The Difference Between an Arbitration Clause and a Submission Agreement

The management of commercial contracts and investment transactions requires dispute resolution mechanisms to be drafted with the utmost precision in order to avoid jurisdictional conflicts and the resulting delays in resolving disputes. The difference between an arbitration clause and a submission agreement is a fundamental issue within the framework of commercial arbitration, as the distinction relates to the timing of the agreement, the procedures for its conclusion, and the extent to which the subject matter of the dispute is defined.

Investors and companies in Egypt and international markets face a practical obligation to commence arbitration through a legally valid process. Therefore, a precise understanding of these two concepts constitutes a first line of defense for protecting financial and commercial rights, ensuring the enforceability of arbitral awards, and avoiding their annulment.

Legal Concept: The Difference Between an Arbitration Clause and a Submission Agreement

The legal distinction between the two mechanisms is based primarily on the timing of the dispute and the status of the contractual relationship between the parties.

• Arbitration Clause (Arbitration Clause): A provision inserted by the parties into the original contract at the time of its drafting and execution, under which they agree to refer any future dispute that may arise from the interpretation or performance of the contract to arbitration.
• Submission Agreement (Submission Agreement / Submission Clause): A separate and independent agreement concluded between the parties after the dispute has already arisen, whether there was an earlier incomplete arbitration clause or the original contract contained no reference to arbitration at all.

The Egyptian Legal Framework Governing Arbitration

Egyptian law regulates both mechanisms under Egyptian Arbitration Law No. 27 of 1994, as amended. Article (10) expressly provides that an arbitration agreement may be concluded before the dispute arises, whether as a clause contained in a contract or in a separate agreement, or after the dispute has arisen in the form of a submission agreement.

Key Legal Provisions

• Principle of Separability of the Arbitration Clause: The arbitration clause is regarded as an agreement independent from the other terms of the contract pursuant to Article 21. The invalidity, termination, or expiry of the original contract does not affect the arbitration clause if the clause itself is valid.
• Mandatory Particulars in a Submission Agreement: Article (10/paragraph 2) of Egyptian law requires the matters covered by the arbitration to be clearly specified in the submission agreement; otherwise, the agreement is void.

Practical Comparison: Arbitration Clause vs. Submission Agreement

The practical difference between the two mechanisms becomes clearer when comparing the timing of the agreement, the nature of the dispute, the degree of contractual independence, and the requirements for defining its subject matter.

Legal and Practical Risks of Both Mechanisms

Risks of an Arbitration Clause

• Generality and Ambiguity: Reliance on generic drafting models (Pathological Clauses) may lead to difficulties in appointing the arbitral tribunal or determining the competent arbitration center.
• Changing Assessments: A party may find itself bound to costly arbitration in simple disputes that would have been better resolved through the ordinary courts.

Risks of a Submission Agreement

• Refusal by the Other Party: The other party may refuse to sign a submission agreement after the dispute has arisen, which eliminates the arbitration option entirely and compels the aggrieved party to resort to ordinary litigation.
• Risk of Invalidity Due to Lack of Specificity: If the disputed matters are not precisely specified in the submission agreement, it may be declared invalid pursuant to the second paragraph of Article 10 of the Egyptian Arbitration Law.

Commercial and Operational Implications for Companies

The impact of distinguishing between the two mechanisms is not limited to the legal aspect; it directly affects business continuity and the financial positions of companies.

• Cash Flow Management: An arbitration clause provides stability and a greater degree of predictability regarding the legal process, whereas a submission agreement may lead to liquidity disruption if the other party uses negotiations as a means of pressure or delay.
• Foreign Direct Investment: International companies and foreign investors prefer the existence of a prior arbitration clause in order to avoid facing unfamiliar local courts if a dispute arises.
• Confidentiality of Disputes: Both mechanisms ensure confidentiality; however, an arbitration clause allows confidential proceedings to commence immediately without the need to renegotiate with the other party to sign a new agreement.

Special Considerations for International Clients and Import and Export Companies

Cross-border transactions require additional precision when distinguishing between an arbitration clause and a submission agreement, particularly with respect to authority, applicable law, and enforcement.

• Capacity to Sign (Capacity to Sign): It must be verified that the legal representative of the Egyptian or foreign company has the authority to agree to arbitration in accordance with the law of the company’s nationality and Egyptian law, as Article 11 of the Egyptian Arbitration Law requires the person disposing of rights to have legal capacity to do so.
• Applicable Law and Seat of Arbitration (Seat of Arbitration): The governing law and seat of arbitration should be included in the arbitration clause in advance to avoid conflicts of laws and jurisdiction when drafting a subsequent submission agreement.
• Enforcement (Enforcement): The enforcement in Egypt of foreign awards rendered pursuant to an arbitration clause or submission agreement is based on the 1958 New York Convention, provided that the award does not violate Egyptian public policy.

Common Drafting and Application Errors

• Confusion of Terminology: Using the term “submission agreement” in the original contract before a dispute arises, or vice versa, which may create interpretative confusion before the courts.
• Failure to Obtain Special Authorization: Having an arbitration clause or submission agreement signed by a manager who lacks express and specific authority to arbitrate in the commercial register or the company’s constitutive contract.
• Failure to Specify the Governing Law or Language: Omitting a clear provision specifying the language of the proceedings and the laws applicable to the contract.
• Imprecise Drafting of a Submission Agreement: Failing to precisely specify invoice numbers, supplemental contracts, or the amounts claimed in the text of the submission agreement.

Practical Best Practices for Drafting Arbitration Agreements

• Reliance on B2B Standard Clauses: Taking into account the return on investment and the size of the transaction when selecting the arbitration center, such as the Cairo Regional Centre for International Commercial Arbitration CRCICA.
• Use of the Institutional Model Clause: Adhering to the model clauses recommended by recognized arbitration centers, while introducing the necessary amendments through legal counsel.
• Conducting Due Diligence (Due Diligence): Verifying the status of signatories and their official authority before signing the clause or submission agreement.
• Drafting Multi-Tier Dispute Resolution Clauses (Multi-tier Clauses): Establishing negotiation or mediation stages before activating the arbitration clause.

When Is the Involvement of a Specialized Lawyer or Local Counsel in Egypt Required?

Engaging an experienced institutional law firm becomes essential in a number of circumstances, particularly where the transaction is complex or contains an international element.

• Drafting complex commercial contracts involving multiple parties and nationalities.
• The occurrence of a commercial dispute in the absence of a prior arbitration clause, requiring negotiation and the drafting of a robust submission agreement that safeguards the company’s rights.
• Challenging the validity of the arbitration clause or raising an objection to the jurisdiction of the arbitral tribunal.
• Representing foreign companies as Local Counsel before arbitral tribunals and arbitration centers in Egypt, and enforcing arbitral awards through the Egyptian courts.

How Can Specialized Legal Support Assist?

El Rouby Law Firm provides comprehensive legal services to local and international companies with the aim of ensuring legal protection for their commercial transactions from the contract drafting stage through the emergence of a dispute and enforcement of the award.

• Regulatory Compliance and Risk Management: Assessing commercial contracts and identifying gaps in dispute resolution provisions to prevent their invalidity.
• Contract Drafting and Review: Preparing precise arbitration clauses and submission agreements that comply with local and international rules and in accordance with E-E-A-T principles.
• Dispute Prevention and Negotiation: Managing preliminary sessions and mediation of commercial disputes before escalation.
• Representation, Litigation, and Arbitration: Representing clients before local and international arbitral tribunals (CRCICA, ICC, LCIA), and conducting annulment and enforcement proceedings before Egyptian courts.

Conclusion

A precise understanding of the difference between an arbitration clause and a submission agreement remains a fundamental pillar for investment security and the protection of commercial property. Proper selection of the appropriate mechanism and professional drafting help companies avoid obstacles to the enforcement of awards and the loss of rights.

To ensure the drafting of arbitration agreements tailored to protect your business in Egypt and international markets, contact the legal team at El Rouby Law Firm for specialized legal advice.

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Frequently Asked Questions

Q1: What Is the Main Difference Between an Arbitration Clause and a Submission Agreement?

A: An arbitration clause is concluded in advance within the original contract before a dispute arises to waive recourse to future court litigation, whereas a submission agreement is concluded as a separate agreement after the dispute has already arisen in order to define its subject matter and tribunal.

Q2: Is a Submission Agreement Permissible if No Arbitration Clause Was Included in the Original Contract?

A: Yes. The parties may agree on an independent submission agreement after the dispute has arisen, even if the original contract contains no reference to arbitration whatsoever.

Q3: What Causes a Submission Agreement to Be Invalid under Egyptian Law?

A: A submission agreement is invalid if the disputed matters and claims are not clearly and precisely specified pursuant to Article (10/paragraph 2) of Egyptian Arbitration Law No. 27 of 1994.

Q4: Is an Arbitration Clause Affected by the Invalidity of the Main Commercial Contract?

A: No. The arbitration clause is based on the principle of legal separability; therefore, the invalidity or termination of the original contract does not extend to the arbitration clause as long as the clause itself is valid and satisfies its legal requirements.

Q5: Is a General Authorization Sufficient to Sign an Arbitration Clause or Submission Agreement in Egypt?

A: No. Egyptian laws require an express special authorization for the agent or manager to sign an arbitration clause or submission agreement, and an administrative authorization or general power of attorney is insufficient.

Q6: Which of the Two Mechanisms Is Better for Companies and Foreign Investors?

A: A pre-agreed arbitration clause is considered the commercially preferable and safer option because there is no guarantee that the other party will agree to sign a submission agreement after a dispute has arisen and relations have become strained.

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