This article discusses the legal framework governing arbitration agreements formulated in Cyprus, and aims to explain the relevant powers of the Cypriot Courts in dealing with such cases. It must be noted that international arbitration agreements will not be discussed, since they are governed by a different legal framework and they deserve separate legal analysis.
In Cyprus, domestic arbitration agreements are governed by the Arbitration Law Cap.4 of 1944 (“The Law”).
Section 2(1) of the Law states that an arbitration agreement is “a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” Other than the requirement for the arbitration agreement to be in writing, there are no other formal statutory requirements in order for the arbitration agreement to be enforceable. However, according to the common law principles which are applied by the Cypriot Courts, an arbitration agreement is void if its terms are uncertain or if there is no clear reference to arbitration.
Additionally, section 3 of the Law clarifies that an arbitration agreement has “irrecoverable effect except by leave of the Court and shall have the same effect in all respects as if it had been made an order of Court.” However, section 3 gives the parties the right to alter the effect of the arbitration agreement by expressing in the agreement a “contrary intention”. Also, according to section 6, unless the parties state “a contrary intention”, several terms implied in the agreement, as outlined by schedule 1 of the Law.
Section 8 of the Law provides the Courts with the power to stay legal proceedings in cases where the parties have an arbitration agreement. The Court needs to be satisfied that “there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration”.
Furthermore, section 9 of the Law provides the Court with the power to give relief in cases where an arbitrator has not been impartial, or the dispute referred involved fraud. In the Supreme Court of Cyprus case of Psilogeni Georgia and others v. New Cooperative Company Pano Platron and another (2004) 1 C.L.R 243, it was stated that the “purpose of s. 9 (2) of Cap. 4 is the provision of discretion to the Court to prevent or impede the conduct of arbitration in cases in which issues of fraud are raised.” This was confirmed in Christodoulos Fytos v. Cooperative Credit Company of Polemi (2009) 1 C.L.R 242.
In the Limassol District Court judgment of In relation to the Appeal of Kyriakou and others v. Limassol Cooperative Savings Bank Ltd, Application/Appeal No. 850/2014, 31/7/2019, the judgment of the Supreme Court of Cyprus in Vasilikos Cement Factory Ltd v. Port Authority of Cyprus (2001) 1(A) C.L.R.23 was adopted. It was stated that one of the features of arbitration is the restriction of appeals against the arbitral award and that the Arbitration Law Cap.4, allows for the annulment of such a decision for the limited number of reasons set out in section 20 (2) of that Law. These reasons are: 1) demonstration of misconduct by a referee; 2) improper handling of the case by an arbitrator; 3) arbitration conducted irregularly; and 4) irregular issue of the arbitral award
Moreover, regarding section 20 (2) of the Law in PNP Constructions Limited ν. Makariou Charalambide and others (2012) 1 C.L.R 1395, it was mentioned that “misconduct” can “relate to the referee's conduct or the manner in which the arbitration is conducted”, confirming the Supreme Court’s judgment in Solomou Neophytos v. Laiki Cyprialife Ltd (2010) 1A C.L.R. 687. The Supreme Court continued by saying that “indecent behaviour” can refer “to the referee's bribery or the existence of a secret interest in the dispute before him.” Nonetheless, the Court clarified that such behaviour “extends even to the absence of morally or deontologically inappropriate behaviour”. Also, the Supreme Court of Cyprus highlighted in A.N. Stasis Estates Co. Ltd v. G.M.P. Katsambas Ltd (2001) 1 C.L.R. 2006 that: "The improper performance of the arbitrator's duties constitutes a reason for annulment of the final award…" while the ".... violation of a basic procedural rule .... shakes the foundation of the whole procedure".
Regarding the exercise of powers by the Courts in the process of recognising and enforcing an arbitral award, the Supreme Court of Cyprus stated in its judgment in Nicolaou Andreas Hadjigeorgiou v. New Cooperative Credit Company of Aglantzia (2012) 1 C.L.R 707 that the District Court does not “check the correctness of the arbitral award nor does it enter into the substance of the dispute.” Nonetheless, the Supreme Court specifically clarified that in order for an arbitration decision to be recognised and enforced it needs to have “the necessary characteristics of a valid arbitral award” and it also needs to be “notified to the person against whom it is directed.”
In addition, the Supreme Court of Cyprus in its judgment Papaellinas H.A Public Corporate Company v. Yiannis Charalambides Shopping Centre Ltd 1 C.L.R. (2011) 1720, confirmed the House of Lords judgment in Absalom (F.R) Ltd v. Great Western (London) Garden Village Society Ltd  AC 592. Specifically, the Supreme Court stated that “the case confirms the distinction between the case where the issue of arbitration is purely legal, in which case the Court does not intervene since the parties chose the arbitrator's judgment instead of its own unless the arbitrator acted unjustly, and the case where the issue of arbitration it is not purely legal but the arbitrator decides on a legal matter incidentally, so the Court can intervene if the arbitrator manifestly erred, as in that case.”
It must be noted that, under section 26 of the Law, the Court may issue interim measures in relation to matters referred to in schedule 2 of the Law. For example, these include measures in relation to security for costs, discovery of documents the giving of evidence by affidavit, the preservation or temporary interim custody or sale of any goods which are the subject matter of the arbitration, the securing of the amount of the dispute, the preservation or the preservation or inspection of property which is the subject matter of the arbitration, other interim orders or even the appointment of a receiver.
In conclusion, the Arbitration Law Cap.4 is a solid statutory legal regime which has been guided and supplemented by the various common law developments. It allows for the proper administration of arbitration proceedings held in Cyprus, respecting the intention of the parties to solve their potential disputes extra-judicially. It must be highlighted that the current arbitration legal regime allows for Court intervention and oversight in order to allow the proper functioning of arbitration proceedings. Hence, it is a balancing act between the sovereignty and propriety of the arbitration procedure.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, please contact Petros Papadopoulos, Legal Consultant, at email@example.com or by phone at +357 25 363685.