1. Arbitration Agreements

1.1 What, if any, are the legal requirements of an arbitration agreement under the laws of your jurisdiction?

Firstly, there are two laws governing arbitration proceedings in Cyprus: domestic arbitration proceedings are governed by the Arbitration Law of 1944, Cap. 4 (hereinafter "Cap. 4"); and international arbitration proceedings are governed by the International Commercial Arbitration Law 101/1987 (hereinafter "ICAL"), which is an almost identical translation into Greek of the UNCITRAL Model Law.

The only requirement pursuant to the arbitration laws is that the arbitration agreement must be in writing in order to be enforceable. Despite the fact that there are no other formal statutory requirements, pursuant to the common law principles, the arbitration agreement must be clear and certain in order to be enforceable, it should deal with matters that are arbitrable under the laws of Cyprus, and it should be valid under the general principles of contract law.

In writing

Under section 2(1) of Cap. 4, an "arbitration agreement" is defined as a written agreement to submit present or future dispu-

tes to arbitration.

Likewise, section 7 of the ICAL determines that for an arbitration agreement to be valid, it must be in writing. An arbitration agreement is considered to be in writing if it is contained in:

  • a document signed by the parties;
  • an exchange of letters, telexes, telegrams or other means of telecommunication which provide a record of the agreement; or
  • an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

Further, an arbitration agreement can be in the form of an arbitration clause duly incorporated into a contract, or in the form of a separate agreement. A reference in a contract to another document containing an arbitration clause also constitutes an agreement to arbitrate if the contract is in writing and the reference is such as to make the clause an integral part of the contract.

Clear and certain

An arbitration agreement is void if its terms are uncertain or if it does not include a clear reference to arbitration. The relevant English judgment that constitutes a persuasive precedent for Cypriot courts is Finnegan v Sheffield City Council (1988) 43 BLR 124. In Yalta Sea Trade Port v 1. EMED CHARTERING LIMITED a.o. (2001) 1 ΑΑΔ 7,the Supreme Court (first instance jurisdiction), taking into account Finnegan, noted that the courts tend to uphold arbitration agreements when they clearly express the will and choice of the parties to use the institution of arbitration.

1.2 What other elements ought to be incorporated in an arbitration agreement?

There are no other express provisions found in either Cap. 4 or the ICAL regarding specific elements that must be included in the arbitration agreement but in general such arbitration agreements will specify if the arbitration will be institutional or ad hoc, and will include provisions for the number and appointment of arbitrators, the language of the proceedings, the incorporation of procedural rules such as the UNCITRAL Rules in the event of ad hoc arbitration, and could even include provisions for the timeframe within which the arbitration proceeding should be concluded. The seat of the arbitration should be considered and agreed by the parties and stated clearly in the arbitration agreement, since, in the absence of any other provision, this will determine the law governing the arbitral proceedings and provide for various matters such as replacement of arbitrators or access to court in aid of the arbitration. In addition, the arbitration agreement must be a valid agreement under the general principles of contract law.

1.3 What has been the approach of the national courts to the enforcement of arbitration agreements?

Cypriot courts are generally inclined to enforce arbitration agree-

ments and Cyprus is an arbitration-friendly jurisdiction.

Pursuant to Cap. 4, the court may stay the court proceedings and refer the dispute to arbitration upon the application of a party, if the court considers that there is no sufficient reason why the dispute should not be referred to arbitration and that the applicant, at the time of commencement of proceedings, was and still remains ready and willing to do all things necessary for the proper conduct of the arbitration.

According to the ICAL, the court must refer the parties to arbitration upon the request of a party made before the submission of its pleadings, unless the court finds that the arbitration agreement is null, void or incapable of being enforced. When there are allegations of fraud affecting the arbitration agreement itself, the court may be reluctant to enforce an arbitration agreement; however, each case is decided on the basis of its facts.

2. Governing Legislation

2.1 What legislation governs the enforcement of arbitration proceedings in your jurisdiction?

The enforcement of arbitration proceedings in Cyprus is gove-rned by Cap. 4 and the ICAL.

Furthermore, Cyprus is a party to the New York Convention (hereinafter "NYC") (see further question 11.1 below), which was ratified by the Ratification Law 84/1979. In addition, the Foreign Courts Judgments (Recognition, Registration and Enforcement) Law of 2000 ("Law 121(I)/2000") provides, inter alia, for the procedural steps to be followed by a party wishing to have a foreign award recognised and enforced in Cyprus, provided it was issued in a country with which Cyprus has signed a relevant bilateral treaty to this effect.

2.2 Does the same arbitration law govern both domestic and international arbitration proceedings? If not, how do they differ?

Cap. 4 applies to domestic disputes referred to arbitration on the parties' agreement, and gives the national courts extensive powers when dealing with domestic arbitration issues. It is an outdated law (adopted in 1944) not adapted to the needs of modern arbitration.

The ICAL applies exclusively to international commercial disputes. According to section 2(2) of the ICAL, an arbitration is considered "international" if:

  • the parties had their place of business or relevant commercial relations in different countries when they entered into the contract;
  • if, either the place of arbitration if so designated by the arbitration agreement or the place of performance of a substantial part of the obligations arising out of the commercial relationship which is the subject matter of the dispute or the place to which the subject matter of the dispute is most closely connected, are outside the country in which the parties have the place of business; or
  • if it has been expressly agreed by the parties that the subject matter of the dispute relates to more than one state.

According to section 2(4) of the ICAL, an arbitration is "commercial" if it relates to matters that arise from relationships of a commercial nature, whether contractual or not. The ICAL was modelled on the UNCITRAL Model Law and is an almost exact translation thereof, and puts greater emphasis on party autonomy whilst only allowing judicial intervention in the particular circumstances provided for in the ICAL.

2.3 Is the law governing international arbitration based on the UNCITRAL Model Law? Are there significant differences between the two?

The ICAL has adopted the UNCITRAL Model Law of 1985 in its entirety, except for the fact that the ICAL is limited to arbitrations that fall within the definition of "international" and "commercial" as provided therein.

2.4 To what extent are there mandatory rules governing international arbitration proceedings sited in your jurisdiction?

Generally, the ICAL is drafted in a way that respects the freedom of the parties to the arbitration to agree on matters relating to the conduct of the international arbitration. Mandatory rules are limited to issues relating to the issue of the arbitral award, the challenge of its validity and its recognition and enforcement by the national courts.

3. Jurisdiction

3.1 Are there any subject matters that may not be referred to arbitration under the governing law of your jurisdiction? What is the general approach used in determining whether or not a dispute is "arbitrable"?

Criminal matters, matrimonial and family matters, disputes concerning minors and disputes with public policy implications are non-arbitrable in Cyprus. In addition, recent Cypriot case law has adopted the existing common law approach that a tribunal will have limited powers to make orders which affect the status of a Cypriot company, such as a winding-up order or rectification of a company's register of members, although the substantive dispute may be arbitrable regarding its disputed facts.

3.2 Is an arbitral tribunal permitted to rule on the question of its own jurisdiction?

Yes, pursuant to section 16 of the ICAL, the tribunal is competent to determine its own jurisdiction and to rule on matters regarding the validity or existence of the arbitration agreement.

3.3 What is the approach of the national courts in your jurisdiction towards a party who commences court proceedings in apparent breach of an arbitration agreement?

In cases where a party commences court proceedings in breach of an international commercial arbitration agreement, the court is obliged to refer such proceedings to arbitration upon a relevant application by either party, as long as this is made prior to the submission of its pleadings. The court will not refer a matter to arbitration if the arbitration agreement is found to be null, void or incapable of being enforced.

3.4 Under what circumstances can a national court address the issue of the jurisdiction and competence of an arbitral tribunal? What is the standard of review in respect of a tribunal's decision as to its own jurisdiction?

A plea that the arbitral tribunal lacks jurisdiction must be raised no later than the submission of the statement of defence (section 16(2) of the ICAL). If the arbitral tribunal issues a preliminary award that it has jurisdiction, any objecting party can request, within 30 days after having received notice of that award, that the Cypriot court decide the question of jurisdiction. The decision of the court is final and is not subject to appeal. Moreover, while court proceedings on the matter are pending, the arbitration proceedings can be continued by the arbitral tribunal at the latter's discretion.

The issue of jurisdiction can also be decided by the Cypriot courts in the following circumstances:

  • if a respondent to arbitration proceedings fails to respond to the notice of arbitration, the claimant will apply to the court for the appointment of an arbitrator. In this case, the issue of jurisdiction can be raised by the respondent through their objection to such an application;
  • where a party to the arbitration agreement files an action before the Cypriot courts in breach of the arbitration agreement, the defendant can file an application to request an order to stay proceedings and refer the parties to arbitration because of the existence of the arbitration agreement, and the court may consider any allegation that the arbitral tribunal lacks jurisdiction to take the case; or
  • the lack of jurisdiction of the arbitral tribunal to hear the dispute may be decided by the courts even after the issuance of the award, and more precisely in the context of an application to set aside or to recognise and enforce an arbitral award.

The arbitration laws do not include provisions for the review of negative rulings on jurisdiction by arbitral tribunals.

3.5 Under what, if any, circumstances does the national law of your jurisdiction allow an arbitral tribunal to assume jurisdiction over individuals or entities which are not themselves party to an agreement to arbitrate?

Third parties or non-signatories are, in principle, not bound by an arbitration agreement or award. In general, a body of jurisprudence has developed internationally in relation to when a non-signatory can be required to arbitrate, such as in cases of agency, implied consent or group of companies; however, these circumstances have not yet been examined by the Cypriot courts.

3.6 What laws or rules prescribe limitation periods for the commencement of arbitrations in your jurisdiction and what is the typical length of such periods? Do the national courts of your jurisdiction consider such rules procedural or substantive, i.e., what choice of law rules govern the application of limitation periods?

The Limitation Law (Cap. 15) and the Limitation of Actionable Rights Law of 2012 (N.66(I)/2012) apply vis-à-vis disputes that have been referred to arbitration proceedings as they apply to other legal proceedings to be adjudicated by the national courts. This is governed by Article 21 of the ICAL and Article 24 of Cap. 4. The legal provisions governing limitation of disputes are regarded by Cypriot courts to be of procedural (and not substantive) nature. The exact length of the limitation period depends on the type of claim.

3.7 What is the effect in your jurisdiction of pending insolvency proceedings affecting one or more of the parties to ongoing arbitration proceedings?

Cypriot courts follow the established common law principles on this matter. In this respect, Cypriot courts will not allow the presentation of a winding-up petition to be used as a way to bypass the arbitration agreement in circumstances where there is an existing dispute about the underlying debt on which the petition is based being resolved in arbitration. Instead, the courts are likely to set aside (or stay) the winding-up petition until the arbitration proceedings are adjudicated on the ground that the debt owed to the creditor and forming the subject matter of the winding-up petition is disputed and has not yet been crystallised.

If the underlying debt forming the subject matter of the winding-up petition does not concern or relate to the pending arbitration, then the Cypriot courts will proceed to examine the winding-up petition and may issue an order for the winding up of the company. In this case, the appointed liquidator will be vested with the power to decide on the continuation of the arbitration proceedings, exercising his discretion while representing the interests of the insolvency procedure of the company.

In the event that the bankrupt or the relevant company in liquidation is a respondent in the arbitration, leave can be sought from the court supervising the insolvency proceedings to proceed with the arbitration despite the ongoing insolvency.

The same principles apply mutatis mutandis in cases of bankruptcy of natural persons.

4. Choice of Law Rules

4.1 How is the law applicable to the substance of a dispute determined?

The parties to an international commercial arbitration are free to choose for themselves the law applicable to the substance of the dispute. A reference by the parties to the law or legal system of a state shall, unless expressly provided otherwise, be construed as referring to the substantive law of that state and not to its conflict of law rules (section 28(1) of the ICAL). In case that no choice of law has been made by the parties, then the tribunal will apply the law determined by the conflict of laws rules it considers applicable (section 28(2) of the ICAL). In all cases, the tribunal shall rule on the dispute in accordance with the terms of the agreement and shall take into account the commercial customs relevant to the dispute (section 28(4) of the ICAL).

4.2 In what circumstances will mandatory laws (of the seat or of another jurisdiction) prevail over the law chosen by the parties?

There is not yet any developed Cypriot case law on this matter; however, drawing guidance from available common law principles, in certain circumstances mandatory Cypriot law provisions will most likely prevail over the choice of law of the parties, e.g. in cases dealing with the existence, winding up and administration of a Cypriot company, issues related to immovable property situated in Cyprus, and disputes which may concern European competition law provisions, among others.

4.3 What choice of law rules govern the formation, validity, and legality of arbitration agreements?

If the parties made an express choice of law to govern the arbitration agreement, then such law would be effective. In the absence of an express choice of law, the courts will examine whether the parties have made an implied choice of law and, if not, the courts will apply the law with the "closest and most real connection" to the arbitration agreement. This will often be the law of the seat of arbitration.

5. Selection of Arbitral Tribunal

5.1 Are there any limits to the parties' autonomy to select arbitrators?

Neither the ICAL nor Cap. 4 imposes any limits on the parties' autonomy to select arbitrators in Cyprus.

Pursuant to the ICAL, the parties are free to determine the number of arbitrators, the procedure of appointment of the arbitrators, as well as to select anyone as arbitrator, irrespective of their nationality (sections 10, 11(1) and (2) of the ICAL).

If the parties do not determine the number of arbitrators, the arbitration will be carried out by three arbitrators; if the parties do not agree on an appointment procedure, the procedure set out in section 11(3) of the ICAL will be followed.

5.2 If the parties' chosen method for selecting arbitrators fails, is there a default procedure?

Where there is no agreement between the parties for the arbitrator appointment procedure, a default appointment procedure for international commercial arbitrations is laid down in section 11(3) of the ICAL.

Section 11(3)(a) of the ICAL sets out that in an arbitration with three arbitrators:

  • each party must appoint one arbitrator;
  • the two arbitrators appointed by the parties will then appoint the third arbitrator; and
  • if a party fails to appoint an arbitrator within 30 days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment will be made, upon request of a party, by the court.

In case of arbitration with a sole arbitrator (section 11(3)(b)), if the parties are unable to agree on the arbitrator, the arbitrator will be appointed, upon request of a party, by the court.

There is a gap in the law, such as in the UNCITRAL Model Law, in case the parties have reached an agreement on a number of arbitrators other than one or three, but have not determined the appointment procedure. This would again inevitably lead to the court assuming jurisdiction to determine the procedure.

Similarly, under section 10(2) of Cap. 4, Cypriot courts have the power to appoint an arbitrator, umpire or third arbitrator in a situation where the appointment is not made within seven clear days after notice has been served.

5.3 Can a court intervene in the selection of arbitrators? If so, how?

Pursuant to section 11(4) of the ICAL, the Cypriot courts have the powers to intervene in the selection of arbitrators at the request of a party if one of the following situations exist, provided that the agreement between the parties does not provide for a different appointment procedure:

  • a party fails to act in accordance with the arbitration agreement;
  • the parties or the two appointed arbitrators are unable to reach an agreement expected of them under the procedure; or
  • a third natural or legal person, including the arbitral institution, fails to perform any function entrusted to it under the procedure.

In addition, the court may set aside any appointment made pursuant to section 11 of Cap. 4, which sets out that where an arbitration agreement provides for a two-arbitrator tribunal, each party appoints one arbitrator and, unless the arbitration agreement expresses a contrary intention:

  • if either of the appointed arbitrators refuses to act, is incapable of acting or dies, the party that appointed him may appoint a replacement; or
  • if, on such a reference, one party fails to appoint an arbitrator, the party that has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator.

5.4 What are the requirements (if any) imposed by law or issued by arbitration institutions within your jurisdiction as to arbitrator independence, neutrality and/or impartiality and for disclosure of potential conflicts of interest for arbitrators?

Pursuant to section 12(1) of the ICAL, any person who is asked to be an arbitrator must disclose in due time any circumstances that are likely to give rise to justifiable doubts as to the impartiality of their judgment or independence. The same obligation lies upon the arbitrator following their appointment and until the completion of the arbitration proceeding.

Although such requirements are not included in Cap. 4, if it is revealed that an arbitrator is not impartial, the court has the power to remove said arbitrator at a party's request and annul an arbitral award issued by said arbitrator (section 20 of Cap. 4).

The conditions that must be satisfied for the removal of an arbitrator and the procedure to be followed are set out in sections 12–14 of the ICAL and 14–20 of Cap. 4.

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Originally published by ICLG Global Legal Group

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.