Cyprus as an ideal centre for international commercial arbitration

July 22, 2020 | Arbitration

Cyprus as an Ideal Centre for International Commercial Arbitration

Arbitration as an alternative method of dispute resolution

Arbitration is an essentially private contractually binding dispute resolution process conducted before an independent arbitrator or panel of arbitrators who act as the judge and thus attempt to resolve the raised disputes.

International arbitration is considered to be the most common method for resolving disputes arising from commercial agreements between businesses, originated from different jurisdictions.

International arbitration is based on an agreement conducted by the parties, providing that if a dispute arises on any matter under the contract, 1) the parties shall submit their dispute to an arbitral tribunal instead of going to a Court and 2) the arbitrator(s) shall resolve the dispute according to certain parameters and according to the governing law of the contract; and 3) the Arbitrators’ decision shall be final and binding to the parties.

Under these circumstances, the parties are free to modify the terms of the dispute resolution process and thus suit their needs.

It is important to note, that those who are appointed as arbitrators and are asked to decide on matters before them, shall be appointed by the parties or an appointing body, on the basis of their particular knowledge, expertise or experience, in a particular field. Indisputably, the whole procedure shall be characterized by great sense of honesty and impartiality.

These above-mentioned attributes are perhaps one of the main reason why arbitration has become a popular method of dispute resolution in technical disputes, disputes in particular industries or areas of commercial activities or where cross border transactions between counter parties, who prefer to choose a neutral method, venue or jurisdiction where disputes may be resolved.

All in all, Arbitration is considered to be a speedy and efficient method of dispute resolution, with regard to commercial relationships. In addition to that, the so-called “alternative dispute resolution method” (ADR), is deemed as very popular in the construction, insurance, shipping and trade fields, where expert arbitrators may rely on their expertise and knowledge, in particular fields, so as to produce the type of awards that should be enforceable. The latter requires limited Court involvement, either during or to the final stage, of the arbitration process.

Cyprus as an ideal International Commercial Venue

Within the last years, Cyprus emerged as a very well established and reputable offshore and shipping centre. The latter development contributed to the establishment of Cyprus as a very popular venue for international arbitrations. Cyprus prompt ratification of the Uncitral Model Law on International Commercial Arbitration has added to the island’s existing advantages and has gone a long way towards establishing it as an extremely suitable venue.

There are few important and decisive factors, which indicate a suitable international arbitration venue:

Neutral and politically stable territory;

Sophisticated and effective legal system

Existence of no legal obstacles able to jeopardize the conduct of the arbitration

Ability of successful party to obtain a legal enforcement in the country where the other party has assets.

Yet, except afore-mentioned factors, Cyprus disposes with a lot more advantages to offer for a successful international commercial arbitration. Among those advantages, we have to emphasize Cyprus’ favorable tax incentives, double taxation treaties with more than 50 countries overseas, respectability, friendly international relationships and a very well established commercial infrastructure.

Due to its numerous advantages, Cyprus is often compared to other similar locations. Although, when deciding for the most favourable location, it is crucial that all needs of foreign investors and parties to international arbitrations can be met.

Legal basis of International Arbitration in Cyprus

Local Arbitrations under CAP 4 (a facsimile of the UK 1950 Arbitration Act) still allow for matters to be referred to the courts during the arbitral process and for awards to be set aside for misconduct of the arbitrator or on public policy grounds. International commercial arbitrations where at least one of the parties does not reside in Cyprus are conducted under the International Commercial Arbitration Law (Law 101/1987), which is based on the relevant UNCITRAL Model Law.

As one would expect from any modern commercial jurisdiction, Cyprus is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards, ratified on the 29/12/1980 and incorporated in Law 101/1987.

The adoption of the UNCITRAL Model Law has put in place a cohesive and comprehensible set of rules, which create a framework in which disputes arising form international commercial transactions, may fall within the Arbitration process, under Cyprus Law. The House of the Representatives preferred not to replace CAP 4, with the International Commercial Arbitration Law 101/1987. Both CAP 4 and the International Commercial Arbitration Law (“the ICAL”) and thus both run in parallel.

The word “commercial” is given a broad meaning as it refers to matters “arising from relationships of a commercial nature”. The Law provides an extensive, non-exhaustive list, of potential relationship that may be termed as commercial, even though not limited to the definition provided. The intention of the legislature was to enable the parties to bring their disputes, under the provisions of the ICAL.

Court Intervention in Arbitration, where the seat is in Cyprus

There is a clear provision in the ICAL which seeks to minimize Court intervention and allows it only under specific circumstances. Under more specific terms, Section 6, severely restricts the ability of any party to the arbitration to delay proceedings, by referring every question set to the arbitrator to the local courts, for considerations as a point of law.

The Court may only intervene in the following instances:

The Court shall appoint an arbitrator/s if one of the parties or the party –appointed arbitrators, fail to do so;

If the arbitral tribunal dismisses a challenge against an arbitrator, the Court shall deal with the challenge;

The Court shall decide on the termination of an arbitrator’s mandate if he fails to discharge his duties and/or he is guilty of undue delay in doing so;

The Court may review a ruling of the Tribunal that it has jurisdiction to deal with the matter before it.

After the delivery of an award, the Court’s intervention is limited on setting aside an award and/or on refusing recognition or enforcement on the grounds of:

Incapacity of the parties;

Invalidity of the arbitration agreement;

Lack of proper notice or denial of a party’s right to present his case;

Lack of jurisdiction of the tribunal;

Defective composition of the tribunal;

The subject matter of the dispute being incapable of settlement by arbitration under the law of Cyprus;

The award being contrary to the public order of the Republic of Cyprus.

Failing such grounds, the award is binding on the parties and may not be the subject of an appeal. The power to set aside an award, which may only be exercised on the basis of one or more of the afore-mentioned grounds, is distinctive from the general power of appeal (whether for error of law or otherwise) which simply does not exist in international arbitrations carried out under ICAL.

The non-interventionist policy that the courts have adopted gives rise to the award to be given quickly without undue delay, which may under other circumstances be caused by misuse of the referral procedure which will inevitably lead to delays and considerable costs. However, the exclusion of extensive rights of appeal does not mean that the assistance of the court cannot be obtained. The courts are still able to grant interim injunctive relief and also assist in the obtaining of evidence should this be required.

The status of foreign Arbitral awards in Cyprus

Cyprus is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been already incorporated in the relevant Law. Cyprus is bound to enforce awards made in foreign states and countries signatories to the Convention are bound to enforce awards made in Cyprus. Yet, in a leading case in 1995, involving Beogradska Banka D.D. ((1995) 1 ΑΑΔ 737) was held that the role of the Court is supervisory in nature and thus it is not up to the Courts to examine the reasons, behind the decision of an arbitrator.

As a result, procedural mistakes as to the application of the Convention on the recognition and enforcement of foreign arbitral awards, cannot be revisited through an order either of certiorari or prohibition. The relevant philosophy can be therefore understood, that the Courts are there to provide assistance (in matters such as measures to conserve assets which are found within the jurisdiction of the Cyprus Courts) and not to interfere in arbitral proceedings.