What a Pathological Clause Is and Why the Question Arises
A pathological arbitration clause is one drafted defectively — for example, it prescribes an unclear mechanism for appointing arbitrators or names an institution that does not exist. The Law of Georgia on Arbitration answers such situations with dedicated mechanisms: Article 6 establishes the independence of arbitration and the prohibition of court intervention, Article 16 empowers the tribunal to rule on its own jurisdiction, and Article 24 fills procedural gaps. These three provisions are examined in detail below, together with the practical situations in which they operate.
Independence of Arbitration and the Ban on Court Intervention
Article 6 lays the foundation of the system: in its activities the arbitration is independent and follows the procedure of the arbitral proceedings determined by the parties or by the arbitration, in compliance with the requirements of the law. Any intervention by a court in the legal relationships provided for by the law is impermissible, except in cases directly provided for by the law. This means that a defect in the clause does not automatically transfer the case to a court — the court reacts only in the situations directly specified by statute.
The classic scenario of pathology arises where the clause invokes a mechanism for the appointment of arbitrators that in practice does not work when the parties disagree, or where the conditions listed in the clause contradict one another. The question then splits in two: may arbitral proceedings be commenced at all because of this, and who should decide that question. It is precisely these two questions that Articles 16 and 24 of the law answer.
Kompetenz-Kompetenz — the Tribunal Rules on Its Own Jurisdiction
Under Article 16 the tribunal is empowered to rule on its own jurisdiction, including determining the existence or authenticity of the arbitration agreement. For this purpose an arbitration clause that forms part of a contract is treated as an independent arbitration agreement — a ruling that the contract is null and void does not entail the invalidity of the clause. This doctrine, resting on the separability of the clause from the contract, is the principal tool for dealing with pathological clauses: problems with other terms of the contract do not deprive the arbitration of jurisdiction. A decision on jurisdiction is taken before the final award or together with it, and where the parties have agreed otherwise, the tribunal takes the decision in accordance with their agreement.
Objection Deadlines and the Court’s Order
Article 16 also regulates the timelines precisely. A plea that the tribunal has no jurisdiction may be raised no later than the submission of the statement of defense; a party’s participation in the appointment of an arbitrator does not deprive it of that right. A plea that the tribunal is exceeding the scope of its jurisdiction must be raised within 7 days from learning of the relevant circumstance, although it may also be raised after that period if the tribunal considers the delay justified. Where the tribunal, before the final award, rules that it has jurisdiction, a party may challenge that ruling in court within 30 days of receiving notice of it. The court must issue a reasoned order within 14 days of accepting the application, and that order is final and not subject to appeal. Meanwhile, until the court decides the question, the arbitral proceedings may be commenced and continued, and an arbitral award may be issued.
Determination of the Procedure — the Cure for a Pathological Clause
Article 24 neutralises the effect of a pathological clause at the procedural level: the rules of the arbitral proceedings are determined by the parties in compliance with the requirements of the law. Where the parties have not agreed on the rules of the proceedings, the dispute is examined according to the rules determined by the tribunal, in compliance with the law. Thus a clause that fails to give the tribunal a ready-made procedure does not defeat the proceedings — the tribunal itself sets the rules within the limits of the law. The practical result is simple: a party relying on a pathological clause loses procedural advantage but not the possibility of arbitral proceedings.
Frequently Asked Questions
The following questions arise most often in connection with pathological clauses.
Does the invalidity of the contract dissolve the arbitration clause?
No. Under Article 16 the clause is treated as an agreement independent of the other terms of the contract, and a ruling that the contract is null and void does not entail the invalidity of the clause.
Who decides the question of the tribunal’s jurisdiction?
The tribunal itself is empowered to rule on its own jurisdiction, including the existence and authenticity of the arbitration agreement. A party may challenge a positive ruling in court within 30 days.
What happens if the clause prescribes no procedure?
Under Article 24, absent an agreement between the parties, the dispute is examined according to the rules determined by the tribunal in compliance with the law. The proceedings do not collapse because of this.
When may a jurisdictional objection be made?
A plea of no jurisdiction — before the submission of the statement of defense; a plea that the tribunal exceeds its jurisdiction — within 7 days from learning of the circumstance, unless the tribunal considers the delay justified.
Do the proceedings continue pending the court challenge?
Yes. Until the court decides the jurisdiction question, the arbitral proceedings may be commenced, continued and concluded by an award; the court’s order is issued within 14 days and is final.
How We Help on Legal.ge
The legal team of Legal.ge will assess the fate of a disputed arbitration clause, defend your position on the jurisdiction question within the statutory deadlines and, where necessary, prepare a court challenge against the tribunal’s ruling. Contact us on Legal.ge for a consultation.