Are you considering resolving a commercial dispute with a counterparty for which you did not foresee arbitration?
Do you believe the absence of an arbitration clause could hinder the recourse to arbitration?
Note that arbitration is still possible even without an arbitration clause also including cases where a dispute has already arisen.
Arbitration is an alternative out-of-court dispute resolution process, distinct from Court proceedings.
It is a process in which conflicting parties entrust the resolution of their dispute to an arbitrator or an arbitration panel.
Usually, arbitration is regulated by an arbitration clause, drafted during pre-contractual negotiations, and included into the final contractual agreement between the parties.
This clause explicitly states the choice to resort to arbitration should a dispute arise and specifies the procedural details. However, arbitration can also be pursued in lack of an arbitration clause, after a dispute has arisen, through the signing of an arbitration agreement.
It is not necessary to have an arbitration clause to initiate arbitration because the parties may not have considered the possibility of resorting to arbitration in the first place.
Upon reaching an impasse, if the law permits for the specific issue in dispute, the parties could simply agree that arbitration might be the best solution and formalize this decision through an arbitration agreement.
Arbitration without an Arbitration Clause: Legal Framework
Arbitration without an arbitration clause in Italy is regulated by Article 808-bis of the Italian Code of Civil Procedure.
Arbitration without an arbitration clause is possible in the following cases:
- When the parties have entered into a contract that does not include an arbitration clause but is still capable of generating a dispute.
- When the parties, after executing the contract, agree on an arbitration agreement.
To submit disputes to arbitrators, an arbitration agreement is established, which is a contract between the parties. It can be ratified through two possible ways:
- Arbitration Clause
- Arbitration Agreement
Any document regulating arbitration, whether it is an arbitration clause or an arbitration agreement, should be drafted professionally and knowledgeably. It must be tailored to the specific situation or case to avoid the risk of making the agreement ineffective and transferring the case to the competent ordinary court or the judicial authority of the country identified based on private international law laws.
An arbitration clause is a provision included in a contract (or a separate instrument) where the parties stipulate that future disputes concerning the contract will be resolved by arbitrators.
To be well-prepared, especially when dealing with international commercial arbitration involving parties from different countries, it is advisable to provide as much information as possible. This is also true if the contract activities, or a part thereof, are located abroad.
Not all potential disputes can be resolved through arbitration, and the arbitration clause may expressly indicate a limited scope to which the clause applies.
The arbitration agreement is a contract that can be signed by the parties following the occurrence of a specific dispute.
Through the arbitration agreement, the rules guiding the arbitration process can be tailored specifically to find a resolution to a dispute that has already arisen.
The arbitration agreement focuses on a legal issue already identified by the conflicting parties, making it potentially more specific than an arbitration clause.
By drafting the arbitration agreement, the parties choose not to pursue a lawsuit in court but instead initiate arbitration, referring the decision on the resolution of the dispute to an arbitrator or an arbitration panel.
Differences between Arbitration with an Arbitration Clause and Arbitration without an Arbitration Clause
National laws allow both the arbitration clause and the arbitration agreement to be binding.
The main difference between the two procedures is the moment when the arbitration agreement is executed, that is, the agreement between the parties to entrust the resolution of the dispute to an arbitrator or an arbitration panel:
Arbitration with an arbitration clause is a procedure initiated when the parties have already anticipated and included an arbitration clause in a contract or another instrument.
The decision to resort to arbitration is temporally placed before the occurrence of an actual dispute.
Arbitration without an arbitration clause is a procedure initiated when the parties have not included an arbitration clause in a contract or another instrument.
The decision to resort to arbitration is temporally placed after the occurrence of a specific dispute.
Resolving International Commercial Conflicts through Arbitration
It is practical for business partners to find a convenient solution for both parties and avoid lengthy legal proceedings, especially to maintain commercial relationships.
When business partners disagree, international commercial arbitration can be an amicable solution for both parties, especially if they do not wish to jeopardize future business dealings.
Before opting for arbitration, attempting negotiation is also an option, with arbitration as a remedy if negotiations between counsels do not lead to dispute resolution. (check: The Role of an International Commercial Arbitration Lawyer?)
Parties accepting arbitration through an arbitration agreement are fully aware of what they are facing, as the dispute has already occurred.
Advantages of Arbitration, Even Without an Arbitration Clause
The advantages of arbitration, even without an arbitration clause, compared to resorting to litigation, can be summarized as follows:
- Efficiency of the arbitration process.
- Flexibility and adaptability to the parties' needs.
- Assurance of confidentiality.
- The possibility to maintain business relationships with the counterparty due to the facts that arbitration is not litigation.
Arbitration without an arbitration clause is an alternative to judicial litigation that should always be considered.
In some cases, it may be the most suitable solution to resolve a dispute due to its efficiency and discretion.
For further information on arbitration without an arbitration clause, please contact the Arbitration Department at Boccadutri Law Firm. You will be provided with legal advice and assistance in all aspects of arbitration, whether there is an arbitration clause, whether it is poorly drafted, or whether it is absent.
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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.