Cyprus: The Issue Whether A Person, Is Signatory To An Arbitration Agreement, Shall Be Decided By The Arbitrators, And Not A State Court. Only In Clear Cases, Such An Issue Shall Be Decided By National Courts.

In a recent case, which our lawfirm handled on behalf of the Defendants, a Cypriot 1^st Instance Court, decided that as a rule, the issue whether a person, is signatory to an arbitration agreement shall be made by the arbitrators, and not a state Court. Only in clear cases, such an issue shall be decided by national courts.

In the above case, a Cypriot company filed an action against inter alia a Russian company, and its Austrian affiliated company, alleging breach of an Agency Agreement, which contained an International Commercial Arbitral clause, referring any dispute or claim, to arbitration in Stockholm.

Only the Russian company, was signatory party to the Agency Agreement, and not the Austrian company.

In their statement of claim, the Plaintiffs alleged that the Austrian company was party to the Agency Agreement, due to the fact that the Russian company, signed same, on its own behalf, and as an agent and/or on behalf and account of the Austrian company.

Both the Russian company and the Austrian company applied, before the filing of their defences, pursuant to Section 8 of the International Commercial Arbitration Law (101/87), for a stay of the proceedings, of all claims of the Cyprus action, concerning the Agency Agreement.

The Cyprus Court stayed the action for all claims, arising out from the Agency Agreement, against the Russian Company, in order to be referred to Arbitration in Stockholm, as provided in the arbitration agreement, contained in the Agency Agreement, to which the Plaintiffs and the Defendant Russian company were signatory Parties.     

The Cyprus Court furthermore stayed the action, for all claims against the Austrian company, arising out from the Agency Agreement, in order to be referred to arbitration in Stockholm, despite the fact that the Austrian company, was not a signatory Party to the Agency Agreement. The Cypriot Court decided that, the issue whether the Austrian company, was bound by the Agency Agreement (and consequently by the Arbitration Agreement contained thereto), on the alleged ground contained in the statement of claim of the Plaintiffs, that the defendant Russian company signed the Agency Agreement also, as an agent of the Austrian company, should be decided by the arbitrators and not by the Court.

The Cypriot Court adopted inter alia the principles laid down in the Canadian case GULF CANADA LTD –v- AROCHEM INTERNATIONAL LTD (1992) CANL II 4033 (BC CA), in which it has been held that, it is not for the Court on an application for a stay of proceedings, to reach any final determination, as to the scope of the arbitration agreement, or whether a particular party to the legal proceedings, is a Party to the arbitration agreement, because those are matters, within the jurisdiction of the arbitral tribunal. Only where it is clear, that a dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement, should the Court, reach any final determination in respect of such matters, on an application for stay of proceedings. 

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