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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Arbitration – Validity of arbitration agreement – Form of offer and acceptance to arbitrate – Capacity to agree to arbitration
An arbitration clause was contained in the terms and conditions appended to a purchase order. The purchase order stipulated that any dispute arising between the parties in respect of the subject of the purchase would be resolved through arbitration by the American Arbitration Association in Boston. On the other hand, the Petitioner proposed that the arbitration be conducted in London pursuant to the English Law.
The other party to the purchase order, a limited liability company, replied to the offer of arbitration (contained in the purchase order) by means of a fax message signed by an employee and not the manager of the company.
The Petitioner instituted an action before the Court of First Instance against the Respondent in which the Petitioner sought an order that the Respondent pay AED 688,920 plus interest of 12% per annum. The Petitioner also sought confirmation of a provisional attachment it had obtained for the value of the balance of the purchase price for metal supplies that the Petitioner had supplied and installed at the Respondent company’s premises.
The Respondent company challenged the submission to the Court of First Instance on the basis of the arbitration agreement in the terms and conditions appended to the purchase order.
The Court of First Instance dismissed the case due to the existence of an arbitration clause, and the Petitioner appealed to the Court of Appeal. The Court of Appeal upheld the lower court’s judgment. Thereafter, the Petitioner filed a petition to cassation.
The Court of Appeal’s judgment was overturned.
It is not compulsory for the parties’ agreement to arbitration to be established within one document signed by both parties. It is permissible for one party’s offer to refer their dispute to arbitration to be established in a document and for the other party’s acceptance to be established in another document, provided that the offer confirms the acceptance and both are identical.
The parties’ agreement to refer their dispute to arbitration could be proved either by means of a written document signed by both parties or by letter or any other means of written communication exchanged between parties, as long as such communications are signed by the sender or their transmission is proved to be made from the machine of the sender.
Moreover, arbitration agreements (whether a clause in a contract or a separate agreement) can only be entered into by those who have the legal capacity to dispose of the disputed rights. Apparent authority is not enough when it comes to arbitration agreements. Each party should verify the title and capacity of the other party, because an agreement to arbitrate involves the waiver of the inherent right to file an action in courts.
The manager of a limited liability company is the only person to manage it. The manager is solely entitled to agree to arbitration in the name of the company, unless he empowers another person by virtue of a special power of attorney to act on his behalf with respect to agreeing to arbitrate certain disputes.
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Arbitration is the disputing parties’ choice of a neutral unbiased third party whose role is to determine the resolution of that dispute without referring it to the courts. Arbitration is established according to a specific agreement between the parties that includes a so-called arbitration clause among its terms. It is also permissible for the parties to stipulate in a subsequent agreement that they wish to refer an established dispute to arbitration. This is known as an arbitration agreement.
Arbitration is based on two fundamentals. The first is the intention of the parties, which is represented in the arbitration agreement. The second is the legislator’s realization of such intent, which is achieved by granting the parties the right to choose to refer their disputes to arbitration.
The legislature attributes several safeguards to arbitration, as stipulated in Article 203.2 of the Civil Procedure Code, which states that an arbitration agreement may be proved only in writing. It is not compulsory for the parties’ agreement to arbitration to be established within one document signed by both parties. It is permissible for one party’s offer to refer their dispute to arbitration to be established in a document and for the other party’s acceptance to be established in another document, provided that the offer confirms the acceptance and both are identical.
Furthermore, the parties’ agreement to refer their dispute to arbitration can be proved either by a written document signed by both parties or by letter or any other means of written communication exchanged between parties, as long as such communications are signed by the sender or their transmission is proved to be made from the machine of the sender.
The arbitration agreement can only be valid when it is proved that the parties had the joint intention to refer their dispute to arbitration, which can be inferred from the existence of an arbitration clause within the agreement or from both parties signing a subsequent arbitration agreement. However, the parties’ agreement to arbitrate cannot be inferred if one of the parties did not respond to the other party’s offer of arbitration, in spite of their mutual agreement to a contract. Furthermore, the parties’ agreement to refer their disputes to arbitration shall not be derived from the mere fact that certain agreements between the same parties include an arbitration clause. In other words, the parties’ intention to arbitrate cannot be presumed or implied.
Moreover, arbitration agreements (whether a clause in a contract or a separate agreement) can only be entered into by those who have the legal capacity to dispose of the disputed rights. Apparent authority is not enough when it comes to arbitration agreements. Each party should verify the title and capacity of the other party, because an agreement to arbitrate involves the waiver of the inherent right to file an action in Court.
Accordingly, the Court of Cassation overturned the Court of Appeal’s judgment and remanded the case to the competent Court of First Instance.