On 25 January 2024, Azerbaijan’s new arbitration law came into force, marking a significant milestone in the country’s efforts to modernize its dispute resolution framework (the “Arbitration Law”). This law regulates both international and domestic arbitrations and is largely based on the UNCITRAL Model Law, bringing Azerbaijan’s arbitration regime closer to international standards.
Structure
The Arbitration Law consists of 59 Articles and 8 Chapters, structured as follows:
- Chapter 1, General Provisions, Articles 1-15;
- Chapter 2, Arbitration Agreement, Articles 16-18;
- Chapter 3, Composition of the Arbitral Tribunal, Articles 19-26;
- Chapter 4, Interim Measures, Articles 27-34;
- Chapter 5, Conduct of Arbitral Proceedings, Article 35-47;
- Chapter 6, Making of Arbitral Award and Termination of Proceedings, Recourse Against Arbitral Award, Articles 48-54;
- Chapter 7, Recognition and Enforcement of Arbitration Awards, Articles 55-57;
- Chapter 8, Final Provisions, Articles 58-59.
Scope and Application
The Arbitration Law applies to both international and domestic arbitration when the seat is in Azerbaijan (Article 4.1). However, certain provisions, such as those related to court support and interim measures, apply regardless of the arbitration’s location (Article 4.2).
The Arbitration Law specifies certain disputes that cannot be resolved through arbitration, such as criminal and administrative offenses, family relationships, and labor disputes (Article 13). The UNCITRAL Model Law does not explicitly list non-arbitrable disputes, leaving it to the adopting states to define such exclusions.
Arbitration Agreement
The arbitration agreement must be in writing, although this is broadly interpreted to include electronic forms where the information is accessible for later use (Article 16). A written reference in a contract to a separate document containing an arbitration clause also suffices, provided the clause is clearly incorporated (Article 16.6). The agreement can be in the form of an arbitration clause within a broader contract or as a standalone agreement (Article 16.1). Any ambiguity in the agreement is interpreted to support the arbitration’s validity (Article 16.8).
Arbitral Tribunal
Under the Arbitration Law, the default number of arbitrators is three (Article 19.2). Absent a specific agreement on the appointment process, each party appoints one arbitrator, and those two then jointly appoint a third (Article 20.3.2). If a party fails to appoint an arbitrator within 30 days, or the two arbitrators cannot agree on the third within 30 days, then the court will make the appointment upon request (Article 20.3.2). For a sole arbitrator, the court will appoint him or her if the parties cannot agree (Article 20.3.1).
Under the Arbitration Law, unless otherwise agreed by the parties, decisions in arbitral proceedings with more than one arbitrator are made by a simple majority, and arbitrators cannot abstain from voting (Article 49.1). The UNCITRAL Model Law also allows for majority decision-making but does not explicitly prohibit abstention.
Arbitrator’s Immunity from Liability
While the UNCITRAL Model law is silent on the issue of liability of arbitrators, the Arbitration Law has introduced a provision granting arbitrators immunity from liability for damages incurred while performing their duties, provided they acted in “good faith” (Article 26.1). This immunity extends to situations where an arbitrator resigns or fails to act, unless such resignation or failure is proven to be “unreasonable” (Article 26.2). The law does not explicitly define “good faith” or when a resignation or failure to act is “unreasonable“, leaving its interpretation open to the courts.
Security for Costs
Article 47.1.3 of the Arbitration Law explicitly empowers an arbitral tribunal to order a party to provide security for the costs of the arbitration, unlike the UNCITRAL Model Law, which is silent on the issue.
Public Policy Considerations
The Arbitration Law explicitly defines public policy in the context of annulment of arbitral awards. Specifically, pursuant to Article 54.2.2.2, an award may be annulled if it is “in conflict with the Constitution of the Republic of Azerbaijan or the public policy, which comprises fundamental legal principles that are inherently imperative, universal and of significant societal importance, underpinning the political, economic and legal framework of the Republic of Azerbaijan.” Interestingly, the respective enforcement provision (Article 56.1.2.2) provides that an award may be refused recognition or enforcement if it is “contrary to the Constitution of the Republic of Azerbaijan or to the public policy“, without defining the term public policy.
Time Limit for Setting Aside Awards
While the Arbitration Law follows the UNCITRAL Model Law’s three-month period for applications to set aside awards (Article 34(3) of Model Law), it removes this time limitation in cases involving, inter alia, fraud, corruption, criminal activities, falsified documents or false testimonies (Article 53 of Arbitration Law). This exception could potentially lead to prolonged uncertainty regarding the finality of awards.
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Azerbaijan’s new Arbitration Law represents a significant step towards modernizing the country’s arbitration framework. It also paves the way for establishing Azerbaijan as a competitive arbitration jurisdiction in the region. As with any new legislation, however, the true impact of this law will only become clear through its practical application over the coming years.