INSIGHTS

The Extension of The Arbitration Period As a Response To The Coronavirus (COVID-19)

April 27, 2020

By:

Soliman Hussein Soliman, Partner

Omnia Gadalla, Associate

Sherien Mohamed Salah, Trainee

Introduction
Since December 2019 the COVID-19([1]) outbreak has disturbed the whole world. Lockdowns, curfews, travel cancellations, gathering bans and other precautionary measures have been taken globally in an attempt to limit its spread. The virus we are dealing with nowadays, is a novel coronavirus that was first reported in China, in Wuhan district precisely, on 31 December 2019.([2])”. On March 11, 2020 the WHO officially declared COVID-19 as a pandemic due to the speed at which it spreads.([3])

One of the most affected areas is commerce, national and international, which in turn leads to increases in commercial disputes which are mostly settled through arbitration.

Arbitral hearings and sessions are facing serious difficulties due in large part to the current travel and gathering bans. Consequently, for most international arbitration practitioners, the most serious effect of the COVID-19 outbreak so far has been the postponement or relocation of hearings, raising the question of how to maintain the continuity of such arbitration hearings.

The first solution that comes to mind is to either adjourn the hearings or rely on e-arbitration. However, these options have proven to be inefficient and ineffective in practice. For example, postponing hearings is not always a practical solution as some arbitrations are related to important matters which cannot be delayed. Moreover, each arbitration has a set period of time in which to conclude, otherwise the arbitral award shall be void.

As for the e-arbitration, despite being an appealing solution in theory it is not conducive to the adversarial system which is essential in arbitrations, and some countries do not have the requisite resources including internet bandwidth which makes oral arguments difficult if not impossible. Further, concept of confidentiality could be compromised in e-arbitration as well.

Importance of arbitration period and the effect of its expiration without rendering an award

In the event that the period provided for arbitration expires before the arbitral tribunal issues an award, whether such period is determined by the parties or the tribunal, and whether it is the original period or it has been extended, the arbitration agreement and the arbitral tribunal’s authority are both terminated.

If an award is rendered after the expiration of the period allocated for arbitration, such award shall be void because it was issued without authorization and, in this event, an action for annulment of the arbitral award can be invoked according to Article 53 (1) of the Arbitration Law No. 27 of 1994 which states the following:

1- An arbitral award may be annulled only :a) If there is no arbitration agreement, if it was void, voidable or its duration had elapsed.
      …….………”.

This Article was effectively applied in the Cairo Court Of Appeal judgment annulling an arbitration award issued by CRCICA after the expiration of the additional period of arbitration, tribunal (91) of 2003.

In addition, if the tribunal continues to carry on the arbitral proceedings beyond the expiration period, according to Article 45([4]) of the Arbitration Law any of the parties shall have the right to demand the president of the court to issue an order to terminate the arbitration procedures and bring the dispute before the courts.
Moreover, if an award is rendered after the expiration of the period for arbitration and before the issuance of the order of termination of the arbitral procedures, such award shall be invalid.

Once such an order is issued, any of the parties shall have the right to submit the dispute to the competent court according to Article 505 of the Egyptian Procedural Law (before it was abolished by Law No. 27 of 1994).
However, it is worth noting that according to the this Article, not only does the expiration of the arbitral period lead to the termination of the arbitration procedures, but it also leads to the termination of the arbitration agreement itself.

This approach is an exceptional one as it does not conform with certain principles in procedural jurisprudence which state that termination of the arbitration procedures does not lead to the termination of the arbitration agreement itself. However, since this is an exceptional provision it is limited to instances of terminating arbitral proceedings and does not extend to other cases of seeking procedural termination. Moreover, the application of the aforementioned procedural law provision is restricted to procedural points and not the other aspects of the dispute covered by the arbitration agreement, as these continue to be subject to arbitration and shall not be submitted to the courts.([5])
Therefore, based on the foregoing it appears that effective options are:

– extending the period of the arbitration;
– seeking an additional arbitral period; or
– agreement by the parties to stay the arbitration period.
All of these options are explicitly regulated by Article 45 of the Egyptian Arbitration Law.

First option: extension of arbitration period according to the Egyptian Arbitration Law

The Egyptian Arbitration Law states under Article 45([6]) that the arbitral tribunal shall abide by the time limit set by the parties to render the award, and an award rendered after the expiry of the time limit shall be void and invalid where there was no agreement to extend the period by the parties.
The period for the arbitration, as a rule, must be agreed by the parties through the arbitration agreement. However, if the parties did not agree upon a certain period, such period shall be determined according to the law which is usually a period of 12 months from the day the proceedings begin (the legal period). The arbitral tribunal itself can extend the duration of the arbitration without the approval of the parties for a period of not more than six months. Nevertheless, in all cases, if the period expires before rendering the award, the parties shall have the right to request the originally competent court to grant an additional period or to issue an order terminating the proceedings. If the proceedings are terminated any of the parties shall have the right to submit the case to the originally competent court.


Accordingly, there are different types of arbitration periods as follows:

  1. Arbitration period by agreement and its extension:
    In practice, the parties in an arbitration have the authority to determine the period within which an arbitral award must be issued. The arbitral tribunal is must adhere to this period according to Article 45 of the Arbitration Law. Moreover, there is no limit stated by the law for such period.

The parties can decide upon the procedures that the arbitral tribunal shall abide by according to Article 25 of the Law, including the choice of the rules to govern the arbitration by any international arbitral organization or the rules of any arbitration center in Egypt, and therefore if the parties agree to apply the rules of the UNCITRAL or the ICC or CRCICA, such rules shall determine the period for the arbitration.
For instance, if the arbitration is conducted according to the UNCITRAL rules or the rules of CRCICA([7]), then the period for the arbitration will be determined by the parties or the tribunal as these rules do not specify a time limit for the proceedings.

The period determined by the parties can be extended by further agreement of the parties either explicitly or implicitly when it can be concluded from the surrounding circumstances, such as the parties recognizing and implementing a judgment of the arbitral tribunal before the issuance of the final award but after the expiration of the original period. Either way, such extension must be evidenced in writing. Even if the extension of the arbitration period is implicit, proof of the extension must be demonstrated in writing.

  1. Arbitration period according to law and its extension:


In the event that the parties did not agree upon a certain period for the arbitration, such period shall be determined according to the applicable law to the procedures.

By virtue of the Egyptian Arbitration Law Article 45, if the parties did not agree upon a certain period, then the arbitral award shall be rendered within 12 months from the date the arbitration procedures are commenced.

According to Article 27 of the Egyptian Arbitration Law, the arbitration proceedings commence on the date on which the defendant receives the arbitration request from the claimant, unless the parties agree on another date. However, such receipt only shall be considered as the beginning date for the procedures if the arbitral tribunal is completely formed.([8])  Similar to the parties agreeing the period for arbitration, the parties may also agree to similarly extend the legal period set for the arbitration proceedings.

  • Arbitration period extension by the arbitral tribunal:


Whether the arbitration period is determined by agreement or in accordance with the law, according to Article 45 of the Egyptian Arbitration Law the arbitral tribunal is authorized to extend the period as it deems necessary and without the approval of the parties, thus the parties cannot object to such an extension.
An extension by the arbitral tribunal must be recorded in the session minutes and may not exceed six months unless authorized by the parties, otherwise any award issued beyond this period will be void.
The arbitral tribunal cannot on its own extend the arbitration period more than once, unless the initial extension was for less than 6 months, in which case it can extend for another period provided that the cumulative extension period does not exceed 6 months.([9])
A decision to extend must be issued before the expiration of the original arbitration period.

Second option: Additional arbitration period granted by the competent court


In case the stipulated arbitration period expires before a final award is rendered, regardless of whether such period was determined by the  parties, the law, or the arbitral tribunal and regardless of whether the expiration was in respect of the original period or an extension thereto, then any party has the right to demand from the president of the competent court, referred to in Article 9 of the Arbitration Law([10]), to issue an order to grant an additional period according to Article 45 (2) of the Egyptian Arbitration Law. However, the arbitral tribunal does not have the right to present such order ex officio; this right is reserved for the parties.

The president of the competent court according to Article 9 of the Egyptian Arbitration Law has the discretion to either accept or reject the request. The judge’s authority in this regard is not restricted by the law, and the judge may extend the period by any amount he/she deems necessary.([11])
Usually, the parties resort to the president to request an extension of the arbitration period where they are unable to agree an extension of the arbitration period after the expiry of the arbitral tribunal’s authority to grant such an extension.

However, the parties may still refer to the originally competent court even though they have already agreed upon an extension and where the extension expires or the arbitral tribunal’s authority ceases.
The court’s authority to grant an extension period can only be exercised once.

As mentioned above, instead of requesting a new additional period from the competent court, any of the parties may request the termination of the arbitration procedures where no award has been issued prior to the expiration of the arbitration period. The judge in this case is obliged to issue a judgment to end the proceedings after confirming that the period did indeed expire.

In the event that a party has requested an additional period for the proceedings, and another party has requested that the proceedings be terminated, then the judge has the discretion to consolidate the requests and either grant a new additional period for the arbitration or to terminate the proceedings.

Therefore, in the midst of the COVID-19 outbreak and in accordance with the WHO guidelines and other precautionary measures, an attractive solution to save an arbitration may be to seek an extension of the proceedings whether by agreement of the parties, through the arbitral tribunal, or through the court.

Third option: Stay of the arbitration period until the COVID-19 situation is resolved([12])

According to the Egyptian Arbitration Law, the running of the arbitration period shall be paused or stayed where an event of Force Majeure has occurred([13]) that hinders rendering the arbitral award within the stipulated period. Such stay shall is effected by agreement of the parties until the reason for the stay is over. During the stay, the parties reserve their legal rights but shall not take any action regarding the dispute. Once the cause leading to the stay is resolved, the remaining period of the arbitration continues from where it was paused.

The application of the above-mentioned provision is clear in many judgments, for instance; the Civil Cassation judgment of 24 February 1973 in the Challenge No.1([14]) as well as the Cassation judgment of 17 April 1965 in the Challenge no.406.([15])

The parties are free to agree to stay the arbitration period for as long as they deem necessary, however, in the event they choose to govern their arbitration procedures through specific arbitration system rules, the stay period if sought will be determined by such rules.

An agreement to stay the arbitration proceedings must be made by all parties and a decision affirming the stay must be issued by the arbitral tribunal that shall abide by the agreed terms. However, the arbitral tribunal does have the right to reduce the stay period requested by the parties if it feels that the parties’ request only aims to prolong the dispute for no reasonable justification.

Moreover, the parties shall have the right to agree upon staying the arbitration period more than once throughout the dispute resolution process.([16]) The Force Majeure event leading to the stay request must make the performance of obligations impossible.

It is clear from the current circumstances that COVID-19 – along with the worldwide measures adopted to contain it – constitutes a direct barrier to the performance of contractual obligations in transactions. Thus, COVID-19 should be considered as an event of Force Majeure as it directly affects the performance of the obligations, hence the stay of the arbitration period can be invoked if the parties deem a stay appropriate.

Summary:

Based on the above-mentioned, arbitration is one of the fields directly affected by the COVID-19 outbreak. Therefore, resorting to any of the above-mentioned options may be necessary to save ongoing arbitration proceedings from termination.

 


([1]) According to the WHO “Coronaviruses in general can be defined as a large family of viruses that can infect humans as well as various species of animals such as cats, camels and bats. Such family includes the SARS-COV, the MERS-COV and now the new virus SARS-COV-2”.

([2]) The WHO https://www.who.int/health-topics/coronavirus#tab=tab_1 on 01/04/2020.

([3]) The WHO https://www.who.int/health-topics/coronavirus#tab=tab_1 on 01/04/2020.

([4]) Arbitration Law No.27/1994.

([5]) Dr. Fathy Wally – Arbitration Law in Theory and in Practice” – Monchaa Elmaaref- Edition 2007 – p. 409, para. 237 et sq.

([6]) “1- The arbitral tribunal shall render the award terminating the dispute within the period agreed upon by the two parties. In the absence of such agreement, the award must be made within twelve months of the date of commencement of the arbitral proceedings. In all cases, the arbitral tribunal may decide to extend the period of time, provided that the period of the extension shall not exceed six months, unless the two parties agree on a longer period.
2- If the arbitral award is not rendered within the period referred to in the preceding paragraph, either of the two parties to arbitration may request the president of the court referred to in article 9 of this Law to issue an order either extending the period of time or terminating the arbitral proceedings. In the latter case, either party may bring the dispute to the court having initial jurisdiction to adjudicate the case”.

([7]) The CRCICA Arbitration Rules in Force as Of March 2011.

([8])Dr. Fathy Wally, Ibid., p.409, para. 237.

([9]) Ibid.,p.410, para. 238.

([10]) The competent court here is “The court of the original competence. In case of international commercial arbitration conducted inside or outside Egypt, the competent court shall be the Cairo Court of Appeal”.

([11]) Dr. Fathy Wally, loc cit., p.412 – para. 239.

([12]) Ibid., p.379 & 380, para. 216.

([13])“force majeure in general is defined as an unexpected general event that is unforeseeable at the time of concluding the contract, unavoidable concerning its occurrence or impact, and finally Impossible to overcome and not due to the fault of the affected party. Such event occurs after the conclusion of the contract and leads to the absolute impossibility of fulfilment of the obligations”. El-Sanhoury-Al Waseet-Vol.3.

([14]) Dr. Fathy Wally, loc cit., p.379, para. 215.

([15]) Ibid.,  p. 405, para. 234.

([16]) ibid., p.380.

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