WE ARE IN CHARGE OF RESOLVING COMMERCIAL DISPUTES

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 1. General

 1.1 Prevalence of Arbitration

Afghanistan is taking its initial steps to validate and promote commercial arbitration as a dispute resolution mechanism. Currently, the Afghan government is developing a better understanding of the needs and the role that international arbitration could play in maximising investment, particularly foreign investment, and minimising costly and time-consuming litigation. Recent attempts at international arbitration have found legislative and infrastructure support in Afghanistan. However, litigation is still the primary, widely accepted dispute resolution mechanism in Afghanistan and there are historic obstacles that deter many from using commercial arbitration. A welcome sign of attempts to make arbitration prevalent in Afghanistan is the establishment, for the first time in the country’s history, of two arbitration institutions, namely the Afghanistan Centre for Commercial Dispute Resolution (ACDR) and the Afghanistan International Chamber of Commerce (ICC-Afghanistan). The ACDR was established in 2015, although officially, dispute resolution services through arbitration started in August 2019, while mediation services started earlier than that. At the time of writing, only four arbitration cases have been administered under the auspices of the ACDR and four arbitral awards have been issued, all of which awards are domestic. ICC-Afghanistan, as the national committee of the International Chamber of Commerce in Afghanistan, started to operate in 2017 but is yet to take its first arbitration case. Officials at ICC-Afghanistan recently gave the good news that the institution will be close to the stage of offering actual arbitration services soon. Both the ADCR and ICC-Afghanistan are commissioned to do international arbitration.

Emergence of International Arbitration in Pre or Post-dispute Agreements

Arbitration is a new phenomenon in Afghanistan, compared to litigation. It is therefore to be expected that most of the cases that will be referred to arbitration between now and the near future will be the ones in which the parties to a dispute have entered into a post-dispute arbitration agreement. This is mostly because:

  • at the time when the underlying agreement to the dispute came into existence, there was no or little awareness and tendency towards arbitration as a method of dispute resolution (especially in bigger projects from a long time ago); or
  • the disputing parties who may have primarily chosen litigation as their preferred method of dispute resolution, actually initiate their case before judicial bodies but find litigation unsuccessful, lengthy and time consuming, leading them to refer their case to arbitration.

However, in the actual cases administered by ACDR, the disputing parties had a pre-dispute agreement in place where they had chosen arbitration as their preferred method for resolving their disputes. These cases are mostly recent and the tendency to choose arbitration over litigation has resulted from the development of arbitration, including international arbitration, as a dispute resolution method.

In a smaller number of cases, international arbitration has emerged in Afghanistan where enforcement of a foreign award has been sought in Afghanistan pursuant to the provisions of the New York Convention. Enforcement of foreign arbitral awards is literally an uphill battle for the reasons explained later in this article. 

 1.2 Trends

Co-existence of the Courts and Arbitration

The Arbitration Law

The Law on Commercial Arbitration (Arbitration Law), the country’s first standalone legislation on arbitration, was enacted in 2007. Prior to the enactment of this legislation, arbitration as a method for resolving disputes in Afghanistan was recognised in the Commercial Procedure Law of 1964. When arbitration was first recognised as an alternative method of dispute resolution in 1964, despite the fact that the independence and impartiality of arbitrator(s) was guaranteed in the language of the law, the courts were given a superior role and arbitration was supposed to take place in the framework of a court, not as an independent method of dispute resolution. Commercial Procedure Law provides that persons with legal capacity who bring a lawsuit before the court may refer their disputes to arbitration, whether or not they have initiated a lawsuit before the court. At the same time, the constitution states that the judiciary’s authority includes all cases and claims brought by natural or legal persons as claimant or respondent according to the law before the courts. While the two provisions co-exist with no conflict, one is a constitutional provision, and from the language of both provisions, it can be inferred that arbitration, for the purposes of the Commercial Procedure Law, was not supposed to be an independent method from litigation but rather, part of the court’s procedures to resolve disputes.

Historically, the courts – particularly the commercial courts – in Afghanistan had long resisted recognising arbitration as a legal method of dispute resolution based on this particular provision of the constitution. The courts based their resistance on this constitutional provision and claimed that arbitration could not attempt to resolve disputes as an independent mechanism and take them from the jurisdiction of the judicial body. According to this opposition, the constitution grants the judiciary exclusive power to resolve disputes, whether commercial or non-commercial.

However, this is no longer an issue, at least in the language of the law. The Arbitration Law states that neither courts nor any governmental bodies can intervene in arbitration proceedings unless otherwise provided by the law. The Arbitration Law also adds that where the dispute brought before the court is subject to an arbitration agreement and the court finds the agreement legal, the court should refer the case to arbitration before accepting any initial submission. The same law adds that if the court has started its proceedings but has not issued its ruling with regard to the dispute that should, in fact, be subject to arbitration, the arbitral tribunal can proceed and issue their final award on the matter and the court must stop its proceedings until such final award is issued. The court’s power to intervene in such a case is limited to rulings on interim measures where a party requests the court to do so. 

The Law on Commercial Contracts and Selling Property

The Law on Commercial Contracts and Selling Property, enacted in 2014, states that parties can bring their dispute to be resolved before the commercial courts, unless they have anticipated in an agreement that their dispute should be resolved through conciliation, mediation or arbitration.

Currently, commercial courts rely on this provision and refer any dispute to arbitration, provided that the disputing parties have chosen arbitration as their preferred method for resolving their disputes, prior to initiating their lawsuit in court.

COVID-19 Pandemic and its Impact on Arbitration

The COVID-19 pandemic has become a concern for domestic and international arbitration in Afghanistan, but so far the extent of the impact has not been too significant. Since the number of ongoing or pending arbitration cases is currently small, at least one brainstorming initiative was taken by an arbitration centre in Afghanistan with the subject of “Online Dispute Resolution”, which also addressed arbitrators’ and arbitration centres’ concern over the COVID-19 pandemic and its impact on arbitration proceedings and the enforcement of arbitral awards.

 1.3 Key Industries

No industry in Afghanistan has experienced significant international arbitration activity.

 1.4 Arbitral Institutions

Domestic Arbitration Centres

As mentioned, there are two arbitration institutions in Afghanistan that are mandated to offer international arbitration services. Of the two, only the ACDR has practically started administering arbitration cases and offering arbitration services. The ACDR is the preferred domestic arbitral institution among the government and private sector for the reasons provided in 1.1 Prevalence of Arbitration. 

According to the reports published on the website of the ACDR, this arbitral institution signed a memorandum of understanding with the Afghanistan National Procurement Authority (NPA) in October 2019. According to the memorandum of understanding, disputes arising from domestic procurement contracts over a certain amount awarded by the NPA will be resolved through arbitration in the ACDR. The ACDR is therefore encouraging and promoting arbitration as an alternative method to litigation for dispute resolution among government entities and their contractors, which can also help the institution.

Foreign Arbitration Centres

In the past, when domestic institutions and practices in the area of arbitration, particularly international arbitration, were minimal, many disputes, whether among government offices, government and the private sector or among businesses in the private sector, were referred to arbitral institutions in the region including the Dubai International Arbitration Centre (DIAC).

The DIAC, as the closest arbitral institution in the region, has been an ideal option mostly because of the short distance and because it is a relatively easy place to travel to and stay in, in terms of travel expenses and visas. Other arbitral institutions in Europe and the US, such as the ICC and AAA, have also been chosen by Afghan businesses for dispute resolution.

 2. Governing Legislation

 2.1 Governing Law

The Arbitration Law is the national legislation governing international arbitration in Afghanistan. The Arbitration Law mirrors the UNCITRAL Model Law for the most part in terms of structure and provisions. Necessary changes are being made to the adopted version to make it compliant with the constitution and the country’s legal system, see 2.2 Changes to National Law.

 2.2 Changes to National Law

A proposal to amend the Arbitration Law has been underway since 2019. The Ministry of Trade and Industry took the initiative to amend the current Arbitration Law and a team of different experts from relevant sectors and interested institutions, including the domestic arbitration centres and the Supreme Court, have been involved in developing the amendment proposal.

In addition to some legal-based matters, the proposal includes solving some language and technical problems that might have resulted from adopting the Model Law as domestic legislation.

According to the latest updates, the proposal is still in its initial stage of being processed and it is likely that it will not be approved or become part of the law, at least not within the next few months. The process of amending an existing law in Afghanistan is as lengthy and complicated as making a new one. The same processes and approvals as for a new law are required to amend an existing law. 

 3. The Arbitration Agreement

 3.1 Enforceability

According to the Arbitration Law, an arbitration agreement must be in writing in order to be enforceable and the law defines an arbitration agreement as a form of “written agreement” between the disputing parties that refers their contractual or non-contractual disputes partially or wholly for resolution through arbitration. The Arbitration Law lists the forms of agreement that are acceptable under the law as a written agreement as follows:

  • the parties’ agreement on arbitration is embodied in a document that is signed by both parties;
  • the parties’ agreement on arbitration is reflected in letters or any other correspondence, including electronic mail, that have been communicated by and between the parties that indicate their intention to seek arbitration; and
  • in the exchange of claim and response between the parties, one of the parties contends that there has been an arbitration agreement between them, and the other party does not deny such claim.

According to the Arbitration Law, the mere existence of a provision or condition for arbitration as part of the underlying/containing agreement between the parties, can indicate the parties’ intent to seek arbitration, provided that the underlying/containing agreement is in writing.   

The Arbitration Law does not make it necessary or a requirement of enforceability for an arbitration agreement to be a separate agreement from the underlying agreement, or necessarily to be part of the underlying agreement. The law also doesn’t make it a requirement of enforceability for an arbitration agreement to be formed and executed before a dispute arises. The Arbitration Law also adds that once a dispute arises, if there is no pre-existing arbitration agreement pertaining to that dispute, the disputing parties may still enter into an arbitration agreement to resolve that dispute and submit it to arbitration.

 3.2 Arbitrability

See 5.1 Matters Excluded from Arbitration.

 3.3 National Courts’ Approach

See 1.2 Trends and 5.6 Breach of Arbitration Agreement.

 3.4 Validity

The Arbitration Law does apply the rule of separability to arbitration clauses contained in invalid agreements signed between parties. An arbitration clause that forms part of an agreement would be treated as an agreement independent of all other terms of the agreement in question. The decision of an arbitral tribunal that declares an agreement null and void would not invalidate the agreement to arbitrate.

 4. The Arbitral Tribunal

 4.1 Limits on Selection

Based on the Arbitration Law, disputing parties are free to select a sole arbitrator or an arbitral tribunal, whether it be a local or foreign arbitrator(s). Parties to a dispute may select the number of arbitrators. In the absence of such an agreement, there will be one arbitrator, although where the government is a party to a dispute, the number of arbitrators cannot be less than three.

The Arbitration Law gives priority to the parties’ agreement on how they wish to select arbitrators. Where there is no prior agreement on the selection of arbitrators, the law offers a default procedure, see 4.2 Default Procedures.

 4.2 Default Procedures

According to the Arbitration Law, where there is no agreement on the method of selection and the tribunal consists of three arbitrators, each party selects one arbitrator of their choice and the two selected arbitrators select the third arbitrator as a presiding arbitrator. Also, if there is an agreement between the parties on the method of selection, but either the parties or the selected arbitrators fail to act in accordance with the method of selection or any third party or arbitral institution involved fails to do so, either party may refer the issue to the court and request the selection of arbitrator(s).

 4.3 Court Intervention

Based on the Arbitration Law, a court may intervene in the selection of arbitrators in the following instances and manner, where the court’s decision will be final and binding with no chance of appeal.

  • Where a sole arbitrator is to be selected and the parties fail to reach an agreement on the sole arbitrator, either party may request the court to select the sole arbitrator and the court will do so within 30 days from receipt of the request.
  • Where the tribunal consists of three arbitrators and either party or both parties fail to select an arbitrator within 30 days after being notified by the other party, or where each party does select an arbitrator in time but the two selected arbitrators fail to reach an agreement on the third arbitrator within 30 days after the selection of the second arbitrator, the court will select the arbitrator or, in the latter case, only the third arbitrator within 30 days after receipt of a request by either party.

 4.4 Challenge and Removal of Arbitrators

Request for Removal of Arbitrators and Limits on the Request

According to the Arbitration Law, disputing parties may request removal of an arbitrator due to their lack of impartiality or independence, or because the arbitrator does not have the desired capacity and competence that the complaining party expected.

None of the parties can request removal of an arbitrator(s) that has been appointed by that party or the complaining party, unless the complaining party can prove that they learned about the legal basis for removal only after the appointment.

Procedure for Requesting Removal of Arbitrators and the Court’s Intervention

Based on the Arbitration Law, in the absence of any agreed procedure between the parties, the parties may within 15 days of being notified about the appointment of arbitrator(s), bring a complaint in writing about the legal basis for removal of the arbitrator(s). The arbitral tribunal will decide on the matter unless the arbitrator(s) concerned resigns from the tribunal or the complaining party consents to the selection of the arbitrator(s) concerned.

The Arbitration Law provides that where a request to remove an arbitrator(s) is not agreed upon by the parties, or where the request is denied by the arbitral tribunal, the requesting party may, within 30 days of receipt of notification about the tribunal’s denial, take their request for removal to the court whose decision will be final. However, until the court decides on the matter, the tribunal can proceed with the arbitration. 

 4.5 Arbitrator Requirements

The Arbitration Law requires that the arbitral tribunal treats both parties to a dispute equally and fairly and gives each party a fair chance to present their arguments, and reasoning and evidence supporting their position.

The law makes arbitrators immune from inspection or investigation by any entity, unless there are claims against them for being partial, corrupt or having a conflict of interest while doing their job as an arbitrator.

Also, according to the Arbitration Law, arbitrators have a constant duty before and after their selection or during the proceedings, to disclose sufficient and necessary information about their character or any other issue that relates to them being an arbitrator that could help parties that have any doubt or suspicion about the independence and impartiality of the arbitrator(s). Lack of impartiality or independence is a ground for removal of an arbitrator.

The Arbitration Law provides that where the court intervenes in the selection of arbitrators, it shall take the following into consideration in addition to the parties’ agreement on the matter:

  • the appointed arbitrator’s necessary commercial experience and familiarity with and knowledge of the relevant law; 
  • the appointed arbitrator’s independence and impartiality; and
  • whether the appointed arbitrator holds a different nationality to the nationality of the disputing parties.

It is noteworthy that, based on the Arbitration Law, the nationality of an arbitrator will not prevent them from arbitrating a case, unless otherwise specified in the parties’ agreement. Nevertheless, according to the law, it is a requirement for court-appointed arbitrators to be of a different nationality to that of the disputing parties.

 5. Jurisdiction

 5.1 Matters Excluded from Arbitration

Generally speaking, all commercial disputes are arbitrable under the laws of Afghanistan, unless provided otherwise by law.

The Arbitration Law states that the provisions of this law are not applicable to certain disputes, which are not arbitrable and do not fall under the scope of application of this law. Furthermore, the fact that it is called the Arbitration Law “Commercial Arbitration” would make it axiomatic if non-commercial disputes were arbitrable under the same.

Therefore, non-commercial matters, including political matters and matters relating to family law, criminal law and most public law matters, are not arbitrable according to the laws of Afghanistan.

According to the Private Investment Law of Afghanistan, the following investment activities are not permissible in Afghanistan:

  • development of nuclear energy;
  • gambling facilities; and
  • production of narcotics and other intoxicating drugs.

It can be inferred from the above provision of Private Investment Law that if the subject matter of a dispute is one of the above, even if the nature of the agreement or activity is commercial, such disputes can neither be seated in Afghanistan nor can an award rendered in a foreign country be recognised and enforced in Afghanistan. These subjects are also therefore excluded from arbitrable matters.

Arbitrable Matters under Afghan Law

Which “contractual or non-contractual differences arising out of legal relationships” are of a commercial nature under Afghan law has been a matter of long deliberation and dialogue among subject-matter experts. The fact that the Law on Commercial Arbitration uses the phrase “commercial and economic transactions” when indicating the type of matters that are arbitrable and can be the subject of arbitration in Afghanistan, adds to the confusion.

To address this confusion, the subject-matter experts mostly rely on the definition of commercial activity and transaction offered in the Commercial Law of Afghanistan, enacted in 1955, which is still in force as the country’s commercial code. Although the Law on Commercial Arbitration also provides a definition for commercial transaction, the definition is in no way as comprehensive as the definition offered by the Commercial Law, which includes long lists of different commercial activities and transactions. The Law on Commercial Arbitration defines "commercial transaction" as any transaction with a commercial or economic nature, whether contractual or non-contractual.

 5.2 Challenges to Jurisdiction

The principle of competence-competence is incorporated in the Arbitration Law of Afghanistan. The law provides clarity on the jurisdiction and power of an arbitral tribunal. The same law states that the power and jurisdiction of an arbitral tribunal includes all disputes, even those involving the jurisdiction of the tribunal and disputes over the existence or non-existence of an arbitration agreement.

The Arbitration Law adds that disputing parties may raise a dispute over the jurisdiction of an arbitral tribunal prior to submission of a response by the respondent. From the language of the same law, it can be inferred that no dispute over the jurisdiction of the tribunal may be raised once the arbitration proceeding has passed the response submission with respect to the matter that is dealt with in the jurisdiction dispute.

However, there is still a chance to raise a complaint about the jurisdiction of the arbitral tribunal, after an award has been issued. Lack of jurisdiction over a matter by an arbitral tribunal is one of the grounds to set an arbitral award aside.

 5.3 Circumstances for Court Intervention

As explained under 5.2 Challenges to Jurisdiction, the law does not allow the court to intervene where there is a dispute over the jurisdiction of an arbitral tribunal until after the final arbitral award is issued. The court may only hear a dispute over the jurisdiction of the arbitral tribunal as a ground to set aside the arbitral award, subject to the following conditions:

  • a challenge over the jurisdiction of the arbitral tribunal can be raised with respect to the matter that the award is wholly or partially issued on;
  • a party to the dispute initiates and brings a case requesting the court to set aside the arbitral award on the grounds of lack of jurisdiction; or
  • the case requesting the court to set aside the arbitral award on the grounds of lack of jurisdiction, is brought within three months from the date the award was issued.

 5.4 Timing of Challenge

See 5.3 Circumstances for Court Intervention.

 5.5 Standard of Judicial Review for Jurisdiction/Admissibility

From the provisions of the Arbitration Law it can be inferred that the court has discretion to review the jurisdiction of the arbitral tribunal on a de novo basis in order to be able to rule whether or not the award must be set aside due to lack of jurisdiction by the arbitral tribunal.

If the arbitral award is set aside based on any legal ground as provided in the law, the court, whether according to a party’s request or based on its sole discretion, may decide to allow the arbitral tribunal to start the proceeding on the matter (deferral by the court and a second review of the case by the arbitral tribunal) over again, or allow the arbitral tribunal to correct the grounds on which revocation of the award has been requested.

 5.6 Breach of Arbitration Agreement

As mentioned earlier, the Law on Commercial Contracts and Selling of Properties allows parties to a commercial dispute to initiate a lawsuit before the commercial courts, unless there is an agreement prior to commencement of the case before the court, for the dispute in question to be resolved through arbitration. The said law adds that, in cases where dispute resolution is conditional on arbitration, the courts cannot intervene unless this is provided by the law. The same law further adds that if either party does not comply with the existing arbitration agreement, subject to a request by the other party to the dispute, the court will rule with respect to the violating party on the application of the arbitration agreement.

This provision shows that the legislature strictly limits the courts’ power only to disputes where there is no arbitration agreement between the parties before the commencement of court proceedings.

 5.7 Third Parties

The Arbitration Law is silent on the assumption of jurisdiction by an arbitral tribunal over third parties or non-signatories to the arbitration agreement.

 6. Preliminary and Interim Relief

 6.1 Types of Relief

The conditions of preliminary or interim relief are stipulated in the Commercial Arbitration Law of 2007. This law indicates that parties to a dispute might request the arbitral tribunal to grant interim relief unless provided otherwise in their agreement. In considering the subject matter, the arbitral tribunal might grant preliminary or interim relief, both of which are binding on both parties. The arbitral tribunal might ask the parties to bear the cost associated with granting such relief.

The types of relief stipulated in the law are entrusting the subject matter to a third party or, in the case of perishable goods, ordering their sale. Meanwhile, where deemed necessary, the arbitral tribunal may explore other relief at its discretion.

 6.2 Role of Courts

The Commercial Court of Afghanistan has been empowered by the Commercial Arbitration Law with the authority to grant interim relief. This law permits parties to approach the Commercial Court of Afghanistan directly during arbitration proceedings to request the granting of interim relief.

This provision generally speaks about the granting of interim relief without shedding light on any specific circumstances. However, commercial courts may grant relief in specific circumstances, on a case-by-case basis.

Foreign-Seated Arbitrations

The Commercial Arbitration Law does not indicate any specific provision about the granting of interim relief in aid of foreign-seated arbitrations. However, it provides that either of the parties to arbitration proceedings might request the court for interim relief. The term "party" is not defined as such to exclude a party to a foreign-seated arbitration. However, this law further limits the scope of its application to arbitration proceedings seated in Afghanistan. It could be concluded that national legislation and the courts have not currently made any specific provision or set any precedent in this regard.

The Commercial Arbitration Law is silent on the use of emergency arbitrators. However, alternative dispute resolution institutions such as ICC-Afghanistan have incorporated emergency arbitration into their rules. 

 6.3 Security for Costs

The Commercial Arbitration Law provides security for costs when one party requests enforcement of an arbitral award in one court and the other party requests its nullification or suspension in another court. In such circumstances the first court will suspend its order and compel the other party (the losing party), at the request of the party that applied for enforcement of its arbitral award, to provide security.

 7. Procedure

 7.1 Governing Rules

The Commercial Arbitration Law governs the procedure of arbitration in Afghanistan. In addition, institutions such as the ACDR and ICC-Afghanistan have established specific rules in this regard.

 7.2 Procedural Steps

The Commercial Arbitration Law covers most of the procedural steps of arbitration proceedings in Afghanistan. The law explains the commencement of arbitration, arbitration procedure, the appointment of arbitrators, the composition of the arbitral tribunal, the powers of the arbitral tribunal and the enforcement of the arbitral award. The ACDR and ICC-Afghanistan have also incorporated procedural steps in their respective rules.

 7.3 Powers and Duties of Arbitrators

The national law imposes the following powers and duties on arbitrators:

  • the arbitral tribunal will resolve all disputes within its jurisdiction or powers;
  • the arbitral tribunal will confirm the validity of the arbitration agreement and resolve any dispute in this regard; and
  • the arbitral tribunal will treat the arbitration clause as a separate agreement. If certain terms of the contract are nullified by the arbitral tribunal it will not invalidate the arbitration clause.

 7.4 Legal Representatives

The Commercial Arbitration law does not set forth any specific qualifications or requirements for domestic or international legal representatives appearing before an arbitral tribunal. However, the Advocates Law of 2007 indicates certain requirements and qualifications for domestic and international legal representatives. This law provides that a foreigner cannot establish a legal office in Afghanistan, although, a foreigner is allowed to represent a foreign client in international matters before the courts and other governmental entities provided that the legal representative meets certain conditions. They must:

  • hold a valid residence permit;
  • be a licensed attorney in their own or another country; and
  • pay their financial obligations in Afghanistan in accordance with the applicable laws.

These provisions of the Advocates Law could be regarded as applicable to international arbitrations seated in Afghanistan.

 8. Evidence

 8.1 Collection and Submission of Evidence

Generally, parties submit their statement of claims and the defence submits supporting documents. However, the Commercial Arbitration Law allows parties to arbitration proceedings to reach an agreement on the proceedings of the arbitral tribunal. Parties to arbitration proceedings may choose the specific rules of an institution. Where the parties fail to reach an agreement on the proceedings, the tribunal will decide what is appropriate, including making determinations regarding the admissibility, relevance and materiality of any evidence, and sanctioning the parties where they fail to produce the documents required before the tribunal.

 8.2 Rules of Evidence

The Commercial Arbitration Law gives parties the autonomy to reach an agreement on arbitration proceedings. Where they fail to do so, the arbitral tribunal will decide on this issue, possibly implementing the rules of evidence applicable to domestic matters. 

 8.3 Powers of Compulsion

The Commercial Arbitration Law provides that if any party fails to produce the requested documents, the tribunal will proceed and issue its award ex parte based on the documents at hand. This law further provides that either of the parties or the arbitral tribunal will request the required documents from the court or any other relevant authorities.

 9. Confidentiality

 9.1 Extent of Confidentiality

The Commercial Arbitration Law of 2007 indicates that arbitral proceedings are entirely confidential, unless agreed otherwise. In addition, at the request of either of the parties, the courts will take the additional measures necessary to ensure the confidentiality of the arbitration proceedings.

The arbitration proceedings are confidential in their entirety but there are no limits set forth by the Commercial Arbitration Law on disclosing information in subsequent proceedings.

 10. The Award

 10.1 Legal Requirements

The Arbitration Law of Afghanistan outlines the following legal requirement for an arbitral award in Afghanistan:

  • the arbitral award must be in writing and signed by the arbitrator(s);
  • in arbitral tribunals consisting of more than one arbitrator, the arbitral award must be signed by the majority of arbitrators;
  • the award must include the reasons for the award, unless the parties have agreed to omit the reasons from the award, or the dispute is settled during the arbitration proceeding;
  • the arbitral award must include the date and place of signing; and
  • the arbitral tribunal must deliver a copy of the award to each party and one copy must be kept as a record by the arbitral tribunal or the institution that administered the arbitration proceeding.

Additional requirements may either be added to arbitration agreements or stipulated in the rules of the institutions that administer the parties' dispute.

There is no prescribed time limit for rendering an award under Afghan Arbitration Law.

 10.2 Types of Remedies

The Afghan Arbitration Law imposes no limits on the types of remedies that may be awarded, with the sole exception that punitive damages are not recognised under the Afghan legal system. The arbitral tribunal may award remedies in line with the agreement between the parties and in compliance with the provisions of any Afghan law containing rules relating to commercial contracts, such as civil law and commercial contracts law. There may be limits in the arbitration agreement of the parties related to remedies with which the tribunal must comply, or else the award may be set aside by the court on the ground that it exceeded the scope of the arbitration agreement.

 10.3 Recovering Interest and Legal Costs

The Afghan Arbitration Law is silent on the recovery of interest, legal costs or any other costs. Therefore, the parties may take measures related to the same either within the arbitration agreement, or follow the rules of the institution administering the dispute. The ACDR arbitration rules provide detailed information about the legal cost of arbitration, following a cost-sharing approach. 

Costs are generally at the discretion of the tribunal, which may also rule on them. The Arbitration Law only refers to the legal cost of interim measures, anticipating that the arbitral tribunal may require parties to cover the cost of these measures. Costs may include the fees and expenses of the arbitrators and expert witnesses, legal fees and expenses, institutional administration fees and other expenses related to the arbitration.

 11. Review of an Award

 11.1 Grounds for Appeal

The Arbitration Law mirrors Article 34 of the UNCITRAL Model Law as it relates to appeals against an arbitral award. Based on Afghan law, arbitral awards can be challenged on the following grounds:

  • a party had no capacity to enter into an arbitration agreement;
  • the arbitration agreement was invalid and subjected the parties to an invalid law;
  • a party was not given proper notice of the arbitration proceedings or was otherwise unable to present their case;
  • misconduct of the arbitrator(s) such as corruption, a material conflict of interest with respect to a party, or not disclosing the subject matter of the arbitration to the parties pursuant to the time limit provided by law;
  • the award was rendered based on an invalid law;
  • the award exceeded the scope of the arbitration agreement or contained rulings on matters that were not within the scope of the arbitration, but if the decisions on matters beyond the scope of the arbitration can be separated from those within the scope of the arbitration, then only that part of the award which contains decisions on matters beyond the scope of the arbitration need be set aside;
  • the composition of the arbitral tribunal or the arbitration procedure was contrary to the agreement of the parties;
  • the subject matter of the dispute was not arbitrable under the laws of Afghanistan; and
  • the award is contrary to public policy in Afghanistan.

The procedure of appeal is not set out in the Arbitration Law but the time limit to challenge an arbitral award before a competent court is fixed at three months.

 11.2 Excluding/Expanding the Scope of Appeal

Under Afghan law, parties cannot agree to exclude, expand or limit the scope of the appeal.

 11.3 Standard of Judicial Review

The Afghan courts, when determining and reviewing a challenge to an arbitration award, will consider all the award-challenging grounds outlined in 11.1Grounds for Appeal. If any of those grounds is apparent in the granting of the award, the competent court will have the power to set aside the arbitral award. As for the UNCITRAL Model Law, the provision for setting aside an award is identical to the grounds for appeal. Thus, it can be inferred from the relevant provisions that the courts are not permitted to review the merits of the case and accordingly, the courts may not rule on the legal correctness of an arbitral award.

 12. Enforcement of an Award

 12.1 New York Convention

Afghanistan signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) on 30 November 2004. Recently, at the initiative of ICC-Afghanistan, the New York Convention was approved by the House of Representatives and the Senate and endorsed by the president through Presidential Decree No 34 dated 12 February 2020. This is a vital step towards the enforcement of foreign arbitral awards and the overall credibility of arbitration as an alternative dispute resolution mechanism by the government of Afghanistan.

Afghanistan has also been a signatory to the International Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention) since 1966.

 12.2 Enforcement Procedure

The procedure for the enforcement of arbitral awards is not clearly provided under the Arbitration Law of Afghanistan. The Arbitration Law briefly provides that in order to enforce an arbitral award the winning party must prepare and provide the original or a certified copy of the award, and the arbitral agreement or a duly certified copy of the agreement. If the award is in a foreign language, the parties must provide a certified translation of the same into the official languages of Afghanistan. Practically, the arbitral awards are enforced as follows:

  • the winning party must file an application along with the documents stated above before the competent commercial court;
  • the court must review and determine that the award is valid and in compliance with Afghan laws;
  • the court must issue an enforcement order to the General Directorate of Rights (Hoqooq Department) of the Ministry of Justice; and
  • the General Directorate of Rights will enforce the award.

A foreign award that has been set aside by the courts in the seat of arbitration will not be enforced in Afghanistan as per the Arbitration Law.

 12.3 Approach of the Courts

Despite the explicit provisions of the law and the adoption of the New York Convention, the approach of the Afghan courts towards recognition and enforcement of arbitral awards, particularly foreign arbitral awards, is questionable. The Arbitration Law clearly asserts that an arbitral award, irrespective of the country in which the award was made, must be enforceable in Afghanistan unless grounds for setting it aside are applicable, see 11.1 Grounds for Appeal. Thus, as a matter of law, arbitral awards must be recognised and enforced be they national awards or foreign awards, if the legal requirements are met. However, in practice, as illustrated in 1.1 Prevalence of Arbitration and 1.2 Trends, the Afghan courts are reluctant to enforce arbitral awards, which may stem from lack of familiarity with and inadequacy of knowledge and expertise in modern commercial arbitration. Meanwhile, the Afghan courts are not inclined to share their judicial powers with arbitrators as there is a general belief among Afghan judges that judiciary decision-making powers are exclusive to the courts and judges. Also, there is no regulated mechanism for the enforcement of arbitral awards, which adds to the uncertainty and undermines the process of enforceability of arbitral awards.

Domestic public policy is one of the grounds for challenging an award and the courts can set aside an arbitral award on public policy grounds.

 13. Miscellaneous

 13.1 Class-Action or Group Arbitration

There are no provisions under Afghan law to restrict or limit class-action arbitration or group arbitration.

 13.2 Ethical Codes

There is no specific mandated code of ethics for arbitrators under Afghan law. Lawyers are bound by the ethical code of conduct of the Afghanistan Independent Bar Association. A few duties and responsibilities of arbitrators, such as impartiality and the fair treatment of the parties, are specified within the Arbitration Law and arbitrators may not retain any of the prohibited characteristics outlined in the Arbitration Law.

 13.3 Third-Party Funding

There are no statutory rules on third-party funders.

 13.4 Consolidation

Under the Arbitration Law, arbitrators are allowed to consolidate different proceedings to improve effectiveness.

The courts are also allowed to consolidate different proceedings if they determine this to be efficient. It is worth noting that the reason the law allows the consolidation of different proceedings is to improve the efficiency and uniformity of arbitration proceedings.

 13.5 Third Parties

As a general rule, third parties who are not signatories to an arbitration agreement are not bound by the arbitration agreement or award, except where third parties are bound by an arbitration agreement in the case of assignment of contracts or if provided by law.