Ercüment Erdem Att. Fatih Isik

Arbitration Agreements Concluded by Agents and the Specific Authority Issue

October 2018

Introduction

In order to conclude an enforceable arbitration agreement, various validity conditions are required. These conditions could be categorized as the merits, capacity, and form requirements. As well, the authority of the signatory agent to conclude an arbitration agreement on behalf of the principal must also be examined[1].

The Requirement of Specific Authority under Country Laws

Under Turkish Law, there are significant regulations covering the authority to conclude an arbitration agreement. According to the third subparagraph of Article 504 of the Turkish Code of Obligations, and Article 74 of the Code of Civil Procedure, the agent is required to be specifically and/or explicitly authorized to conclude an arbitration agreement on behalf of the principal. Therefore, an agent authorized with a general power of attorney, but without an explicit statement on the authority to conclude an arbitration agreement, is not entitled to conclude so on behalf of the principal. If an arbitration agreement is concluded by an agent who lacks specific authority, the regulations on unauthorized representation become applicable, which thereby enable the principal not to be bound by the agreement, unless he so ratifies. Consequent to these provisions, the arbitral tribunal’s authority may be challenged, the award may be annulled, or the enforcement of the award may be rejected.

Within this context, the Turkish Court of Appeal emphasizes the requirement of the specific authorization of agents to conclude an arbitration agreement, and renders arbitration agreements signed by agents who lack specific authority null and void. In some cases, the Court of Appeal attaches the specific authority rule to the public order. Notwithstanding this consideration, in other cases, the Court of Appeal rejects claims for nullity raised from lacking specific authority, by ruling that these claims were not made in good faith.

It must be noted that the mentioned regulations are related to voluntarily appointed agents, but not to the representatives of legal entities. Hence, the persons acting as the representative body of a company are not required to have specific authority in order to conclude an arbitration agreement on behalf of the legal entity that it is representing. However, if the stated company is represented by voluntarily appointed agents, who are appointed by the representative body of the legal entity, then the voluntarily appointed agents will be required to have specific authority. Regarding commercial auxiliaries, commercial representatives who act as the alter ego of the merchant are not required to have specific authority, while the remaining auxiliaries are so required in order to conclude an arbitration agreement on behalf of the merchant.

In parallel with Turkish law, the third subparagraph of Article 396 of the Swiss Code of Obligations, Article 1989 of the French Civil Code, Article 1989 of the Belgian Civil Code, Article 1008 of the Austrian Civil Code, Article 702 of the Egyptian Civil Code, Article 1713 of the Spanish Civil Code, and the Law of Hong Kong, require agents to have specific authority in order to conclude an arbitration agreement on behalf of the principal. Contrary to the provisions of the listed states, Italian, British, German, Swedish, American and Dutch laws do not require such specific authority.

Form Requirements for Specific Authorization to Conclude an Arbitration Agreement

The method of authorization of the agent to act on behalf of the principal must also be examined. One may ask whether the validity conditions of arbitration agreements, such as being in written form, are required for the specific authorization of the agent to conclude an arbitration agreement.

According to some, the written form requirement as regulated under the New York Convention for an arbitration agreement shall be applicable merely to the arbitration agreement, and should not be applied to the specific authorization. To the contrary, an opposing view defends that the written form requirement regulated under the New York Convention should be extended to the authorization. The third view on this issue affirms that non-regulation of this issue at the Convention shall not be interpreted as the Convention failing to require any form for authorization. Hence, the form requirement on authorization is to be determined by national laws that may require specific methods for authorization.

In Turkish Law, apart from the conclusion of arbitration agreements, the matter is discussed for other transactions related to specific authorization. According to one opinion, unless the opposite is stated in law, legal transactions are not subject to form requirement, and there is no regulation as to the formal requirements of such authorization. Another view in the doctrine claims that granting the power of authority is subject to the form of the underlying transaction, and adds that a contrary interpretation would conflict with the protective purpose of the law as to the parties.

Comparative law has varying opinions on the matter. For instance, the second subparagraph of Article 217 of the Greek Code of Procedure requires the same form for the authorization and the transaction to be used. While Article 1008 of the Austrian Civil Code does not require written form for the authorization in order to conclude an arbitration agreement, the doctrine and case law accept the necessity of the written form[2]. According to Article 1985 of the French Civil Code, and the third subparagraph of Article 110 of the French Commercial Code, the authorization to conclude an arbitration agreement is not subject to a form requirement in line with the British, Swedish, Finnish and Italian laws. The second subparagraph of Article 167 of the German Civil Code explicitly regulates that authorization is neither subject to any form requirement, and neither must it be in line with the form requirement of the transaction.

Law Governing the Requirement of Specific Authority

As stated, above, the lack of specific authority of an agent for an arbitration agreement may result in a challenge of the arbitral tribunal, annulment of the award, as well as refusal of the enforcement of the award. However, neither national nor international legislation regulating the stated sanctions has an explicit answer as to which law governs the requirement of specific authority. In other words, none of the stated legislations answer whether or not the issue shall be governed by the “law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made,” or “the law applicable to them (to the parties).”

Therefore, in order to ascertain the law governing the authority, a qualification on this issue must be made. According to one view, the nullity of the arbitration agreement which was signed by an agent who lacks specific authority must be evaluated under the scope of the merits or material validity of the arbitration agreement. This opinion defends that the principal who did not grant authority to the agent to conclude an arbitration agreement never had the intent to enter into an arbitration agreement, which causes the nullity of the agreement based on its merits. Another view associates this issue with capacity, and interprets Article V/1(a) of the New York Convention in a wider scope by including the authority. The last view on this issue affirms that the conclusion of an arbitration agreement through an agent is a matter of representation, and the issue must be determined as per the law governing the representation/agency relationship or the effects of representation authority. Accordingly, under Turkish law, if an arbitration agreement is concluded by an agent, the applicable law shall be determined pursuant to Article 30 of Private International and Procedural Law. As per the stated Article, the conditions required to bind the principal to third parties through the agent’s act are subject to the law of the representative’s work place. In cases where the agent does not have a work place, or the third parties are unaware of such a work place, or the representative authority is exercised elsewhere aside from the work place, the power of agency is subject to the law of the state where it is virtually exercised.

The scholars have no consensus as to qualification of authority. Similarly, the court decisions and arbitral awards given on the authority to conclude an arbitration agreement do not provide explicit argumentation as to the qualification of the authority. According to the classifications made in line with above-mentioned results, the issue is assessed under the scope of “merits,” “capacity” and “representation.”

In some disputes, judges and arbitrators directly apply substantive rules of lex fori without raising any argument as to the authority to conclude an arbitration agreement. The implementation of international practice and internationally acknowledged principles, such as the good faith principle on authority, is commonly agreed upon. According to the French doctrine and court decisions that are in line with this view, no specific authority shall be required to conclude an arbitration agreement. Moreover, the representatives entitled to govern a company should be able to conclude an arbitration agreement without being subject to the limitations of company regulations and law. Lastly, authorization to conclude an arbitration agreement should not be subject to any formal requirement. As also stated, above, in some disputes related to the authority to conclude an arbitration agreement before the Turkish Court of Appeal, the court has disregarded the discussions on applicable law, and has granted its decision by merely focusing on the good faith principle.

Conclusion

The issue of authority, which arises upon the conclusion of an arbitration agreement on behalf of a third person by an agent, may trigger several discussions since the matter is not explicitly regulated by national and international provisions. From the perspective of Turkish law, the provisions on requirement of specific authority for the agent remain as an important pitfall of Turkish arbitration law, which should be revised as per international commercial practices.

[1] For detailed information, please see Fatih Işık, Authority to Conclude Arbitration Agreements in International Commercial Arbitration and the Law Applicable to this Authority, On İki Levha, Istanbul 2015. This article was co-authored with Tilbe Birengel and published first in the September 2017 Newsletter of the Istanbul Arbitration Centre. Please also see Ercüment Erdem, Requirement of Specific Authority for Representatives to Arbitrate in Turkish Law, Erdem & Erdem Newsletter December 2014.

[2] For a recent decision of the Austrian Supreme Court, please see Mirando Mako, “Form Requirements for Authorisations to Enter Into An Arbitration Agreement: The Austrian Perspective” (http://www.youngicca-blog.com/form-requirements-for-authorisations-to-enter-into-an-arbitration-agreement-the-austrian-perspective/#more-1073) (Access Date 12.10.2018).