ARTICLES & UPDATES

Arbitration is a judicial act of a special nature, as the arbitrator derives his authority from the agreement of the parties rather than from the law. The legislator has permitted agreement on arbitration in all disputes arising from the execution of a particular contract, except for matters related to public order, in which settlement is not permissible.

The inclusion of an arbitration clause in commercial and construction contracts has become almost automatic, particularly in transactions involving a foreign element. In such cases, the clause is often imposed as a standard condition within the contract. The clause may stipulate that arbitration shall take place outside the country, before international legal institutions or chambers of commerce, and may even provide for the application of foreign laws instead of local laws.

However, due to the global standing of such companies, they often do not accept negotiation of their pre-drafted terms. As a result, the local trader, driven by the desire to conclude the contract and for purely commercial reasons, agrees to sign the contract containing such a clause. It may later become apparent that the clause is not in the local trader’s interest, as it subjects disputes to foreign laws, results in the loss of judicial safeguards, and leads to increased costs and expenses, including arbitrators’ and lawyers’ fees.

Accordingly, efforts are often made to eliminate this clause once it becomes burdensome. In addition to the high costs and lack of judicial protection, it may create a sense of imbalance between the contracting parties, especially where the clause is imposed by a stronger party.

As a general rule, an arbitration clause is binding if it is properly stipulated. Courts tend to respect the will of the contracting parties. However, this does not mean that the clause cannot be challenged or reviewed. The simplest and strongest way to eliminate an arbitration clause is by mutual agreement between the parties after the contract is signed, either by expressly canceling the clause and replacing it with recourse to the courts, or by implicitly agreeing not to raise a jurisdictional objection before the courts based on the existence of the arbitration clause.

Among the key conditions for the application of an arbitration clause is that the subject matter of the contract must be lawful and must not involve issues related to public order. Another important condition for the validity of an arbitration clause is that the person signing the contract must be duly authorized to act in respect of the subject matter, and the authorization granted must expressly include the right to enter into contracts containing arbitration clauses.

It has also been established in judicial practice that clauses relating to nullity, forfeiture, or arbitration must be clearly stated in the contract and presented in a prominent and explicit manner. Lack of clarity, ambiguity, absence of signature by the concerned party, inclusion in a non-binding or unclear document, lack of legal capacity at the time of signing, failure to specify the subject matter of the dispute, or drafting the clause in vague terms that make its scope indeterminable, all of these may render the arbitration clause non-binding.

Arbitration is an exceptional means of dispute resolution and constitutes a departure from ordinary judicial procedures. Therefore, it must be interpreted narrowly and not expansively.

If the arbitration clause becomes impossible to execute or if the arbitral tribunal cannot be constituted, jurisdiction reverts to the courts. Accordingly, if a contract contains a mandatory arbitration clause, it is advisable to proceed with caution before signing, carefully review the clause, consider its implications and consequences, and seek legal advice from professionals. One should not be driven solely by the desire to conclude the deal but should also focus on the long-term outcomes and commercial success of the contract.

This article was recently published in Arabic in Al-Jarida newspaper. You can view the original newspaper clipping here https://share.google/kg8HKPopoEO3sCLgz

Lawyer / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com