Abstract
An arbitration agreement acts as a guide to international commercial arbitration. Currently, it plays a unique role in the resolution of international commercial disputes. There are various types of this agreement. Also, the forms by which they are concluded differ. By studying the classification and structure of an arbitration agreement, one can better understand its legal nature and specific features. The article will consider various criteria by which arbitration agreements are classified, as well as the requirements that arbitration agreements must meet when concluded in one form or another. At the same time, the legislation of different countries and the regulations of international organizations will be analyzed.
Keywords: arbitration agreement, classification of an arbitration agreement, a criterion for classifying, the form of an arbitration agreement, written form, oral form, national legislation, form requirements.
Introduction
By an arbitration agreement, we mean a private agreement between the parties to a commercial contract on the transfer of future or existing disputes to the arbitration court for resolution. Despite the fact that the arbitration agreement as a starting point for the resolution of commercial disputes is well studied, there are no uniform criteria for their classification. There may be different approaches to classifying arbitration agreements. At the same time, it is often argued that the classification of arbitration agreements is purely theoretical and has no practical point. These statements are not entirely true, because by classifying arbitration agreements into separate types according to various criteria, we can determine different options for the written form and content of this agreement, and accordingly, we can better understand its nature and the specifics of its impact on the resolution of commercial disputes. Thus, it makes practical sense to divide arbitration agreements into separate types according to various grounds. At the same time, the validity of an arbitration agreement is primarily determined by its proper form. As a legal document, the arbitration agreement must be executed in the proper form. Otherwise, there is a great risk of the emergence of certain doubts about the mutual agreement of the parties. Considering that arbitration is often the best option for the parties to resolve disputes, the conclusion of this agreement in an improper form can lead not only to negative legal, but also economic costs. As the result, compliance with the form of the arbitration agreement is a vital factor regarding the initiation of arbitration proceedings.
Classification of an arbitration agreement
The most common criterion for classifying arbitration agreements is the basis in relation to the main contract. The Uncitral Model Law on International Commercial Arbitration (the Model Law) distinguishes two types of an arbitration agreement on this basis: an arbitration clause, which is included as a condition in the content of the main contract, and an arbitration agreement concluded in the form of a separate contract. This approach is implemented in almost all major international conventions and agreements on international arbitration, including many national laws on international arbitration. The Uncitral Model Law also indicates a subtype of an arbitration clause in the form of a reference containing this clause, if it is drawn up in writing and turns the clause into part of the main contract. At the same time, both the arbitration clause and a separate arbitration agreement are equal grounds for arbitration of the dispute. However, it is worth noting that this interpretation does not work everywhere. “Thus, in some countries, such as Argentina, Brazil, Honduras, and Panama, an arbitration clause is considered a condition of a contract by virtue of which the parties undertake to conclude an arbitration agreement in the event of a dispute between them”{10, P. 41-42}. As we can see, in these countries, the value of the arbitration clause is significantly limited and, as a consequence, failure to comply with the above condition leads to the invalidity of the arbitration clause. Still, an arbitration clause is the most common choice of the contracting parties, since being a condition of the main transaction, it determines from the very beginning the arbitration procedure for considering possible disputes. “The preference for concluding an arbitration agreement before the dispute arises, that is, directly at the conclusion of the transaction, is also explained by the fact that in the event of disagreements between the parties to the main agreement, the latter, as a rule, are in a state of conflict, which can act as an obstacle to full and effective negotiations and discussion of the details of the concluded arbitration agreement”{12, P.22}. And here we turn to classification based on the time of occurrence of a commercial dispute. This classification is rightly considered the most convenient and logical: arbitration agreements concluded before the dispute arose (ex-ante) and concluded after the dispute arose (ex-post). It is clear that arbitration agreements in the form of clauses are concluded before disagreements arise on the main contract. Arbitration agreements concluded in the form of a separate contract can be concluded both before and after the dispute arises. “At the same time, a separate arbitration agreement concluded after the dispute has arisen is often referred to as a submission agreement (clause compromise)”{3, P.95}. And here there are certain problems in the legislative establishment of the possibility of this type of arbitration agreement, in particular in the legislation of the Republic of Azerbaijan on international arbitration. The fact is that the Uncitral Model Law (Model Law), in its definition of an arbitration agreement, makes it clear that they can be concluded for both possible and already arisen disputes, while in the latter case it is not mandatory to call them by any specific name. The Law of the Republic of Azerbaijan on International Arbitration (the Law on International Arbitration) deals with all or certain disputes that may arise in the future. It can be assumed that the legislator by the word certain meant the disputes that had already arisen too. In one way or another, there is a partial discrepancy between the national legislation and the Model law. It is proposed to present the definition of an arbitration agreement in the Law on International Arbitration in the literal version of the Model Law, thus clearly indicating the possibility of concluding an arbitration agreement regarding disputes that have already arisen. Legally, arbitration agreements concluded before and after the dispute also are equivalent. But as is often the case in jurisprudence, legal equality does not mean actual equality. The arbitration agreement can fairly be considered as an economic factor affecting the behavior of the parties in the performance of the contract. “From this point of view, arbitration agreements concluded regarding possible disputes express the responsible attitude of the parties to the terms of the main contract, improve the quality of the parties’ performance of their duties and, as a result, minimize the possibility of disagreements”{3, P.96-97}. Accordingly, the material costs of the parties to solve any problems due to disagreements are either significantly reduced or excluded at. All these statements can hardly be attributed to arbitration agreements concluded in light of disputes that have already arisen. Nevertheless, it cannot be argued that an agreement concluded after the dispute has arisen does not make sense. Having a clear understanding of the essence of the dispute, in the name of resolving the differences that have arisen, in principle, the most optimal scenario for the parties to the agreement is the conclusion of an agreement on the arbitration resolution of disputes. Of course, it will not have the same economic effect as an agreement concluded before the dispute arose, and this is their main difference.
Another basis for the classification of arbitration agreements may be the possibility or impossibility of unilateral rejection of the arbitration agreement, which is provided for by the existence or absence of a derogatory effect of the arbitration agreement, excluding the possibility of dispute resolution in state courts in the presence of a valid arbitration agreement. Accordingly, in practice, irrevocable, dependent, and revocable arbitration agreements are distinguished. “If the parties have an irrevocable arbitration agreement, the state court is obliged to terminate the proceedings in the relevant case, even if the parties did not apply to the recusal of the court”{7, P.195}. This type of arbitration agreement is most clearly manifested in the United States, where the Federal Arbitration Act (FAA) explicitly prescribes that a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration… shall be valid, irrevocable”{4, S.2}. For a clear demonstration of the legal force of this type of arbitration agreement, the case of Scherk v. Alberto Culver Co. (1974) can be cited. “An agreement was concluded between the applicant from Germany and the defendant from the state of Illinois (USA) in Austria on the transfer by the plaintiff to the defendant of ownership of a number of enterprises in Germany and Liechtenstein. Disputes under this agreement were subject to arbitration at the International Chamber of Commerce (ICC) in Paris with the application of the law of the State of Illinois. A dispute arose between the parties, which the party from the USA initiated in the Illinois court, and the party from Germany – in arbitration at the ICC in Paris. In the USA the case reached the US Supreme Court, which, with the participation of the American Arbitration Association as an amicus curiae (friend of the court), established that “a contractual condition that determines in advance the place of dispute resolution and the applicable law is almost an indispensable prerequisite for achieving the orderliness and foresight necessary for any international transaction. The parties’ agreement to arbitrate any dispute arising out of their international commercial transaction must be respected and enforced in accordance with the aforementioned direct FAA regulations” {8, P.107-108}. Thus, it is practically impossible to deviate from the arbitration agreement at the present stage in the USA. In turn, the Uncitral Model Law establishes the dependent nature of the arbitration agreement. In this case, the state court is obliged to accept the case for production even if there is a valid arbitration agreement if a claim has been filed regarding the subject of the arbitration agreement. In order to exclude judicial proceedings, the party must make a statement on the recusal of the state court. This nature of arbitration agreements is also established in the European and New York Conventions {6, P.160}. Revocable arbitration agreements can be considered a very curious phenomenon in the sphere of international arbitration. Thus, article 7 of Switzerland’s Federal Code on Private International Law establishes that the court is competent to consider a dispute, despite the existence of a valid arbitration agreement, “the arbitral tribunal cannot be constituted for reasons for which the defendant in the arbitration proceeding is manifestly responsible.” As a result, an arbitration agreement can be considered revocable if the national legislation provides for the admission of a dispute to a state court is associated with the defendant’s refusal to participate in the procedure for forming the composition of arbitrators, despite the existence of a valid arbitration agreement. Similarly, Article 5 of the Swedish Arbitration Act establishes that a party is considered to have waived its right to consider a dispute in arbitration if he has opposed a request for arbitration; failed to appoint an arbitrator in due time; fails, within due time, to provide his share of the requested security for compensation to the arbitrators. In this case, the Swedish national legislation allows unilateral rejection of the arbitration agreement in cases specifically established by law. In practice, such kind of procedure is used extremely rarely and only in exceptional circumstances, when the complete impossibility of arbitration is proved. Arbitration agreements can be differentiated by the criteria of a legal institution authorized to consider a dispute on the basis of this arbitration agreement. In this case, simple and alternative arbitration agreements can be distinguished. Simple arbitration agreements are those that provide for one option to consider a dispute either in institutional arbitration or in ad hoc arbitration (casual arbitration), without providing the parties with a second, alternative option of a competent institution. In alternative arbitration agreements, the parties establish the existence of several competent legal institutions for dispute resolution. For example, an arbitration clause may contain an indication of institutional arbitration and ad hoc arbitration at the same time, implying the subsequent choice of one of them by the parties. At the same time, alternative arbitration agreements are distinguished into two subtypes: symmetrical – when the implementation of the specified choice is based on the mutual consent of the parties, and asymmetric agreements-when the choice is made by one party. “In the latter case, it is assumed that the party with the right to choose the appropriate institution for the dispute has an unreasonable advantage over the other party, but in practice, many countries recognize these agreements based on the principle of freedom of expression of the will of the parties to the contract”{2}. That is, if by agreement only one party can choose a specific arbitration, therefore the other party initially expressed its consent to this procedure. The classification of arbitration agreements based on the varieties of international arbitration itself is also very reasonable; agreements on the consideration of disputes in institutional arbitration and in ad hoc arbitration. The practical meaning here is that when concluding an agreement on institutional arbitration, almost all elements of the content of this agreement, including the language, place of dispute resolution, as well as the law applicable to the arbitration agreement, will be regulated by the permanent arbitration institution to which the parties intend to apply. When concluding an agreement on casual arbitration, these elements will be regulated at the sole discretion of the parties on the basis of their mutual agreement.
The form of an arbitration agreement
Regarding this element of the legal nature of the arbitration agreement, we again observe different approaches. The mandatory rule established by the Uncitral Model Law and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards regarding the form of an arbitration agreement is that it must be drawn up in writing. At the same time, the Model Law indicates a list of variants of this written form, which is contained in a document signed by the parties or in an exchange of letters, telex, telegrams, or other means of telecommunication that provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another and the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. Considering each of these methods of concluding an arbitration agreement separately, we will see that despite the fact that they imply the same legal consequences, the requirements imposed on them often differ significantly. “Thus, fixing an arbitration agreement on paper with subsequent signing is classical and, in principle, the most reliable form of this agreement. Indeed, before signing such a document with their own hands, the parties are likely to consider the consequences of its conclusion and how beneficial it is for them”{12, P.47}. If there is an arbitration agreement in the exchange of letters between the parties, including the use of any means of telecommunication, it is mandatory for both parties to familiarize themselves with the contents of these letters and the terms of the agreement. According to article 178 of the federal act on Private International Law of Switzerland, as to form, the arbitration agreement shall be valid if it is made in writing, by telegram, telex, telecopier, or any other means of communication that establishes the terms of the agreement by a text.“If the offer to conclude a contract contained an arbitration agreement and the other party performed actions indicating its explicit or implied acceptance of the offer or began to execute the contract without objecting to the arbitration clause, the latter is considered valid”{11, P.8}. The same rule applies to the exchange of statements of claim and objections, in which one party claims the existence of an agreement, and the other does not deny this fact. “For international commercial arbitration, it is very important that such an exchange will be valid and bilateral, not be the result of a unilateral statement by one of the parties to the dispute to a specific international arbitration”{9, P.319}. When concluding an arbitration agreement in the form of a reference to a specific document, it should be noted that the content of this document should directly follow the terms of the main contract. For example, the case considered by the Oregon State Court (USA), Pacific Forest Products CO. v. Weist Panel Co. can be cited: “the seller (a Japanese company) and the buyer (an American company) concluded about 50 transactions over the telephone. All transactions were executed in the form of buyer’s orders accepted by the seller and included in the proforma(made or carried out in a perfunctory manner or as a formality) of the main contract prepared by the seller and signed by the buyer’s representative. In the proforma, a condition was prescribed for the consideration of disputes in Japanese arbitration. Subsequently, when the buyer filed a lawsuit against the seller in the Federal Court of Oregon, the seller challenged the court, citing the existence of an arbitration agreement. The court granted the request for the challenge, stating that the buyer knew or should have known from his representative that disputes, if they arise, are subject to consideration in Japanese arbitration in accordance with the arbitration clause contained in the proforma”{1, P. 32-33}.
Quite interesting is the subsequent revision of article 7 of the Model Law as amended in 2006, according to which an arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. At the same time, special emphasis is placed on an arbitration agreement concluded using electronic messages, since with the modern development of digital technologies the importance of concluding an arbitration agreement in electronic form is becoming increasingly popular and it cannot be underestimated. The requirement that an arbitration agreement is in writing is met by electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; “electronic communication” means any communication that the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy. First of all, it is necessary to establish to what extent an arbitration agreement concluded by exchanging electronic messages is capable of guaranteeing the rights of the parties concluding it. In principle, if the electronic messages clearly indicate the agreed intention of the parties to submit disputes to arbitration, such an agreement should be considered valid. At the same time naturally arises the problem of certification by mutual agreement of the parties at the conclusion of an arbitration agreement. To solve this problem, it would be quite reasonable to use an electronic digital signature. This mechanism for confirming the conclusion of contracts is widespread in the field of international trade, as it allows the parties to conduct foreign economic activity in the shortest possible time and without additional costs, while constantly being on the territory of their state{9, P.321}.
“The 1961 European Convention approaches the form of an arbitration agreement less rigidly”{5, P.637}. To the formula enshrined in the New York Convention, it adds that in relation to States whose laws do not require that an arbitration agreement be made in writing, an agreement shall mean any arbitration agreement authorized by these laws. At the same time, some countries set even more liberal requirements regarding the form of the arbitration agreement. Thus, article 40 of the Act on Private International Law of Poland says that the form of the arbitration agreement shall be subject to the law of the country of the place of the arbitration. For instance, the Swedish Arbitration Law does not establish requirements for the written form of an arbitration agreement at all.
As we can see, the written form of the arbitration agreement means it is purely technical fixation in a form accessible for subsequent review. Nevertheless, many foreign courts adhere to the position that the conclusion of an arbitration agreement by the parties in writing is the most effective means of protection that allows to reliably establish the fact of the consent of the parties to the contract to consider a potential dispute by one or another arbitration{12, P.46-47}.
Conclusion
Summing up all of the above, it can be argued that both the classification and the form of the arbitration agreement affect to a greater extent the technical aspects of this legal phenomenon. At the same time, the classification also acts as a determinant of the most preferred type of arbitration agreement in certain circumstances of international commercial turnover. With the appropriate knowledge of the classification of the arbitration agreement, in practice, the parties to the contract can act more flexibly in order to resolve commercial disputes as effectively as it is possible. Regarding the form of the arbitration agreement, many countries are currently using the literal version of article 7 of the Model Law, including the Republic of Azerbaijan. According to the German Arbitration Act of 1998, an oral arbitration agreement is not recognized as valid. In judicial practice and in doctrine, the written form of an arbitration agreement is considered a kind of guarantee established by the national legislation and ensures the right of the parties to judicial protection, as well as the right to protection of their interests in arbitration. However, as we have seen above, in some legal institutions this statement does not exclude the conclusion of an arbitration agreement in any form that the parties may prefer.
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