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).