The arbitration clause

This clause is related to the problem of the settlement of disputes arising

from the non-performance or the improper performance of international
trade contracts.
Generally, in all systems of law the courts of law have jurisdiction to settle
these disputes, especially the court of law from the place where the
headquarters of the defendant are situated. However, there are some
exceptions provided by the procedural law of the states. Thus, for example,
the court of law from the place where immovable goods are situated has
exclusive jurisdiction to hear disputes concerning these goods.
The settlement of disputes by the courts of law has some disadvantages for
the merchants, as follows:
1. the period of time until the dispute is settled is very long and impedes the
existence of proper commercial relations between partners;
2. the procedural legal rules (rules concerning the proceedings before the
court of law) are very complicated and the parties do not know them. As a
consequence, they must be assisted by lawyers before the court of law and
lawyers are very expensive.
Due to these disadvantages, the merchants prefer alternative ways for the
settlement of disputes, such as the arbitration.
The commercial arbitration represents a jurisdictional way of settling
commercial disputes. It means that the hearing and the settlement of the
dispute between parties is performed by a person or persons chosen or
agreed to by them. The parties to a commercial contract may choose the
arbitration in order to settle the dispute only if the procedural law of their
country allows them to do so. For example, in Romania, the Code of civil
procedure allows the parties to choose the arbitration in order to settle
disputes.
The commercial arbitration may be classified according to several criteria, as
follows:
A. According to the elements used by arbitrators in order to settle the
dispute, the arbitration may be:
1. Arbitration in jure (by law) when the arbitrators settle the dispute by
applying the provisions of the law;
2. Arbitration ex aequo et bono (by equity). It is used mainly in disputes
concerning unnamed contracts and complex contracts, for which there is no
specific regulation in the systems of law. Therefore, it is very difficult to
determine their applicable law. Thus, the arbitrators settle the dispute by
applying the general principles of law, such as the principle of good faith,
the principle of equity and so on, for the purpose to ensure a fair trial and to
provide a fair solution.
B. According to the permanence of the arbitral body, the arbitration may be
divided in two categories, as follows:
1. Occasional or ad-hoc arbitration when the arbitral body is set up for a
special dispute and it lasts only during the settlement of that dispute.
2. Permanent or institutionalized arbitration when the arbitration body is
permanent, such as a court of arbitration having its own structure,
organization and internal rules of functioning.
The permanent arbitration bodies may be classified according to two criteria,
as follows:
A. According to their material jurisdiction (jurisdiction related to the
subject-matter of the dispute) the arbitration bodies may be:
1. General arbitration bodies which may settle any kind of disputes, related
to any category of international trade contracts. For example, the
International Court of Arbitration of the International Chamber of
Commerce from Paris; the International Court of Arbitration of the
Romanian Chamber of Commerce and so on.
2. Special arbitration bodies which may settle only the disputes arising from
specific categories of contracts. For example, the London Court of
Arbitration which may settle disputes related to the carriage of goods by sea,
the Bremen Court of Arbitration that settles disputes related to the
commerce of cotton and so on.
B. According to its territorial jurisdiction, the arbitration bodies may be:
1. Universal arbitration bodies which may settle disputes between
commercial partners belonging to any state in the world. For example, the
International Court of Arbitration of the International Chamber of
Commerce from Paris;
2. Regional arbitration bodies which may settle only the disputes between
partners belonging to a specific area of the world – for example, the Asian
arbitration from Kuala Lumpur.
3. Bilateral arbitration bodies that have jurisdiction to settle the disputes
between parties belonging to two states – for example, American-Canadian
Arbitration Commission, French-German Arbitration Chamber.
4. National arbitration bodies having international jurisdiction. Most
arbitration bodies are included within this category. They are usually
attached to national Chambers of Commerce. For example, the Royal
Arbitration Institute from Stockholm, Berlin Arbitration Commission,
Athens Arbitration Commission and the International Court of Arbitration of
the Romanian Chamber of Commerce.
Any permanent arbitration body has its own rules concerning the
proceedings before it. These rules of proceedings are harmonized with a
uniform set of arbitration rules created by the UN Commission on
International Trade Law (UNCITRAL) or by the International Chamber of
Commerce from Paris. They must also observe the procedural law of the
state where the arbitration body is situated.
The commercial arbitration represents a special way for the settlement of
commercial disputes that derogates from the usual jurisdiction of the courts
of law. Due to this aspect, there are special ways used in order to refer the
dispute to arbitration.
Thus, a dispute may be submitted to arbitration in two ways:
1. according to the agreement between states, by means of an international
convention concluded for this purpose;
2. according to the will of the parties. This is the most frequent way used
within international trade.
The will of the parties may be expressed either by means of an arbitration
clause included in the contract or by a separate arbitration agreement.
Due to the importance of the arbitration agreement’s validity, the states have
concluded an international convention, namely the 1963 Geneva Convention
that regulates the matter of the arbitration agreement. Romania is a state
party to this convention.

a. The arbitration clause

The arbitration clause is provided by the contract concluded between the

parties either at the moment of concluding the contract or during its
performance. We should mention that the arbitration clause must be
provided before the dispute arises. It supposes the agreement of the parties to
submit to arbitration any eventual dispute between them, arisen in relation to
the contract, by excluding the jurisdiction of the courts of law.
The arbitration clause must fulfill the following conditions, under the
sanction of its absolute nullity:
1. To be concluded in written form, regardless of the form requested by law
for the conclusion of the contract;
2. To be precise;
3. To express without any doubt the will of the parties to settle the eventual
dispute by means of arbitration, to provide the competent arbitration body,
the way of appointing the arbitrators and the applicable rules of proceedings.
For example: ”the parties to the contract agree to refer to arbitration any
eventual dispute between them and the International Court of Arbitration of
the Romanian Chamber of Commerce has jurisdiction to hear it, the
proceedings being regulated by the own rules of this court”.
As far as the applicable rules of proceedings are concerned, if the arbitration
body chosen by the parties is a permanent one, the arbitral tribunal applies
its own rules of proceedings. If there are not such rules, the parties may
choose another procedural law. Otherwise, the arbitral tribunal applies the
procedural law in force in the country where the place of arbitration is
situated. However, even if the arbitration body has its own rules of
proceedings, these rules are to be completed by the procedural law of the
state where the place of arbitration is situated.

b. The arbitration agreement

It is concluded by the parties after the dispute has arisen. In order to

conclude an arbitration agreement, the parties should not have provided in
the contract an arbitration clause.
In all cases, the arbitration agreement must be concluded in written form. It
must provide the following elements:
- The agreement of the parties to submit to arbitration the existing dispute;
- The choice of the arbitration body;
- The way of appointing the arbitrators;
- The applicable law.

The arbitral tribunal may be constituted by a sole arbitrator, according to the

agreement of the parties or by an equal number of arbitrators nominated by
each party. As a rule, in the second case, the arbitrators nominated by each
party choose a chairman of the arbitral tribunal. Otherwise, the chairman is
appointed by the arbitration body.
Concerning the choice of arbitrators in order to constitute the arbitral
tribunal, there are three systems, as follows:
1. The arbitration body draws up a list of arbitrators and recommends them
to the parties. From this list, the parties choose the sole arbitrator by mutual
consent or each party chooses his own arbitrators. The arbitrators appointed
by the parties choose a chairman from the same list.
2. When the parties fail to nominate the arbitrators, they are appointed by the
arbitration body. This system is used in most cases.
3. This system is used only by the American-Canadian Arbitration
Commission. Thus, there is a list of arbitrators drawn up by the commission;
within this list, the parties eliminate the persons who are considered
incompatible with the dispute. Then the chairman of the Arbitration
Commission appoints one or more arbitrators from the persons who were not
eliminated.

The rules of proceedings before the arbitral tribunal are much more
permissive than the ones that are followed before the courts of law. When
hearings are held the parties may be assisted or represented by lawyers or
any other adviser. In order to establish the facts of the case, the arbitral
tribunal may use all appropriate means of evidence and it may decide to hear
witnesses, experts or any other person.
After the proceedings before the arbitral tribunal are closed, it provides an
award which is compulsory for the parties to that dispute. Generally, when
the arbitral tribunal is composed of more than one arbitrator, the award is
given by the majority’s decision. The award must state the reasons related to
the facts and the provisions of law upon which it is based.
In the Romanian system of law, the parties may challenge the arbitral award
before the courts of law by bringing an action for the declaration of its
nullity. This nullity may be claimed only for one of the grounds expressly
provided by the Romanian Code of Civil Procedure.

The arbitration award is mandatory and must be executed willingly by the

parties. No formalities are necessary in case of voluntary compliance with
the award. But in case that one of the parties, generally the one against
which the arbitral award is given, refuses to comply with it, the other party
may ask for the enforcement of the award by means of the State’s authority
(power).
The enforcement of arbitral awards is not difficult if it is accomplished in the
same country where the arbitration had taken place. Thus, the interested
party applies to the court of law in order for the court to render the award
enforceable. Then the forced execution of the award is carried into effect by
forced execution officers.
However, some difficulties may arise when the arbitral award is made in a
State other than the State where the forced execution must be carried out.
Due to the importance of award’s enforcement, the States had concluded an
international convention in order to regulate the matter, namely the 1958
New York Convention on the recognition and enforcement of foreign
arbitral awards.
According to this convention, each State party to it must recognize foreign
arbitral awards as binding and enforce them in accordance with its own rules
of procedure. There must not be imposed more onerous (burdensome)
conditions or higher fees or charges on the recognition or enforcement of
arbitral awards than those that are imposed on the recognition or
enforcement of domestic awards. As far as their enforcement is concerned,
the foreign arbitral awards are considered in every respect as the foreign
judgments.
All these provisions lead to the idea that, in the country where the forced
execution is carried out, the foreign arbitral award must follow before a
court of law the exequatur procedure. It means that the party seeking to
enforce the foreign award must apply to the court of law requesting the
recognition and the enforcement of the award. The judge must examine if
the award was given by the competent arbitration body in accordance with
the agreement of the parties or the applicable law. If these conditions are
fulfilled the judge recognizes the award and render it enforceable.
However, especially in cases when the dispute is referred to arbitration by
means of an international convention, the foreign arbitral award is
considered in every respect as a domestic judgment. In these cases, there is
no need to follow any more the exequatur procedure. For example, the Court
of Justice of the European Communities may act as an arbitration body. In
these cases, the arbitral award given by the Court is considered by each
Member State of the EU as a domestic judgment. Therefore, there is no need
to follow the exequatur procedure in order to enforce the award given by the
Court in one of the Member States.