Arbitrations agreement can be in a form of an arbitration clause which is usually included in the substantive commercial contract. Nevertheless, in the light of judicature, such clause is regarded as a separate contract despite being part of another contract. Therefore even invalid substantive contract can contain perfectly valid arbitration agreement, and so any disputes arising from the invalid substantive contract can be resolved through arbitration based on that particular arbitration clause in the contract itself. This is the most common way of agreement. The arbitration agreement can be also made in a form of separate written contract in which parties further specify the entire conduct of an arbitration. It is crucial for the validity of the agreement to be entered willingly without any reservation and doubt.
It must be clear that parties decided to solve their disputes solely through arbitration, and that all other means of dispute resolution are thereof excluded. Lack of clarity of the arbitration agreement could lead to its invalidity, and nullity. Turkish courts are especially sensitive to such flaws in arbitration agreements and do not enforce arbitration awards which are arising from arbitrations conducted on the bases of invalid arbitration agreement.
This principle is part of a broader concept called kompetenz-kompetenz. Arbitral tribunal is able to rule on its own jurisdiction and determine whether an arbitration agreement is valid, whether the arbitrational tribunal was properly constituted, and also what matter are to be determined under the arbitration document, because in arbitration, parties are dominus litis in a sense that they determine the scope of arbitrator’s authorities in their agreement. An arbitration agreement can be also inoperative when it is canceled or revocated, and also incapable of being performed when it cannot be effectively set in motion.
Arbitration agreements are private bilateral, or in exceptional cases such are commercial projects, multilateral contracts and parties have full autonomy to decide about many aspects of the arbitration including the governing law.
Choice of law can have significant impact on the arbitration procedure. It is again very important to note that the substantive contract and the arbitration clause are de jure two agreements, and therefore the choice of law needs to be made in both cases.
Parties can choose particular national law, or make a reference to rules of some institution. If no choice of law is made, the arbitration is usually governed by the law of the seat of the arbitration, so called lex loci arbitri, but other aspects such as characteristic performance needs to be take into consideration when deciding about the governing law as well.
There are two main types of arbitration in relation to the arbitral body issuing an award. More common of the two is a decision to have arbitrators appointed by an agency specializing in facilitating commercial arbitration. Those are often well established agencies with their own procedural rules and methods.
Disputes are then decided either by a sole arbitrator, or by an arbitrational tribunal consisting often of three arbitrators. The head of such a tribunal is called umpire, or chairman. Umpire has, compare to chairman, power to be a dead-lock breaker in case there is a dead-lock and the tribunal cannot decide on the award. Other, less common method, suitable for very specific kind of disputes concerning a matter which requires high level of proficiency from the arbitrator, is so called ad hoc arbitration. Parties decide on a person of a sole arbitrator or a body of arbitrators. It is necessary to clearly designate the person, and it is often useful to also select a substitute in case the designated arbitrator is unable or unwilling to perform his function, or rejected by both parties. Arbitrators cannot be forced to act as arbitrators if they decide not to, and they are not liable for their negative decision as long is it is not done in a bad faith. The same bad faith standard applies to any other arbitrator’s decision and exonerates him from liability for his acts and omission. However, every arbitrator has to act fairly and impartially and allow the same conditions for both parties. The arbitrator also has a duty to adopt procedures suitable for the particular case.
Legal doctrine recognizes several types of arbitration in relation to several variables which are left on the discretion of the parties entering the arbitration agreement. Arbitration can be mandatory or voluntary as of its usage for resolving the dispute. It is a mandatory arbitration if parties decide to resolve their dispute through arbitration beforehand and if that is clearly and without doubt stated in their arbitration agreement. On the other hand, it is a voluntary arbitration, or rather initially de jure not arbitration at all, when parties agree only on the mutual negotiation, and then decide about the means of the dispute resolution when the dispute arises. So practically the arbitration agreement is concluded right when the decision to arbitrate is made, but not earlier.
The decision, result of arbitration, is called arbitration award. Award may be preceded by an interim relief which is decided upon mainly for preventing the dissipation of assets, or to shape relationship and preserve evidence crucial for the decision on the merits.
The arbitrational remedies can be granted by the arbitrational tribunal only within the scope of the arbitrational agreement. The award usually decides on damages and their amount. The damages can be in a form of conventional damages, so the sum of money or in a form of a declaration with the sum to be determined. The arbitration tribunal can also grant injunctive relief, order for a specific performance of the substantive contract, or just set aside or cancel a deed or other documents.
Enforcement and exceptions from enforcement of an arbitration award are in detail specified in Article 5 of the New York Convention. The article states that all properly issued arbitration awards shall be recognized and enforced, unless one of the bellow stated defenses is present. An award must be in writing and signed by all of the arbitrators assenting to the award, it must also contain reasoning for the decision, and notification of the seat and date of the arbitration.
An arbitration award would be set aside in case of incapacity of the party to the arbitration agreement, or if the agreement would not be valid, or if the other party would not be notified about the proceeding, or if the composition of the arbitration authority would be violating the governing law, or if the award would not be yet binding, or if the subject matter would not be arbitrable, or if the subject would be contrary to the public policy of the particular state. Those are also the only reasons for appeal, otherwise an arbitration award is final and there are no other grounds for its revision.
Fees and other expenses related to the arbitration are often paid by the loosing party.
The decision of who is responsible for paying the fees and what amount is also decided by the arbitrators in the arbitration award. In case of one party being only partially successful, the duty to pay fees can be divided proportionally to the result, and so they both pay a portion of the total sum.