This guide, prepared by Economou & Co LLC, is the second in a series of practical overviews of arbitration in Cyprus. Part I examined the legislative framework, mechanisms for enforcement, and the grounds and procedure for challenging arbitral awards. This instalment focuses on the arbitration agreement and is divided into four sections.

Section 1 addresses the concept of arbitrability and outlines restrictions on arbitration. Section 2 sets out the validity requirements for an arbitration agreement and continues to examine the issues of separability and provisions governing the seat and language of the arbitration. Section 3 considers the issue of applicable law. Section 4 examines who may be a party to an arbitration agreement

1. Arbitrability and restrictions on arbitration

The issue of arbitrability is not directly or comprehensively addressed by legislation. While the International Commercial Arbitration Law of 1987 (Law 101/1987) follows the UNCITRAL Model Law and applies only to disputes that may be settled by arbitration, Cap. 4 contains no general provision on arbitrability.

Where there is a written arbitration agreement, commercial matters are generally presumed arbitrable. This presumption, however, is subject to exceptions. Disputes concerning the title to real estate, competition and antitrust matters, and matters which legislation reserves to the courts (such as insolvency, bankruptcy and winding-up proceedings or applications for rectification of a company’s register) are excluded from arbitration. Article 9(2) of Cap. 4 also permits the court to set aside an arbitration agreement in cases involving fraud, while Article 33 expressly excludes the application of Cap. 4 to proceedings conducted under the Trade Disputes (Conciliation, Arbitration and Inquiry) Law.

In all other cases, the courts apply common law principles, with a general presumption in favour of arbitration unless the dispute falls within a legally excluded category. These include matrimonial and family disputes, matters involving minors, criminal proceedings, and cases involving public policy.

2. The Arbitration agreement

2.1 Formal requirements

The primary formal requirement for the validity of an arbitration agreement is that it must be in writing. This requirement is set out in both the Cap. 4, Section 2, and Section 7 of the International Commercial Arbitration Law of 1987 (ICAL). According to the recently amended ICAL Section 7, an agreement is deemed to be in writing if it is contained in a document signed by the parties or in any other communications that provide a record of the agreement or in pleadings where the existence of an arbitration agreement is alleged by one party and not denied by the other. Further, a contract that refers to another document containing an arbitration clause is deemed a written arbitration agreement if the reference is such as to make that clause an integral part of the contract. The amended law expands the definition of "in writing" to include electronic communications, as long as the information contained therein is accessible and usable for future reference. The term “electronic communication” covers any form of communication between the parties achieved through data messages, including email and electronic data interchange.

2.2 Separability

The doctrine of separability is expressly recognised in Cyprus under Section 16(1) ICAL. It provides that an arbitration clause forming part of a contract is treated as a separate agreement, independent of the other terms of the contract. Hence, a decision by the arbitral tribunal that the main contract is null and void does not automatically render the arbitration clause invalid.

2.3 Choice of Seat and Language

ICAL contains express provisions on both the seat and language of arbitration where the parties have not reached an agreement.

According to Section 20(1), the parties are free to agree on the seat of arbitration. In the absence of such agreement, the arbitral tribunal will determine the seat, taking into account all the circumstances of the case and the convenience of the parties. Additionally, Section 20(2) allows the tribunal, unless otherwise agreed by the parties, to hold hearings, examine witnesses or experts and inspect or review documents at any location it deems appropriate, regardless of the designated seat.

As for the language, Section 22(1) provides that the parties may freely choose the language or languages of the arbitration. In the absence of such agreement, the arbitral tribunal will decide on the language of the proceedings.

3. Applicable law

Where the parties have expressly agreed on the law governing the arbitration agreement, that choice will be upheld. This is consistent with Section 28(1) of the International Commercial Arbitration Law, which provides that the arbitral tribunal shall decide the substance of the dispute in accordance with the rules of law chosen by the parties.

In the absence of agreement, Section 28(2) provides that the tribunal will apply the substantive law determined by the rules of private international law (also known as conflict of laws) that it considers applicable to the case.

4. The parties

4.1 Parties to an arbitration agreement and their duties

Cypriot law does not impose restrictions on who may be a party to an arbitration agreement, which binds only those who have expressly consented to it. Although the legislation does not set out detailed duties for the parties, Section 18 of ICAL reflects the fundamental principle of equality, requiring that all parties be given equal rights and obligations throughout the proceedings and a fair opportunity to present and develop their case.

4.2 Consolidation of separate arbitrations into a single arbitration proceeding

The consolidation of separate arbitrations is not expressly regulated under Cyprus arbitration laws (ICAL and Cap. 4). With respect to domestic arbitrations, section 30 of Cap. 4 provides for the application of the Civil Procedure Rules (CPR) mutatis mutandis in the absence of specific procedural rules. Under Part 3.1 of the Civil Procedure Rules of 2023, the Court has discretion to, inter alia, consolidate proceedings or hear multiple claims simultaneously. This discretion is exercised in line with the overriding objective set out in Part 1 of the Rules, which emphasizes fair and cost-effective case management, equality of arms, efficiency, and proportionality. However, it should be noted that in practice, the consolidation of arbitral proceedings remains uncommon. The absence of a clear statutory framework specific to arbitration and the consensual nature of arbitral proceedings generally limit the instances in which consolidation is pursued.

4.3 The joinder of additional parties to an arbitration which has already commenced

The joinder of additional parties to arbitration proceedings that have already commenced is generally not permitted without the express consent of the third party in question. This reflects the fundamental principle of privity of contract, which dictates that only those parties who have expressly agreed to be bound by the arbitration agreement may be subject to it.

As a result, arbitral tribunals typically do not have jurisdiction over third parties or non-signatories to the arbitration agreement. This includes entities or individuals who have not expressly consented to arbitration, except in limited circumstances (such as legal successors or assignees) where specific legal relationships may justify an extension of the arbitration agreement's effect.

Accordingly, unless the third party voluntarily consents to participate, or their inclusion is supported by a recognised legal mechanism, they cannot be compelled to join the arbitration.

4.4 Assignees and other third parties

As a general rule, arbitration agreements are subject to the principle of privity of contract, meaning that only the parties who have expressly agreed to arbitrate are bound by the agreement. Consequently, arbitral tribunals typically lack jurisdiction over third parties who are not signatories to the arbitration agreement.

Nonetheless, Cypriot law and broader arbitration practice recognise limited exceptions to this rule, including:

• Assignees and legal successors, who may be bound by the arbitration clause where rights and obligations under the main contract have been validly transferred;
• Trustees in bankruptcy,
• Agents or representatives, in specific cases where agency principles apply.

Accordingly, while assignees and certain successors may be bound by an arbitration agreement, no jurisdiction may be assumed over other third parties unless a clear legal mechanism exceptionally justifies it.

Notwithstanding the above, third parties may, in certain circumstances, be affected by interim measures issued by national courts in support of arbitral proceedings. In particular, Chabra orders (a form of freezing injunction) may be granted against third parties, if:

• The third party holds assets beneficially owned by the main defendant,
• The main defendant controls or has power to dispose the assets,
• There is good reason to suppose that the assets would be amenable to some process, ultimately enforceable by the courts, by which the assets would be available to satisfy a judgment against the main defendant,
• The affairs of the third party against whom the injunction is sought are intermingled with the affairs of the main defendant,
• There is risk of dissipation,
• The claim for the order is ancillary and incidental to the claimant’s cause of action.

These orders do not require a substantive cause of action against the third party, but rather serve to preserve assets which may ultimately be used to satisfy an arbitral award.