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Mr Jesús Saracho Aguirre

Senior Associate - Uría Menéndez

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Validity of the Arbitration Agreement (Ground to Refuse Recognition and Enforcement of non-ICSID Awards)

I. Concept

1.

Arbitration is a creature of contract.1 As with every other type of contract, it must satisfy a number of conditions in order to be valid.2 Without a valid arbitration agreement, no arbitration can take place or award can be rendered.3 In other words, a valid arbitration agreement is the cornerstone of any arbitration proceedings.

2.

The starting point to analyze the conditions that any arbitration agreement must fulfill to be valid is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1959 (the “NY Convention”). Under the NY Convention, the contracting States undertake to recognize an arbitration agreement when the following requirements are complied with:

  1. the agreement is in writing,4
  2. it deals with any existing or future disputes in connection with a defined legal relationship, whether contractual or not,5
  3. it concerns a matter capable of settlement by arbitration,6
  4. the parties to the arbitration agreement have legal capacity under the law applicable to them,7 and
  5. the agreement is valid under the law which the parties have chosen and, if there is no such choice, under the law of the seat of the arbitration (in the terms of the NY Convention “under the law of the country where the award was made.”).8
3.

The UNCITRAL Model Law on International Commercial Arbitration 1985 with amendments adopted in 2006 (the “UNCITRAL Model Law”)9 lists the exclusive grounds for annulment of an award. It is particularly important for the purpose of this commentary to refer to Article 34.2(a)(i), which establishes that an arbitration award may be set aside if the party making the application furnishes proof that (i) he or she was under some incapacity,10 or (ii) the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the seat of the arbitration.11

4.

Below we will briefly consider the formal and substantive requirements of any valid arbitration agreement.

II. Formal requirement for validity - in writing

5.

Both the NY Convention12 and most national arbitration laws establish as a formal requirement that the arbitration agreement be in writing.13

6.

On the one hand, pursuant to the NY Convention, the term “agreement in writing” “shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.”14

7.

On the other hand, most of the domestic arbitration laws take a broad view of what constitutes a written document, encompassing telexes, emails and all other means of communication which generate a record.15 The UNCITRAL Model Law follows a similar approach.16

III. Substantive requirements for validity

8.

The substantive requirements of any arbitration agreement have been set out in Section I (see paragraphs 2(b) to 2(e) above).

9.

Generally applicable principles of contract law also apply to arbitration agreements.17 Thus, these agreements are subject to the substantive requirements for validity that are commonly applied to any type of contract. Article II.3 of the NY Convention provides that an arbitration agreement shall not be recognized or enforced if it is found that it is “null and void, inoperative or incapable of being performed.”

10.

First, any valid arbitration agreement must reflect the conscious, mutual and free will of the parties to resort to arbitration and not to other means of dispute resolution, including State courts.18 The consent of both parties to submit their dispute to arbitration is the cornerstone of arbitration.19 

11.

In addition, the infringement of other rules of contract law may also constitute a ground for the annulment of an arbitration agreement, such as in cases involving fraud,20 illegality,21 or lack of capacity,22 among others.

12.

Finally, the NY Convention suggests that there are categories of issues that are not arbitrable.23 This would also constitute a ground for the annulment of an arbitration agreement.

IV. Takeaways

13.

In order to avoid potential lengthy discussions about the validity of an arbitration agreement, it is important that:

  1. the agreement be in writing,24 meaning —according to Article II(2) of the NY Convention— “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”;
  2. it be as ample as possible, dealing with any existing or future disputes in connection with a legal relationship25 (standard clauses tend to use very broad language);26
  3. the parties check in advance that it concerns a matter capable of settlement by arbitration;27
  4. it be analyzed in advance that the parties to the arbitration agreement have legal capacity under the law applicable to them;28 and
  5. the agreement be valid under the generally applicable principles of contract law, with special consideration for the law that the parties have chosen and, if there is no such choice, the law of the seat of the arbitration.29
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