The prohibition of unilateral appointment of an arbitrator also stands among business enterprises

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The prohibition of unilateral appointment of an arbitrator also stands among business enterprises

In a recent judgment (23 Cdo 1098/2016), the Supreme Court dealt with the extremely practical issue of where the freedom of contracting parties ends when negotiating an arbitration clause.

According to the law, there are several alternative ways of negotiating an arbitration clause:

  • specifying the actual persons of the arbitrators;
  • agreeing on a rule in the contract to determine how the number and persons of the arbitrators should be decided;
  • both parties agreeing on the arbitrators;
  • or in the manner laid down in the rules for arbitration proceedings appended to the arbitration clause.

If the parties only agree on the way in which the arbitrators are appointed, and not on the actual persons, this must be articulated in such a way that there is no fundamental breach of the equality of both contracting parties. Otherwise, the arbitration clause could be found to be invalid.

At least this is the legal view expressed in the judgment at issue, in which the court considered the validity of an arbitration clause according to which, “The choice of arbitrators in a dispute lies with the petitioner in the dispute”. The Supreme Court found that such a clause is invalid as a result of the imbalance established between the parties. Even in the case that the contracting parties are business enterprises, which are otherwise allowed a considerable degree of contractual freedom, it is nevertheless required that they respect the fundamental principle of judicial and arbitration proceedings that is the equality of the parties.

However, this does not mean that only one party cannot appoint the arbitrators thereafter. The procedure, though, must be sufficiently transparent and “fair”. Therefore, for example, it is permissible to have in place a clause according to which the arbitrators are chosen from a pre-set list or if a chosen arbitrator should only be taken from the list of arbitrators of a stable court of arbitration established by law.