural law of the state where the arbitration body is situated.
The commercial arbitration represents a special way for the settlement of commercial disputes that derogates from the usual jurisdiction of the courts of law. Due to this aspect, there are special ways used in order to refer the dispute to arbitration.
Thus, a dispute may be submitted to arbitration in two ways:
1. according to the agreement between states, by means of an international convention concluded for this purpose;
2. according to the will of the parties. This is the most frequent way used within international trade.
The will of the parties may be expressed either by means of an arbitration clause included in the contract or by a separate arbitration agreement.
Due to the importance of the arbitration agreement’s validity, the states have concluded an international convention, namely the 1963 Geneva Convention that regulates the matter of the arbitration agreement. Romania is a state party to this convention.

a. The arbitration clause

The arbitration clause is provided by the contract concluded between the parties either at the moment of concluding the contract or during its performance. We should mention that the arbitration clause must be provided before the dispute arises. It supposes the agreement of the parties to submit to arbitration any eventual dispute between them, arisen in relation to the contract, by excluding the jurisdiction of the courts of law.
The arbitration clause must fulfill the following conditions, under the sanction of its absolute nullity:
1. To be concluded in written form, regardless of the form requested by law for the conclusion of the contract;
2. To be precise;
3. To express without any doubt the will of the parties to settle the eventual dispute by means of arbitration, to provide the competent arbitration body, the way of appointing the arbitrators and the applicable rules of proceedings.
For example: ”the parties to the contract agree to refer to arbitration any eventual dispute between them and the International Court of Arbitration of the Romanian Chamber of Commerce has jurisdiction to hear it, the proceedings being regulated by the own rules of this court”.
As far as the applicable rules of proceedings are concerned, if the arbitration body chosen by the parties is a permanent one, the arbitral tribunal applies its own rules of proceedings. If there are not such rules, the parties may choose another procedural law. Otherwise, the arbitral tribunal applies the procedural law in force in the country where the place of arbitration is situated. However, even if the arbitration body has its own rules of proceedings, these rules are to be completed by the procedural law of the state where the place of arbitration is situated.

b. The arbitration agreement

It is concluded by the parties after the dispute has arisen. In order to conclude an arbitration agreement, the parties should not have provided in the contract an arbitration clause.
In all cases, the arbitration agreement must be concluded in written form. It must provide the following elements:
- The agreement of the parties to submit to arbitration the existing dispute;
- The choice of the arbitration body;
- The way of appointing the arbitrators;
- The applicable law.

The arbitral tribunal may be constituted by a sole arbitrator, according to the agreement of the parties or by an equal number of arbitrators nominated by each party. As a rule, in the second case, the arbitrators nominated by each party choose a chairman of the arbitral tribunal. Otherwise, the chairman is appointed by the arbitration body.
Concerning the choice of arbitrators in order to constitute the arbitral tribunal, there are three systems, as follows:
1. The arbitration body draws up a list of arbitrators and recommends them to the parties. From this list, the parties choose the sole arbitrator by mutual consent or each party chooses his own arbitrators. The arbitrators appointed by the parties choose a chairman from the same list.
2. When the parties fail to nominate the arbitrators, they are appointed by the arbitration body. This system is used in most cases.
3. This system is used only by the American-Canadian Arbitration Commission. Thus, there is a list of arbitrators drawn up by the commission; within this list, the parties eliminate the persons who are considered incompatible with the dispute. Then the chairman of the Arbitration Commission appoints one or more arbitrators from the persons who were not eliminated.

The rules of proceedings before the arbitral tribunal are much more permissive than the ones that are followed before the courts of law. When hearings are held the parties may be assisted or represented by lawyers or any other adviser. In order to establish the facts of the case, the arbitral tribunal may use all appropriate means of evidence and it may decide to hear witnesses, experts or any other person.
After the proceedings before the arbitral tribunal are closed, it provides an award which is compulsory for the parties to that dispute. Generally, when the arbitral tribunal is composed of more than one arbitrator, the award is given by the majority’s decision. The award must state the reasons related to the facts and the provisions of law upon which it is based.
In the Romanian system of law, the parties may challenge the arbitral award before the courts of law by bringing an action for the declaration of its nullity. This nullity may be claimed only for one of the grounds expressly provided by the Romanian Code of Civil Procedure.

The arbitration award is mandatory and must be executed willingly by the parties. No formalities are necessary in case of voluntary compliance with the award. But in case that one of the parties, generally the one against which the arbitral award is given, refuses to comply with it, the other party may ask for the enforcement of the award by means of the State’s authority (power).
The enforcement of arbitral awards is not difficult if it is accomplished in the same country where the arbitration had taken place. Thus, the interested party applies to the court of law in order for the court to render the award enforceable. Then the forced execution of the award is carried into effect by forced execution officers.
However, some difficulties may arise when the arbitral award is made in a State other than the State where the forced execution must be carried out. Due to the importance of award’s enforcement, the States had concluded an international convention in order to regulate the matter, namely the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards.
According to this convention, each State party to it must recognize foreign arbitral awards as binding and enforce them in accordance with its own rules of procedure. There must not be imposed more onerous (burdensome) conditions or higher fees or charges on the recognition or enforcement of arbitral awards than those that are imposed on the recognition or enforcement of domestic awards. As far as their enforcement is concerned, the foreign arbitral awards are considered in every respect as the foreign judgments.
All these provisions lead to the idea that, in the country where the forced execution is carried out, the foreign arbitral award must follow before a court of law the exequatur procedure. It means that the party seeking to enforce the foreign award must apply to the court of law requesting the recognition and the enforcement of the award. The judge must examine if the award was given by the competent arbitration body in accordance with the agreement of the parties or the applicable law. If these conditions are fulfilled the judge recognizes the award and render it enforceable.
However, especially in cases when the dispute is referred to arbitration by means of an international convention, the foreign arbitral award is considered in every respect as a domestic judgment. In these cases, there is no need to follow any more the exequatur procedure. For example, the Court of Justice of the European Communities may act as an arbitration body. In these cases, the arbitral award given by the Court is considered by each Member State of the EU as a domestic judgment. Therefore, there is no need to follow the exequatur procedure in order to enforce the award given by the Court in one of the Member States.