Arbitrability of Disputes in Local and International Law

Arbitration is a private dispute resolution mechanism in which the relevant parties agree to refer their disputes to an appointed tribunal rather than to national courts. Arbitrability indicates whether a dispute is arbitrable, i.e., capable of being settled by arbitration. Although arbitration is a private proceeding, the recognition and enforcement of a particular award may have an impact on any countries involved.

The issue of arbitrability differs between countries and may also change over time. In many countries, disputes or claims relating to commercial or contractual matters are arbitrable, whereas criminal, family, bankruptcy, and insolvency matters are not. Each country under its national laws is empowered to restrict or limit the matters that can be referred to and resolved by arbitration. There is no international consensus on matters that are arbitrable.

In commercial contracts, especially with foreign entities, it is common to agree on arbitration as a dispute resolution method. A typical arbitration agreement in commercial law specifies arbitrable matters, applicable law, arbitration institution, place of arbitration, and arbitration rules. On another hand, non-arbitrable disputes must be reserved for the nation’s judicial or other official public systems of dispute resolution. Recognition or enforcement of the award may therefore be refused if the award is in respect of a matter which is not capable of settlement by arbitration.

A dispute will not be arbitrable if it involves criminal or illegal activities, bribery, corruption, criminal conduct, and fraud. However, where parties seek to arbitrate civil disputes involving a criminal or illegal activity, and what is sought is the civil consequences of that conduct, particularly damages and compensation, they may be able to resolve their dispute through arbitration if the applicable national law permits this. Furthermore, it is accepted across many jurisdictions that bankruptcy and winding up proceedings are not arbitrable. The rationale is that bankruptcy is a state-regulated procedure that also involves protection for creditors. Moreover, issues of arbitrability may arise where the dispute relates to the title to a property or real estate. Many countries have mandatory state involvement in the creation, registration, and conveyance of title to property. It should be noted that an arbitral award can only bind the parties to the award, and it is thus not possible for it to bind a non-party and convey the title to the property.

Our recommendation would be to ensure that any intended substantive disputes are arbitrable under the agreed law of arbitration prior to the signature of any underlying agreement. Parties need to think carefully about the appropriate seat of arbitration and that seat’s attitude towards arbitrability, as well as the substantive disputes that may stray outside the arbitration process.