What commercial arbitration is — and what the law governs
Commercial arbitration is a private, contract-based method of resolving disputes: instead of submitting a conflict to the state courts, the parties themselves determine who will hear their case — one or several arbitrators. The Georgian Law on Arbitration establishes the rules for the creation of arbitration, the conduct of arbitral proceedings, the arbitral award, and also the recognition and enforcement of an arbitral award rendered outside Georgia (Article 1). For a business this means that a properly drafted arbitration clause builds, in advance, the entire mechanism through which a future conflict will be resolved: you can determine the applicable rules, the language, the place and the people who will make the decision.
Which disputes can be arbitrated — and which cannot
The law defines the reach of arbitral jurisdiction precisely (Article 1). Arbitration is competent to consider:
- a property dispute of a private character, founded on the equality of the persons involved, which the parties are able to settle between themselves;
- a dispute connected with a public-private partnership contract provided for by the Georgian law on public and private cooperation — a category added by the 2018 amendment.
These definitions carry an honest consequence that every contracting party should understand: not every dispute can go to arbitration. A dispute cannot be referred to arbitration if it is not a property dispute, does not have a private character, is not based on the equality of the persons involved, or is one that the parties are not able to settle between themselves — an arbitration agreement cannot create jurisdiction over such matters, and their resolution stays with the state courts. That is exactly why the first step, before you include an arbitration clause in a contract, is to assess whether your potential disputes fall inside the framework the law draws.
The arbitration agreement: the foundation of it all
The arbitration agreement is the instrument that moves a dispute from the state court into arbitration, and its force is remarkable. Where a claim has been brought before a court on a matter that is the subject of an arbitration agreement, that court is obliged, as soon as it receives notice that arbitral proceedings on the matter have begun, to refuse to accept the claim or to discontinue the proceedings — unless it finds that the agreement is null and void, has lapsed, or is incapable of being performed (Article 9). A party to the arbitral proceedings must itself notify the court that arbitration has begun, and until the court settles the question of jurisdiction the arbitral proceedings may commence, continue and end with an arbitral award.
The agreement is also durable over time: when rights under the legal relationship are transferred, the successor becomes a party to the arbitration agreement as well, and the death or liquidation of one party does not terminate the agreement or replace an arbitrator already appointed, unless the parties agreed otherwise (Article 5). The parties may agree on the rules governing the proceedings, and an agreement on a specific arbitral institution is deemed to include agreement on that institution’s own rules (Article 2). Finally, an arbitration clause that forms part of a contract is independent: it does not depend on the other terms of the contract, and a finding that the contract is null and void does not entail the invalidity of the clause (Article 16).
How many arbitrators, and who appoints them
An arbitration consists of one or several arbitrators; the parties determine their number and the manner of their appointment, and by default the parties appoint arbitrators in equal numbers (Article 10). If the arbitration agreement fixes an even number of arbitrators, the arbitrators already appointed must, within 10 days of their appointment, appoint one more arbitrator; and if the number was never determined, the arbitration is to be composed of three arbitrators. A party has no right to replace an arbitrator it appointed unilaterally (Article 14). An arbitrator’s mandate may end on the arbitrator’s own request or by agreement of the parties; failing agreement, a party may — within 30 days of requesting the termination of the mandate — apply to the court, which under this law is the district (city) court in whose territory the arbitral hearing took, takes or is to take place (Article 2). The court decides the matter within 14 days of accepting the application, and its decision is final and not subject to appeal. Where a mandate terminates, a substitute arbitrator is appointed under the same rules that were applied to the appointment of the predecessor (Article 15).
Who decides whether the tribunal has jurisdiction
The tribunal is empowered to rule on its own competence, including determining the existence or validity of the arbitration agreement (Article 16). A plea that the arbitration lacks competence must be made no later than the submission of the statement of defence — and taking part in the appointment of an arbitrator does not deprive a party of that right. A claim that the tribunal has exceeded its competence must be made within 7 days of the party learning of the relevant circumstance, although the tribunal may treat the lapse of that period as excused. If the tribunal affirms its competence before rendering the final award, any party may challenge that decision in court within 30 days of notification; for these provisions the law understands by the court the appellate courts (Article 2). The court issues a reasoned ruling within 14 days, that ruling is likewise final and not appealable, and until the court resolves the matter the arbitral proceedings may nevertheless commence, continue and end with an award.
Before the hearing begins or at any stage of it, until the final award, a party may ask the tribunal to apply interim measures of protection, unless the arbitration agreement says otherwise (Article 17). The tribunal may order a party, within a reasonable time and by written decision, to maintain or restore the status quo, to take measures preventing harm to the other party or to the proceedings, to preserve the assets against which a subsequent award would be enforced, and to preserve evidence that may be connected with the dispute. The tribunal may modify, suspend or revoke these measures, on a party’s request or, in exceptional cases, on its own initiative after notifying the parties in advance (Article 19), and the parties are under a duty to declare immediately any information on substantial changes in the circumstances on which the measures were requested or applied (Article 20). Measures applied by the tribunal are binding and are enforced through the court regardless of the country in which they were ordered (Article 21); the court may refuse recognition and enforcement only on the narrow grounds the law enumerates (Article 22). Interim protection can also be sought directly from the court, which in such matters has the same powers as in the securing of claims in court proceedings, subject to the exceptions provided by law (Article 23).
How the proceedings actually run
The parties largely shape the process themselves: they determine the procedure for the hearing in compliance with the law’s requirements, and absent agreement the dispute is examined under a procedure determined by the tribunal (Article 24). The place of the hearing is fixed by agreement, and failing that the tribunal determines it considering the circumstances of the case and the convenience for the parties (Article 25). The proceedings commence on the day the respondent receives notice that the dispute has been referred to arbitration (Article 26), and the law sets detailed rules for delivering written communications (Article 27). A party may be represented by a lawyer or another representative at any stage of the hearing (Article 28). The parties may also choose the language of the proceedings; absent agreement the tribunal determines it considering all relevant circumstances, including the language of the contract, and the tribunal may require that any documentary evidence be accompanied by a translation into the language of the proceedings (Article 29).
The claimant submits, in writing and within the agreed or tribunal-determined period, a statement of claim indicating the names and addresses of the parties, the claim, the circumstances and evidence supporting it, and the list of attached documents; the respondent answers with a statement of defence to the facts alleged (Article 30). If the claim is submitted without the form required by that article, the hearing does not commence; if the respondent files no defence, the tribunal continues the case, and the absence of a defence cannot be treated as an admission of the claim. During the hearing a party may amend its claims or its defence or add further claims, unless the tribunal considers this a delay of the proceedings. A party that continues to participate in the proceedings without submitting, immediately or within the period allowed, a written objection to a violation is deemed to have waived its right to reply (Article 31). The hearing may be oral or based only on documents and other evidence; at one party’s request the tribunal is obliged to hold an oral hearing at any stage, unless the parties have waived oral hearings (Article 32). If a party, without sufficient reason, fails to appear or to present its position and evidence, the tribunal may continue the proceedings and render a decision on the evidence before it (Article 33). The tribunal may also appoint one or more experts to report on specific issues, and an expert may be challenged, or may withdraw, on the grounds and under the rules established for the challenge of arbitrators (Article 34). Throughout, the parties to the arbitral proceedings enjoy equal rights, and each party must be given the full opportunity to express its position (Article 3); the law even allows the parties to delegate the power to decide to a third person (Article 4).
Closed hearings, confidentiality — and the award
One of the most practical advantages of commercial arbitration is privacy: unless the law or the parties’ agreement provides otherwise, all arbitral hearings are closed, and a document, piece of evidence or written or oral statement presented in the proceedings must not be published or used in other court or administrative proceedings; the arbitrator and every participant in the proceedings are obliged to keep confidential the information received during the hearing (Article 32). As for the outcome — the final arbitral award on which the jurisdiction and interim-measure provisions rest — the law addresses it directly: it is this law that establishes the rules on the arbitral award, as well as on the recognition and enforcement of an award rendered outside Georgia (Article 1). The detailed rules on the contents of the award, its challenge and its enforcement are set out in other provisions of the law; this page relies only on what the provisions above state expressly.
How many arbitrators are appointed if the agreement is silent?
Where the parties do not fix the number, the tribunal consists of three arbitrators; where an even number is agreed, the appointed arbitrators must add one more within 10 days of appointment.
What happens if a party disputes the tribunal's jurisdiction?
The tribunal rules on its own jurisdiction: a plea of excess of competence must be raised before the statement of defence or within 7 days of learning of the circumstance, and a ruling upholding jurisdiction can be challenged before the appellate court within 30 days of notice.
Can the case be decided on documents only, without a hearing?
Yes — proceedings may be oral or based only on documents and other evidence, unless a party requests an oral hearing, which the tribunal is then obliged to hold.
On the Legal.ge platform you can obtain qualified assistance on any arbitration question: drafting arbitration clauses, appointing arbitrators, and everything connected with the proceedings and the award. A lawyer will assess your dispute and plan the legal route.