Why the Arbitration Clause Matters in a Contract
The arbitration clause is the provision of a contract that determines in advance where and how a dispute between the parties will be resolved. A well-drafted clause saves time and costs; a poorly drafted one becomes itself the subject of a dispute and a reason for the case to drift into court. Georgian arbitration law sets clear rules on the concept and form of the arbitration agreement, the limits of court jurisdiction over the merits, the number and appointment of arbitrators, their challenge, and the procedure and seat of the proceedings. This page explains these rules and what to consider when drafting the clause.
The Concept and Form of the Arbitration Agreement
Under article 8, an arbitration agreement is an agreement by which the parties submit to arbitration all or certain disputes arising or potentially arising out of a contractual or other legal relationship. It may be concluded as a clause within a contract or as a separate agreement, but written form is mandatory. The written form is deemed satisfied where the content of the agreement is recorded in any form, including by electronic message, provided the information is accessible for subsequent use. It is also considered written where it is concluded through the exchange of an arbitral claim and statement of defence — one party asserting, the other not denying its existence — and where a contract refers to a document containing an arbitration clause in a way that makes the clause part of the contract.
Where one of the parties is a natural person or an administrative body, the agreement must be concluded in signed written form, and the liberal rules on form do not apply to it. And where both parties to the arbitration agreement are natural persons, the agreement must be signed by the parties' advocates as well, or notarially certified — this requirement serves the protection of the weaker party, and its breach makes the clause contestable.
The Boundary Between Court and Arbitration
Under article 9, a court seized of a claim on the merits of a dispute covered by an arbitration agreement must, upon notice that arbitral proceedings have commenced, refuse the claim or terminate the proceedings — unless it finds the agreement void, inoperative or incapable of being performed. A party must notify the court without delay; meanwhile arbitral proceedings may be commenced, continued and concluded with an award — the tribunal does not wait for the court.
The Number, Appointment and Challenge of Arbitrators
The tribunal consists of one or several arbitrators; the number and appointment procedure are determined by the parties, the default being an equal number appointed by each side. With an even agreed number, the arbitrators appointed must add one more within ten days. Where the number is not determined, the tribunal must consist of three arbitrators, and appointment without written consent is inadmissible. Where the parties fail to agree, in a tribunal of three each party appoints one arbitrator and those two appoint the chairperson; if a party fails to appoint within thirty days of a request, or the two cannot agree on the third within thirty days, the court appoints the arbitrator — a final, non-appealable decision. The law also prohibits appointing, for example, public servants, and requires respect for the qualifications agreed by the parties to secure an independent and impartial arbitrator.
A party may challenge an arbitrator who does not meet the agreed qualifications or whose circumstances give rise to justifiable doubts about independence or impartiality; the arbitrator must disclose such circumstances immediately and throughout the proceedings. For the clause, this means qualification requirements are best fixed in advance, in writing.
Procedure, Seat and Practical Drafting Tips
The rules of procedure are set by the parties in compliance with the law; absent agreement, the tribunal's own rules apply. The seat is likewise set by the parties or, failing that, by the tribunal considering the case and convenience — while hearings, witnesses and evidence may be taken anywhere. For drafting: define the circle of disputes — all or some, and from which relationship; fix the number of arbitrators and the appointment procedure so that even numbers and default mechanisms do not engage by surprise; state the seat; and use the form mandatory for your side — with a natural person, only signed written form suffices. The remaining details are governed by other provisions of the law.
Frequently Asked Questions
In what form is an arbitration agreement concluded?
Written form is mandatory, satisfied by any recording including electronic messages; where a natural person or administrative body participates, signed written form is required, and where both parties are natural persons — advocates' signatures or notarial certification.
Can the dispute still be taken to court despite the clause?
The court, upon notice of the commencement of arbitral proceedings, must refuse the claim or terminate the proceedings, unless it finds the agreement void, inoperative or incapable of being performed.
How many arbitrators should there be?
The number is determined by the parties; with an even agreed number the appointed arbitrators must add one more within ten days, and where the number is not determined the tribunal must consist of three arbitrators.
When may an arbitrator be challenged?
Where the arbitrator does not meet the qualifications agreed by the parties, or circumstances exist giving rise to justifiable doubts about independence or impartiality; an arbitrator appointed by a party may be challenged only for circumstances that became known to that party after the appointment.
How We Help on Legal.ge
The Legal.ge team will help you draft an arbitration clause: defining the circle of disputes, the number and appointment of arbitrators, the seat and the rules of proceedings, in the form mandatory in your case. We will review your existing contracts and show where your clause is exposed. Contact us — a sound clause is half the battle. Legal.ge.