Validity of arbitration clause

The term “Arbitration Clause” shall mean either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties, or contained in an exchange of letters, telegrams, or in a communication by teleprinter and, in relations between States whose laws do not require that an arbitration agreement be made in writing, any arbitration agreement concluded in the form authorized by these laws.

An arbitration agreement shall be concluded in writing form. The arbitration agreement is concluded in writing form, if it is contained in a document signed by the parties, or in letters written by parties to each other with fixation the fact of its receiving or by teletype messages, telegraph or by other telecommunication systems in which the secure fixing of such agreement can be made, or by exchanging a statement of claim and a statement of defence in which one of the parties asserts the existence of an arbitration agreement, while the other party does not deny it.
Arrangements about dispute resolution in arbitral tribunal may concern:

• Only certain types of disputes, disagreements, claims arising from relations between parties.
• All disputes, disagreements, claims arising from a specific contract/agreement.
• All disputes, disagreements, claims arising in relations between the parties.

For the validity of an arbitration clause and the possibility of resolving the dispute in an arbitral tribunal, a number of conditions must be fulfilled, in particular:

• The parties of the arbitration agreement must be clearly identified.
• Specify which controversial relations, claims or disputes are subject to dispute resolution in arbitration tribunal.
• To write the correct name of the arbitral tribunal, in which the dispute will be resolved.
• The consent of the parties to the resolve disputes in arbitral tribunal shall be clearly considered and parties shall approve its finality and bindingness beyond the judgments of the national courts.

However, I recommend to fill in other, as I think, important conditions in the arbitration сlause, namely:
• to determine the material law which shall be applied;
• the language of arbitration proceedings;
• the composition of the arbitral tribunal (number of arbitrators).

In the absence of the decision of the parties about the indication of the applicable law, the arbitral tribunal shall determine the law in accordance with the conflict rules that arbitration tribunal considers applicable. In addition, the arbitral tribunal may pass a verdict “ex aequo et bono” or as a “friendly mediator”, but only if the parties directly authorized it for such actions.
At the same time, it should be noted that such an arbitration agreement can be concluded at the stage of signing the contract or after its conclusion or even if any dispute between the parties will arise. An arbitration agreement may be concluded in the form of a separate clause in a contract or agreement, a separate agreement/contract or one party may propose to resolve the dispute in the arbitral tribunal by a written claim or letter, and in the case of written confirmation (acceptance) by the other party of such proposal, the dispute may also be resolved by the arbitral tribunal.

It is recommended that an arbitration clause shall be concluded at the stage of signing the contract unless such arbitration clause has already concluded by the parties and it is applicable to all disputes, disagreements or claims that may arise. The difficulties will arise if you will decide to conclude such an arbitration clause on the stage “dispute arising” between the parties. In addition, sometimes the parties deliberately make mistakes or inaccurately express the will in the arbitration agreement or even do not mention it in the contract at all.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) has been ratified in purpose of which is to enable the enforcement of foreign arbitral awards to the greatest extent, in particular by recognizing the right of any interested party to avail itself of law or treaties of the country where the award is sought to be relied upon, including where such law or treaties offer a regime more favourable than the Convention. In the absence of such an arbitration agreement (or in the case of conclusion of an arbitration agreement with inaccuracies), the dispute may be resolved by the national courts. Of course, States can enter into bilateral treaties on legal aid in civil/criminal cases and execution of judgments. The main risk in this area may arise in case of absence of such bilateral agreement between States. You can apply to the national court of the proper State, the court can begin the proceedings and even accept your claims and make
“right decision”. However, your counterparty is located in another country, and in the absence of a bilateral agreement between States on the execution of judgments, you will not be able to execute the court’s judgment. Unfortunately, such an unfair business practice is found and used. This is just one example when the absence of an arbitration clause or its inaccuracy can lead to significant losses for the company.

The question of the validity of an arbitration agreement is determined by the court. One of the parties may apply to the court by its own initiative to consider the validity of the arbitration agreement. During considering the claim about the validity of an arbitration agreement, the problem of the law which shall be applied. The provisions of Article 8 of the New York Convention, as well as the provisions of Article 36 of the UNCITRAL Model Law on International Commercial Arbitration, consists terms with provisions which states that the recognition and enforcement of an arbitral award may be refused only at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that:
• a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;
• the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
• the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
• the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made;

But very often the arbitration agreement does not consist the will of the parties for the law applicable to the main contract unless the parties clearly indicated otherwise. In some jurisdictions, the law governing the main contract and arbitration agreement are different.

The validity of an arbitration agreement between the parties may also arise from some international agreements. In particular, in paragraph 2 of Article 57 of the Customs Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Convention 1975) stated that any dispute between two or more parties concerning the interpretation or application of this Convention which cannot be settled by the means indicated in paragraph 1 of this article shall, at the request of one of them, be referred to an arbitration tribunal.

Thus, the fact of carrying out the carriage of goods by parties in accordance with the provisions of the TIR Convention 1975 means that parties have concluded an arbitration agreement and presumes its validity. Most arbitration institutions have standard arbitration clauses that can be used by parties to confirm the parties’ intentions. With the development of international relations and international business, the issue of the validity of the arbitration agreement obviously needs some changes. Contracts on significant sums of money may be concluded orally, but for the validity of the arbitration clause, it is necessary to use the written form. Compliance of an arbitration agreement with formal requirements is crucial now.