Arbitration Law in Faroe Islands (Denmark)
The Faroe Islands, an autonomous territory within the Kingdom of Denmark, follows Denmark’s general legal framework for arbitration, but with certain local adaptations for Faroese law. Arbitration in the Faroe Islands is governed primarily by the Danish Arbitration Act (Arbitration Act 2005), which applies to the entire Kingdom of Denmark, including Greenland and the Faroe Islands, although the Faroe Islands also have some autonomy over their legal matters.
1. Legal Framework for Arbitration in the Faroe Islands
The Danish Arbitration Act (Arbitration Act 2005) is the principal legislation governing arbitration in the Faroe Islands. It is based on the UNCITRAL Model Law and provides a modern legal framework for both domestic and international arbitration. The Act applies to both commercial and certain non-commercial disputes, and parties are generally free to choose the rules and procedures for their arbitration.
2. Key Features of the Danish Arbitration Act (2005)
The Arbitration Act 2005 in the Faroe Islands is similar to Denmark’s national law and includes several key provisions:
Arbitration Agreement:
The Arbitration Act stipulates that an arbitration agreement must be in writing. This can be in the form of a clause in a contract or a separate agreement. Arbitration is generally used for commercial disputes, although other disputes can be submitted to arbitration if both parties agree.
Arbitrator Appointment:
Parties to an arbitration are free to appoint their arbitrators, either by mutual agreement or in accordance with rules agreed upon in the arbitration agreement. If the parties cannot agree on the number of arbitrators or on the appointment process, the courts can step in to appoint them.
Arbitration Procedure:
The Arbitration Act 2005 gives the parties significant autonomy in determining the procedure to be followed in their arbitration. If no agreement is reached on procedural matters, the arbitrators have the authority to decide on the procedural rules, provided they comply with the Act’s basic principles.
Confidentiality:
Arbitration proceedings in the Faroe Islands are confidential, subject to the agreement of the parties or the rules governing the arbitration process. Confidentiality is one of the key advantages of arbitration as a dispute resolution mechanism.
Interim Measures:
Courts in the Faroe Islands can grant interim relief in support of arbitration proceedings, such as injunctions or orders to preserve assets. The court's role is generally limited, but it can intervene when necessary.
3. Judicial Intervention
The role of the courts in the arbitration process is limited, and judicial intervention is only permitted in specific situations. Some key points regarding court intervention include:
Compelling Arbitration:
If a party refuses to comply with an arbitration agreement, the other party can apply to the courts to compel the dispute to be resolved through arbitration.
Setting Aside an Award:
Under the Arbitration Act 2005, there are limited grounds for the court to set aside an arbitral award. These include instances where the tribunal exceeds its jurisdiction, the process was not conducted fairly, or the award is contrary to public policy.
Appeals:
Arbitration awards are typically final and binding, with very limited opportunities for appeal on the merits. However, if there are procedural irregularities, a party may apply to the court to challenge the award.
4. Enforcement of Arbitral Awards
Domestic Awards:
Arbitral awards made in the Faroe Islands are directly enforceable through the courts. Once an arbitral award is issued, the winning party can seek enforcement through the Faroese courts.
Foreign Awards:
The Faroe Islands, as part of Denmark, are a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). This means that foreign arbitral awards are generally recognized and enforceable in the Faroe Islands, subject to limited exceptions based on public policy concerns or procedural irregularities.
5. Arbitration Institutions in the Faroe Islands
The Faroe Islands do not have a dedicated arbitration institution of its own. However, the general practice in the Faroe Islands is to rely on international arbitration institutions or ad hoc arbitration. Parties in the Faroe Islands can opt for the following arbitration bodies:
Danish Institute of Arbitration (DIA):
The Danish Institute of Arbitration is one of the most prominent arbitration institutions in Denmark and, by extension, available for arbitration in the Faroe Islands. It offers rules and administration services for both domestic and international arbitration.
International Arbitration Institutions:
Parties in the Faroe Islands may also choose to conduct arbitration under the auspices of international institutions such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), or UNCITRAL. These institutions provide established rules and procedures for arbitration that are widely recognized.
6. Advantages of Arbitration in the Faroe Islands
Modern Legal Framework:
The Arbitration Act 2005 aligns with international best practices, including the UNCITRAL Model Law and the New York Convention, providing a modern and internationally recognized framework for arbitration.
Efficient and Confidential:
Arbitration is often faster and more flexible than litigation, and it offers confidentiality, making it an attractive option for businesses and individuals in the Faroe Islands seeking to resolve disputes without public disclosure.
Enforcement of Foreign Awards:
As part of Denmark’s legal system, the Faroe Islands benefit from the New York Convention, making it easier to enforce foreign arbitral awards in the territory.
7. Challenges of Arbitration in the Faroe Islands
Limited Local Infrastructure:
The Faroe Islands do not have a dedicated arbitration institution, which may lead to parties relying on international institutions for their arbitration proceedings. This can increase costs and complicate the process for local disputes.
Geographic Isolation:
The remote location of the Faroe Islands may create logistical challenges for arbitration, particularly when international parties are involved. This includes issues related to communication, travel, and coordination of hearings.
Awareness and Usage:
Arbitration may not be as commonly used in the Faroe Islands as litigation, and local awareness of arbitration as a viable dispute resolution mechanism may be limited.
Conclusion
Arbitration in the Faroe Islands is governed by the Danish Arbitration Act 2005, which offers a modern legal framework that aligns with international arbitration standards. The New York Convention ensures that both domestic and foreign arbitral awards are enforceable in the Faroe Islands. While there are advantages such as efficiency, flexibility, and confidentiality, challenges remain, including limited local arbitration infrastructure and potential logistical issues due to the territory's geographic isolation. Despite these challenges, the Faroe Islands' legal framework provides a solid foundation for arbitration, making it a viable option for dispute resolution, particularly for international commercial disputes.
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