“Arbitration means the settlement of a dispute by referring the dispute to a third party and abiding by his decisions”Discuss

 Arbitration means the settlement of a dispute by referring the dispute to a third party and abiding by his decisions. [1]

In the Arbitration Act 1950, the definition of arbitration was given as:

“Arbitration is the reference for binding judicial determination of any matter in controversy capable of being compromised by an agreement by the way of accord and satisfaction or rendered arbitrable by statute between two or more parties to some person or persons other than a court of competent jurisdiction.” [2]

The use of arbitration can be traced back to classical Greek and Roman times. In primitive societies, family head or the elders of the tribe used to dispense justice when dispute arose. Thus, to assume that the arbitration process is invented is a misunderstanding. This primitive form of justice is as much the keystone to arbitration as it is to the development of the courts.[3]

Arbitration is often practiced for the tenacity of financial arguments, especially in the context of worldwide financial transaction.[4] In Bangladesh, the laws relating to Arbitration was used to be governed by the Arbitration Act 1940. However, due to slow and cumbersome in the enforcement of Arbitration Act 1940, caused an increase of the passing of the new Arbitration Act 2001, which addresses the problems of the old regime. Most importantly, AA 2001, which is based on the UNCITRAL MODEL, enforces the involvement of the judicial system to be kept to a minimum level, which is essential for effective operation of the tribunal’s work. [5]

Overall, where an arbitration agreement exists, the court is bound to refer parties to arbitration.

 Arbitration

            Section 6(1) of the Arbitration Act 1996, of UK Legislation, defines an arbitration agreement as “an agreement to submit to arbitration present or future disputes (whether they are contractual or not)” this is derived from article 7 of the UNCITRAL Model Law.[6]

 The arbitration is a creature of contract. The agreement to submit disputes to arbitration must be in writing (s.5(1), 1996 Act). An arbitration agreement which is not writing is not unlawful but it will not be governed by the Act, instead it falls under the common law rules which have been preserved by the Act in S.81. There is however no definition as to what constitutes “writing” although it could be said that under s.7 of the Arbitration Act 1975, it includes an agreement contained in an exchange of letters or telegrams.[7]

An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.[8]

 However, an arbitration clause and the contract is not exactly the same thing. The arbitration clause contains the parties’ agreement to resolve present and future disputes by arbitration. The contract, which incorporates the arbitration clause by reference, is the underlying contract.[9]

 Arbitration Procedure

The arbitration process is governed by the rules to which the parties refer in the agreement. .  The arbitration proceeding must be so conducted as to afford the parties a fair hearing on the basis of equality In the absence of specific legal rules, the procedure will be determined by the arbitrators.  The arbitrator generally has the authority to request the parties and third persons to produce documents and books and to enforce such a request by issuing subpoenas through court.  If a party fails to appear at a properly convened hearing, without showing a legitimate cause, the arbitrator in most instances will proceed in the absence of the party and then render an award after investigation of the matter in dispute. [10]

 Where the parties have entered into a contract, whether orally or in writing, which incorporates by reference a written form of arbitration clause, this will constitute an arbitration agreement.[11]

In Bangladesh, the present regulation of arbitration is comprised mostly in the Arbitration Act, 1940. Three kinds of arbitration are considered by the Arbitration Act of 1940, namely:

(i)                Arbitration without the intervention of the court,

(ii)               Arbitration through the court, when no suit is pending

(iii)             Arbitration a suits.

 

Arbitration without the intervention of the court

Section 3 to 25 of the Act relate to this type of arbitration. In this case, the arbitration proceedings take place outside the court. There is no suit pending but the award of the arbitrator can be filled in court and executed through the court as if it was a decree of the court.

Arbitration through court when no suit is pending

Where there is an arbitration agreement, but no suit is pending, any of the parties may apply to the court for filing the arbitration agreement. The court, thereupon, issues notice to the other parties requiring them to show cause why the agreement should not be filed. Where no sufficient cause is shown the court shall order the agreements to be filed.

Arbitration a suits.

After a suit is filed, the parties may decide to settle the matter by arbitration. Where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the court for an order of reference. The arbitrator shall be appointed in such manner as the parties agree. There may be a reference of a part of the matter in issue in the suit, provided such part can be dealt with separately.[12]

laws regarding arbitration procedure

the fact that the Arbitration Procedure is binding and the court cannot interfere unless the Arbitration Procedure is exhausted is said by the following facts:

the connection of law of contract and arbitration law

the rules defined in the arbitration law

the power of court in the arbitration agreement

the power of arbitrator to give an award, given by the court

 According to Salmond a contract is

“An agreement creating and defining obligations between the parties”

This means that an agreement enforceable by law is a contract.[13]

Where the performance of a duty is provided for by contract, unless that provision contradicts the law or public policy of the country, that contractual provision shall be binding in between the parties. In the examination of the relationship between the parties, it is therefore necessary to extract the contents of the contract and then to properly construe them to determine the extent of the relationship.[14] An arbitration agreement is also a civil agreement, and thus is it is as much a contract as any other contract.[15] This necessarily means that whatever powers the arbitrator has is largely dependent on that agreement. [16]The requirements of offer and acceptance, consideration, capacity and the intention to create a legal relationship apply to the arbitration agreement as to any other contract.[17]

 Section 7 of the AA 1996 gives statutory effect to the common law rule in Harbour Assurance Co. (UK) Ltd v Kansa General International Insurance Co. Ltd. [1993]  that an arbitration agreement within a contract is separate from that contract.[18]

 Generally, an arbitration clause binds only the individuals or businesses who signal the agreement. This obligation reflects the detail that arbitration is consensual in environment, and is reliant upon the parties’ agreement.[19] However, it is also seen that an arbitration clause in a  contract is not only binding on the parties to the contract, but any person claiming under or through the original contracting parties. It was so held in Astra SA Insurance & Reinsurance Co. v Yasuda Fire & Marine Insurance co. [1996]. In that case, Astra as successors in title to ADAS, the original party to the arbitration contract, were bound by the arbitration clause in certain reinsurance contracts.[20]

  If any of the parties to the agreement disregards the agreement and files a suit, the other party to the agreement and files a suit, the other party to the agreement may file an application for staying the suit.[21]

It is observed that the courts will attempt to ensure the parties abide by their agreement to go to arbitration before allowing their dispute to be litigated before it. Section 9 of Arbitration Act 1996 under English Law builds on this policy. In general when a party takes his case to court where there exists an arbitration agreement, he has committed a breach of that agreement. This means that the courts should not entertain his action for to do so would be to back that breach. The other party wishing to arbitrate may apply to have proceedings stayed. Section 9(10) of AA1996 provides that a party to an arbitration agreement against whom legal proceedings are brought in respect of a matter which under the agreement which is to be referred to arbitration may apply to stay the proceedings. [22]

This shows that the Arbitration Act 1996 clearly forbids the involvement of court, unless the Arbitration Procedure is exhausted by the parties holding the contract bearing the words “Arbitration Clause”.

These are a list of powers of the court in relation to the arbitration proceeding according to the Arbitration Act 1940:

1. The court can give leave to a party to revoke the authority of the arbitrator appointed by him.- Sec 5
2. The court can appoint an arbitrator or umpire.- Sec 8
3. The court can remove arbitrators or umpire and appoint other persons in their place or appoint some persons as the sole arbitrator.- Secs 11 and 12
4. The court can modify an award. –sec15
5. the court can remit an award for reconsideration – sec 16
6. The court can pass judgment in term of the award and thereupon a decree is issued which is capable of execution – sec 17
7. The court can pass interim orders wherever necessary. Sec 18,41 and the Second Schedule
8. The court can supersede the arbitration agreement – sec 19
9. The court may order the arbitration agreement to be filled in the court on the application of the parties or any of them – sec20
10.  The court may by order refer to arbitration, any pending suit at the request of the parties. .- Secs. 21 and 23
11. The court can enlarge the time for making an award.- Sec 28
12. When the award is for money, the court can in its decree order the payment of interest from the date of the decree
13. The court can set aside an award. .- Sec 30
14. The court can stay any suit or legal proceeding relating to a matter which is covered by a valid arbitration.- Sec 34
15. The court can decide disputes as to arbitrator’s remuneration and costs. .- Sec 38
16. The court can issue processes for the appearance of witnesses before arbitrators. .- Sec 43
17. The court can appoint receiver or any official for the detention, preservation or inspection of any property or thing which is the subject of the reference. – Schedule II, Arbitration Act.[23]

 This shows that all the power that the court has in total regarding a case of arbitration agreement, the court cannot make the decision on behalf of the arbitrator. The court has the power before the arbitration proceedings, as in it has the power to change the arbitrator, and after the arbitration proceeding regarding the award given by the arbitrator. But, in no case the court can give the award on behalf of the arbitration, thus, the parties are bound to settle their dispute from a third party by exhausting the Arbitration Procedure first. In other words, the court cannot give any remedy unless there is an award submitted during the exhausting of Arbitration Procedure.

    Section (13) of the Act lays down that the arbitrator or umpire shall (unless a contrary intention is expressed in the agreement) have the following powers:

1. To administer oath to the parties and witness appearing;
2. To state a special case for the opinion of the court on any question of law inconced or state the award, wholly or in part, in the form of a special case of such question for the opinion of the court;
3. Make the award conditional or in the alternative;
4. Correct in an award an clerical mistake er error arising from any accidental slip or omission;
5. Administer any party to the arbitration such interrogatories( question in writing) as may, in the opinion of the arbitrators or umpire be necessary.

The following powers are usually given to the arbitrator in the arbitration agreement:

1. He may decide by and to whom the cost of the reference is to be met.
2. He may award interest
3. When as award of money is given, the arbitrator can fix the installment thereof and their amount and time.
4. Under certain circumstances the arbitrator can order the specific performance of the terms of the contract.
5. He may make interim awards to be followed by a final award.[24]

Areas where the arbitration agreement can be void:

It is established that an if a contract bears the words “Arbitration Clause”, the parties are bound to exhaust the Arbitration Procedure if any dispute among them occurs. However, there are some cases when the Arbitration Agreement will be void.

Essential Elements of a Contract:

1. Offer and Acceptance

2. Intention to create Legal Relationship

3. Lawful Consideration

4. Capacity of Parties

5. Free Consent

6. Legality of the Object

7. Certainty

8. Poissiblity of Performance

9. Void Agreements

10. Writing, Registration and Legal Formalities[25]

Since it is already established that Arbitration is like any other contract, thus an agreement which does not satisfy the essential elements of a contract may be either void or voidable.[26]

Essential elements of arbitration:

1. An arbitration agreement, to be valid and binding, must be in writing. Such an agreement must satisfy all the essential elements of a valid contract.
2. Signatures of the parties are not necessary but it must be shown that they agreed to the settlement of disputes by arbitration.
3. It is not necessary that the name of the person who will act as the arbitration should be mentioned in the agreement.
4. The agreement may be to refer present differences of possible future differences to arbitration.
5. 5.      When there is an arbitration clause in a contract and the contract comes to an end owing to frustration or is avoided on the ground of fraud of misrepresentation, the arbitration clause may continue to be binding. But if the parties were not ad idem, i.e. if there are no contract at all, the arbitration clause is not binding.
6. 6.      The agreement to refer disputes to arbitration is not valid if it lacks the essential elements of a contract, e.g. if it was brought about by fraud or coercion
7. The construction of an arbitration agreement is not to be thwarted by narrow pedantic interpretation.[27]

These are the essential elements of arbitration. If any of these are violated, the agreement is violated, and thus the parties may not be bound to arbitrate with each other.

A party may claim, for example, that no valid arbitration agreement came into existence, because the person signing the agreement had no authority to do so or that a condition precedent to arbitration had not been fulfilled. In such cases, the question whether the arbitrator has authority to deal with the conflict is usually determined by a court.[28]

Thus, various laws, especially the Arbitration Act 1996 Sec 9, suggests that the in case of any dispute among the parties, who have legal relationship with a contract bearing the “Arbitration Clause” are bound to arbitrate amongst each other, where a third party makes an award. The parties are bound to exhaust the Arbitration Procedure first for seeking remedy, and only after that the court can be involved in amending the award etc. however, for this to happen, the contract must be expressed in a written form only, and also all the essential element of a contract and arbitration must be present for the arbitration agreement to be valid.

Reference

Book:

1. Sen,A.K. & Mitra,J.K. (2011).Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp499). Calcutta,India:The World Press Private Limited.
   1. Sen,A.K. & Mitra,J.K. (2011). Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp13). Calcutta,India:The World Press Private Limited.
   2. Sen,A.K. & Mitra,J.K. (2011). Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp502). Calcutta,India:The World Press Private Limited
      1. Sen,A.K. & Mitra,J.K. (2011). Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp513-514). Calcutta,India:The World Press Private Limited.
      2. Sen,A.K. & Mitra,J.K. (2011). Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp507). Calcutta,India:The World Press Private Limited.
      3. Sen,A.K. & Mitra,J.K. (2011). Commercial Law Including Company Law And Industrial Law.(S. Mukherjee, Ed.). (pp14). Calcutta,India:The World Press Private Limited.

1. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp20

1. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp73
2. Jason Chuah(n.d.).Law of International Trade.London,U.K.:Sweet & Maxwell. pp2-3.
3. Jason Chuah(n.d.).Law of International Trade.London,U.K.:Sweet & Maxwell. pp658.

1. Jason Chuah(n.d.).Law of International Trade.London,U.K.:Sweet & Maxwell. pp 659-660
2. Jason Chuah(n.d.).Law of International Trade.London,U.K.:Sweet & Maxwell. pp 661.
3. .
4. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp2
5. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp71
6. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp50-60.
7. Keren Tweeddale & Andrew Tweeddle.(1999). A Practical Approach to Arbitration Law.London,UK:Blackstone Press Limited.pp74

 Online Journal/ Article

1. The Lawyers & Jurists (2012, January14).What do you understand from the phrases “Model Conciliation Clause” and “Model Arbitration Clause”. Retrieved from http://www.lawyersnjurists.com/resource/articles-and-assignment/%E2%80%9Cwhat-understand-phrases-%E2%80%9Cmodel-conciliation-clause%E2%80%9D-%E2%80%9Cmodel-arbitration-clause%E2%80%9D/
   1. Arbitration Law in Bangladesh.Retrieved from http://www.vakilno1.com/saarclaw/bangladesh/arbitrationlaw/arbitration_law_in_bangladesh.htm
   2. Hossain,Dr.K., Ahmad,S., Jahan,K.(n.d.).Bangladesh.In International Arbitration.Retrieved from http://www.iclg.co.uk/khadmin/Publications/pdf/39.pdf

Statues:

1. Arbitration Act 1940, under Bangladesh Legislation
2. Arbitration Act 2001, under Bangladesh Legislation
3. Arbitration Act 1996, under English Law

Cases:

1. 24.  Astra SA Insurance & Reinsurance Co. v Yasuda Fire & Marine Insurance co. [1996]
2. Harbour Assurance Co. (UK) Ltd v Kansa General International Insurance Co. Ltd. [1993]

---