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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Arbitration – Assignment of arbitration agreement – Capacity to agree to arbitration – Time limit for arbitration proceedings
The Petitioner, the owner and manager of a construction company, contracted with the Respondent to perform certain construction works for the Respondent. The Petitioner entered into the contract in a personal capacity, either as an individual or in the (legally indistinguishable) capacity of the owner of a sole proprietorship. The contract into which the Petitioner entered contained an arbitration clause stipulating that any dispute pertaining to the contract should be arbitrated. Subsequently, the Petitioner formed Al-Nekhreh Contracting Company (“Al-Nekhreh”), a limited liability company of which he became the general manager. The construction contract was assigned to Al-Nekhreh.
A dispute arose, which was referred to arbitration before a panel of three arbitrators. After the commencement of the arbitral proceedings, the Respondent and the Petitioner, in his capacity as general manager of Al-Nekhreh, signed the terms of reference affirming the arbitration agreement in the contract. Following the issuance of two arbitral awards – one determining the substance of the dispute and the other determining the arbitration fees – the Petitioner filed an action with the Court of First Instance seeking the nullity of the awards. The Court dismissed the action and the Petitioner appealed. The Court of Appeal upheld the lower court’s decision, and the Petitioner filed a petition to cassation.
The petition to cassation was dismissed.
The parties to an arbitration agreement may, explicitly or implicitly, agree to extend the time for the issuance of an arbitral award. The extension period for the issuance of an arbitral award shall immediately follow the extended term without interruption. Furthermore, the time for issuance of the arbitral award is not an issue relating to public order, and the court may thus not raise it on its own motion. Rather, the disputing party must expressly and clearly raise the claim before the arbitrator or before the court considering the ratification or nullification of the claim.
Articles 237 and 235 of the Companies Law confer upon the manager of a limited liability company the full capacity to manage the company, including the capacity to agree to arbitration on its behalf without the need for a special authorization. Article 28.2 of the Civil Procedure Code, which stipulates that “acknowledging or assigning the claimed right, reconciliation or arbitration shall not be allowed save by a special proxy”, is only restricted to a litigation representative before courts of law and does not extend to the powers given to the manager of the limited liability company over administration and the capacity to agree to arbitration.
If a contracting party assigns rights and obligations to a third party by assignment accepted by the third party, the latter shall replace the contracting party in abiding by the arbitration agreement. Such assignment may be explicitly or implicitly accepted through any act performed or measures taken by the third party.
In disputes settled by arbitration, it is not necessary for the litigant to appear personally before the arbitrators. They may unconditionally choose their representatives, who are attorneys at law delegated by an official proxy. This proxy may be explicit or implicit and may be determined by the court that is hearing the subject matter.
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There are no provisions that prohibit arbitrators from issuing an award determining their fees and arbitration expenses after the award settling the dispute has been issued, because they still have jurisdiction over arbitration issues concerning fees and expenses.
The Court of Cassation considered the following arguments presented by the Petitioner:
The Court’s findings are as follows:
The first argument is inadmissible. The appealed judgment found that “it was established by Clause VI of the arbitration document that the litigants granted the arbitrators the right to extend the arbitration term when the necessity arises. As established by the minutes of the arbitration hearing dated 7 June 1997, arbitrators, by virtue of this right, extended the arbitration term [for] six months commencing immediately after the termination of the previous term and the award was made during the extension period.” These admissible reasons are established by documents and have the same meaning contained in Clause VI of the terms of reference dated 16 February 1997, which stipulates that arbitrators are previously delegated to extend the agreed-upon term of arbitration with no need to obtain the agreement of the litigants or their representative before the Court.
The second claim is without evidence, either de jure or de facto. The terms of reference concluded between the parties on 16 February 1997, which are themselves a confirmation of the arbitration agreement set forth in the construction contract and were signed by a representative of the limited liability company, are valid since they were issued by a person who has the capacity to represent the said company. The manager, who represents and administers the company, has the capacity to dispose of all items related to this representation and any matters consequent thereto, [Page29:] including the capacity to agree to arbitration. It is established that no text in the company’s memorandum of association limits the powers given to the manager to agree to arbitration. His agreement on the subject matter of the arbitration is related to the activity of the said company and to the dispute ensuing from the implementation of the construction contract in which the said company engaged as a contractor. Thus, he has the capacity to agree to arbitration. It is established that the Plaintiff – the Petitioner – is the manager of the company, as acknowledged in the statement of claim under the title of “the capacity according to which the case is filed” and as established by the company’s memorandum of association.
The third argument is inadmissible because the relevant arbitration agreement was that contained in the underlying contract, which set forth the subject matter of the dispute, not that entered into subsequent to the commencement of the arbitral proceedings which does not constitute a new arbitration agreement but rather a confirmation of an existing arbitration.
The fourth argument is groundless because the arbitration agreement was transferred to Al-Nekhreh, which was party to the arbitration.
The fifth argument is inadmissible. The appealed judgment found: “It is established by the minutes of arbitration that the arbitration panel allowed the Plaintiff to make pleas and submit documents by the representatives. Their appearance as representatives of the Plaintiff company in the arbitration hearings is established by the proxy document dated 28 January 1997 and imprinted on the official papers of the company. … The Plaintiff directly acknowledged in the arbitration document … that matters agreed to be considered by arbitrators are detailed in the litigant’s statement of claim submitted at the first hearing attended by […] who presented the petitions of the Plaintiff’s company. This act is considered an implicit acknowledgment made by the Plaintiff of the validity of this person’s representation of the company at the hearing.”
The sixth argument is rebutted as follows. There are no legal provisions that prohibit arbitrators from issuing an award determining their fees and arbitration expenses after the award settling the dispute has been issued, because they still have jurisdiction over arbitration issues concerning fees and expenses and because such an award is not related to the subject matter of the dispute after the award settling that dispute has been issued.
The seventh part of the argument is refuted as follows. The engineers were chosen by the parties to be arbitrators because of their experience in the field of construction, which was the subject matter of the arbitration. Therefore, if they used their experience and personal knowledge of market conditions, they did not err. Although arbitrators are considered to be judges, they are allowed – unlike judges – to adjudicate using their personal knowledge on general matters.
The eighth part of this argument is inadmissible because the objection made by the Petitioner regarding the determination of higher fees for one of the arbitrators does not fall under the grounds for cancelling the award issued by arbitrators set forth in Article 216 of the Civil Procedure Code. The Petitioner’s objection actually relates to the discretionary powers exercised by arbitrators and does not constitute a valid reason for cancelling the award.
The ninth part of this argument is inadmissible because the sum referred to in the award is not payable to the consultant but corresponds to a fine for delay payable to the Respondent for the appointment of the consultant.
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The tenth part of the argument is inadmissible. Pursuant to Article 208.3 of the Civil Procedure Code, in cases involving more than one arbitrator, they shall jointly carry out investigations and each of them shall sign the minutes. This provision is a procedural rule relating to the methods of obtaining evidence. In contradiction of this rule, if one arbitrator carries out some investigations alone, he is implicitly commissioned by the panel of which he is a member. Furthermore, if he allows litigants equal opportunity to make their pleas, such an act does not invalidate the award, since the outcome of the investigations is subject to the consideration of all arbitrators when resolving the subject matter of the dispute. No allegation was made by the Petitioner that the arbitrator who carried out some investigations on his own prohibited the Petitioner from making pleas or submitting evidence.
The Petitioner argues that the arbitrators failed to decide on its claim for legal interest. All grounds submitted by the parties to challenge the award other than those set forth in Article 216 of the Civil Procedure Code, relating to the discretionary powers exercised by arbitrators and the invalidity or insufficiency of their reasons, are inadmissible. If the award made by arbitrators neglects a subject matter petition, such negligence does not invalidate this award. If the court that is hearing the subject matter does not consider a subject matter petition, as in the case of the abovementioned Court, this act is an inadmissible reason for challenging the resulting judgment.
Accordingly, the present petition to cassation is dismissed