Cyprus: An Ideal Centre For International Commercial Arbitration

Already a well-established international business and shipping centre, Cyprus is now ready to become a popular venue for international arbitrations. Its prompt ratification of the Uncitral Model Law on International Commercial Arbitration (the second country to do so after Canada) has added to the Republic's existing advantages and gone a long way towards establishing it as an extremely suitable location.

Parties to international arbitration seeking a suitable venue have a difficult decision to make. It must be both neutral and politically stable and its legal system both sophisticated and effective. No legal obstacle must exist which would jeopardise the conduct of the arbitration and, equally importantly, the successful party must be able to obtain legal enforcement in the country where the other party has assets.

Cyprus has all this and more to offer. We hope that this article will give the reader a clear idea of the advantages of choosing Cyprus as a venue for international commercial arbitrations and will help to explain the working of its laws on such arbitrations.

Cyprus' strategic geographical location, excellent commercial infrastructure, political stability, favourable tax incentives, high standard of living and European lifestyle have contributed to its establishment as an important business and financial centre.

Due to its numerous advantages, the island compares favourably with all other similar locations. Many of these benefits are inherent in the nature of the country itself whilst others have been specifically tailored to meet the needs of foreign investors and parties to international arbitrations.

The following are the most appealing of the advantages:

Though located in the often stormy and turbulent Middle East area, Cyprus is a centre of democracy and stability where businessmen from all nations are able to conduct their affairs in a harmonious and friendly environment. The rule of law is a well-entrenched principle which is endorsed by free elections and a Western parliamentary system. In addition, the authorities' desire to assist foreign business people is strengthened by the friendly and enterprising spirit of the Cypriot people themselves.

Two British bases are maintained on the island, and there is also a strong presence of United Nations forces. The result is that there has been no major incident for over 30 years and the stability of the island is secured.

Cyprus is privileged to enjoy one of the most strategic geographical locations in the world. The island is situated at the crossroads of Europe, Asia, the Middle East and Africa and is a gateway to the oil-rich Arab states and the rest of the region.

In addition, the island's time zone is convenient for all other local centres and this is enhanced by its excellent telecommunication links. It is also within easy flying time of the rest of Europe and the Middle East and the island's international airports at Larnaca and Paphos offer daily flights to all major destinations. Above all, visitors from more severe climates will enjoy the excellent weather conditions prevailing in Cyprus.

While the policy of the authorities has been manifestly in favour of assisting and promoting foreign participation in the Cypriot economy, this has not in any way operated adversely to affect their respectability or good standing in the eyes of the international business community or foreign income tax authorities.

Indeed, the authorities have succeeded admirably in maintaining a balance between upholding their respectability and avoiding the imposition of suffocating bureaucratic regulations and restrictions.

The commercial infrastructure of Cyprus, which is refined and well developed, lends itself ideally to all forms of business activity. In particular it offers a civilized environment, pleasant working conditions, comfortable accommodation and comparatively low operational costs and living expenses.

In addition, a wide range of professional services is offered, including UK-trained lawyers and a number of international accounting firms. Their advice, which is usually based on extensive experience, may be relied upon with confidence and can be obtained at reasonable rates.

The English legal system, practice and procedures, which the island acquired during its time as a British colony, have continued since independence despite the subsequent promulgation of further legislation. Moreover, although the official languages of the Republic are Greek and Turkish, English is spoken by the majority of the population. It is also a language which is taught extensively in schools and is greatly used in commerce and administration. Business transactions and negotiations will undoubtedly be facilitated through communication and co-operation in a language with which all parties are familiar.

The island's telecommunications system compares favourably with the highest international standards. Direct dialling telephone connections to all world centres are available, with efficient facsimile and internet facilities. The postal service is fast and regular and is supported by numerous courier services.

The Cypriot authorities are firmly committed to forging and maintaining strong bonds of friendship with all neighbouring states and with countries further afield. In addition, the official policy is one of fostering and promoting good relations with all international organisations.

Cyprus is a member of numerous international associations, including the United Nations, the Council of Europe, the British Commonwealth, and the Non-Aligned Movement. It became a full member of the EU on 1 May 2004.

The island's enormous goodwill blends with its other more obvious advantages, to make it one of the most suitable world locations for all business activities.

Chapter 4 of the codified laws of Cyprus, based on and similar to the U.K. Arbitration Act 1950, is the vehicle used for domestic arbitrations and for a long time was the only law on arbitration. As Cyprus began to involve itself in international arbitrations, it was found that this law was unsuitable, mainly because it allows for extensive intervention by the courts at all stages of the proceedings; the parties were tempted to use these rights as delaying tactics. Parties to international commercial arbitrations seek speedy resolutions and under those circumstances would not choose Cyprus as the venue for their arbitration. .

It was convenient that at the stage when the Cypriot legislature had to consider the manner in which it was to adapt the law, the United Nations Commission on International Trade Law (UNCITRAL) adopted a model law on International Commercial Arbitration. Cyprus decided to adopt this law with only minor amendments. It has not replaced Cap. 4 but runs parallel with it.

Applicable only to international commercial arbitration, Law 101/187 clearly defines the words ‘international arbitration’ as arbitration between two parties who have their places of business in different states.

The word ‘commercial’ is defined as referring to matters ‘arising from relationships of a commercial nature’, allowing for a wide interpretation.

The most important aspect of this law is the fact that the intervention of the courts is minimised. Only in those instances specifically mentioned by the law are the courts entitled to intervene. These are, briefly:

Prior to delivery of the award:

1. the court will appoint an arbitrator/s if one of the parties or the party-appointed arbitrators fail to do so.
2. if the tribunal dismisses a challenge against an arbitrator, the court will deal with the challenge.
3. the court will decide on the termination of an arbitrator's mandate if he fails to discharge his duties or is guilty of undue delay in doing so.
4. the court may review a ruling of the tribunal that it has jurisdiction to deal with the matter.

These are similar to the powers given to a court under Cap. 4. However, unlike under Cap. 4, these decisions are not subject to appeal.

After the delivery of an award, the court may set aside an award or refuse recognition or enforcement on the grounds of:

1. incapacity of the parties
2. invalidity of the arbitration agreement
3. lack of proper notice or denial of a party's right to present his case
4. lack of jurisdiction of the tribunal
5. defective composition of the tribunal
6. the subject matter of the dispute being incapable of settlement by arbitration under Cypriot law
7. the award being contrary to the public order of the Republic of Cyprus.

Failing any such ground, the award is binding on the parties and cannot be the subject of an appeal. It is important, therefore, to distinguish between the power to set aside an award, which can only be exercised on the basis of one or more of the above grounds, and a general power of appeal (whether against an error of law or otherwise) which simply does not exist.

Another important factor is what has been called ‘party autonomy’. The parties are given complete power to decide on the procedure and a variety of other matters relating to the arbitration. Only if no agreement is reached are alternative provisions made.

The law which applies to the dispute is the one chosen by the parties. If none is chosen, the tribunal decides which law to apply.

Cypriot law provides that time runs against the parties to international commercial arbitrations which, in matters of limitation, are governed by the same provisions as those applicable to domestic arbitrations (section 21).

The New York Convention of 1958 came into force on 7 June 1959 and has since been ratified by 130 countries globally. In Cyprus the Convention was ratified by Law 84 of 1979. It is without doubt the most important convention regarding international commercial arbitration. Expressions like ‘the single most important pillar on which the edifice of international arbitration rests’¹ and ‘…the most effective instance of international legislation in the entire history of commercial law’² indicate clearly the importance of the Convention in relation to international commercial arbitration.

Article III of the Convention states ‘Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon...’ It is, therefore, advisable to hold an international arbitration in a contracting state in order to increase the chances of achieving recognition and enforcement of the award at a later stage in other contracting states. As a general observation, the current trend is towards ease of recognition and enforcement of foreign arbitral awards in Cyprus.

The recognition and enforcement of a foreign award can be effected by filing an application requesting its recognition and enforcement. Article IV of the Convention requires the application to be accompanied by an affidavit with the following documents attached:

• A duly authenticated original award or a duly certified copy thereof; and
• The original agreement referred to in article II of the Convention or a duly certified copy thereof.

Certified Greek translations of both the above documents must also be attached to the affidavit.

Cyprus has achieved worldwide acknowledgment as an international business and maritime centre and undoubtedly it satisfies all the criteria for becoming an established international arbitration centre. It has enhanced its arbitration landscape by the incorporation of the UNCITRAL Model Law on International Arbitration, with minimal amendments, into Law 101 of 1987. The current legal regime with respect to international arbitration in Cyprus fully conforms to internationally accepted standards. In most instances Cyprus will be a neutral forum for an international arbitration and will compare favourably with other European countries as to the costs for conducting the arbitration. In addition, Cyprus is a signatory to the 1958 Convention and, therefore, an arbitral award given in Cyprus will more easily be enforced in another contracting state to the Convention.