“Arbitration is the process in which it brings a business dispute before a disinterested third party in order resolute it” Discuss.

Introduction

 This statement states the situation when parties are involved in the legal obligation to follow arbitration clause and take part in arbitrating with each other. This signifies that parties have the power to arbitrate in case of dispute. Statement states that parties cannot seek remedy in form of compensation without fulfilling or using the arbitration clause in their contract whenever there is dispute and contract no longer exist. So the statement identifies the an important aspect of corporate law in case of parties contracted together is involved in a dispute and consequences depending on certain clauses in their contract such as the arbitration clause.

Arbitration is the process in which it brings a business dispute before a disinterested third party in order resolute it. The third party, an arbitrator, hears the evidence brought by both the sides and makes a decision. [1] Arbitration uses rules of evidence and also the procedure that is used is not so formal than those followed in trial courts and this leads to a faster, less-expensive resolution of dispute. It is used in some countries to resolve disputes, such as labor disputes, consumer disputes or family disputes, and for the resolution of certain disputes between states and between investors and states but most commonly used for the resolution of commercial disputes, particularly in the context of the international commercial transactions and sometimes even used to enforce credit obligations.

 Arbitration history under LCIA

The London court of international arbitration (LCIA) is an international service providing institution located in London. The main focus of this institution is arbitration and providing provision for formal arbitration tribunals. In 1903, the court was initially named as London Court of arbitration and later on in 1981 the court changed their name to London Court of International Arbitration, as most of its work became internationally linked.  Their arbitration court consists of arbitration practitioners from various trading nations that include China and Japan. They have their own book which is revised in 1998 and is designed to take arbitral step by step by a process consists of a procedure which starts from initial request for arbitration and ends it with the eventual reward. This book has its rule established and provides guidance to parties and also tribunals.

The arbitration act 1996 which acts as the act of the parliament that regulates arbitration process with context to the jurisdiction of UK.  The general principle states that i) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense ii) the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; iii) in matters governed by this Part the court should not intervene except as provided by this Part.[2]  Arbitration agreement is an agreement that is submitted to arbitrate present and future disputes and the references that is established in such agreement as form the written arbitration clause in documents that constitutes an arbitration agreement as the clauses can be only part of the agreement if it is suitable to be so.

Arbitration Procedure

 Requirements

First requirement is the arbitration agreement, as stated before agreement provides clauses under which the dispute can be addressed. Therefore the arbitration agreement must apply to the issue in dispute. Secondly, there should be an appointment of a qualified and also skilled arbitrator who is an expert in conducting the procedures efficiently.  As per the law of UK government legislation, the procedure that comprises appointment of arbitrator, parties has the right to freely agree on the appointment of arbitrator or arbitrators. If there is no such agreement, under that situation following provision applies:

i)        If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the arbitrator not later than 28 days after service of a request in writing by either party to do so.

ii)       If the tribunal is to consist of two arbitrators, each party shall appoint one arbitrator not later than 14 days after service of a request in writing by either party to do so.

iii)     If the tribunal is to consist of three arbitrators— each party shall appoint one arbitrator not later than 14 days after service of a request in writing by either party to do so, and the two so appointed shall forthwith appoint a third arbitrator as the chairman of the tribunal.

iv)     If the tribunal is to consist of two arbitrators and an umpire—each party shall appoint one arbitrator not later than 14 days after service of a request in writing by either party to do so, and the two so appointed may appoint an umpire at any time after they themselves are appointed and shall do so before any substantive hearing or forthwith if they cannot agree on a matter relating to the arbitration.

v)      In any other case (in particular, if there are more than two parties) section 18 applies as in the case of a failure of the agreed appointment procedure.[3]

 (According to Arbitration Act 1996, Legislation UK, 1996 c. 23, Part I The arbitral tribunal Section 16)

 After arbitrator is chosen, party represents themselves. The process has to run smoothly under the guidance of arbitrators and cooperation of the parties. An effective and efficient arbitration process would be needed to conducted, keeping in mind the fairness of the proceedings with proper rules of conduct.

 Steps in Arbitration process

1)      It begins with the rise of dispute as parties reach a point that arbitration is a valid procedure to address such dispute.

2)      Under the pre contractual term in the arbitration agreement which has given rise to the dispute, choices has to be made as to where the request for and submission of dispute to arbitration has to be placed. This can be to a specific arbitrator or an arbitral institution.

3)      Parties should agree upon which arbitrator should be appointed which can also be assigned by arbitral institution or court.

4)      Next the arbitrator who has been appointed must accept the appointment.

5)      With or without the assistance of an arbitral institution parties must decide the arrangement for the arbitration including hire of venue and travel arrangements.

6)      Next arbitrator issues the direction by which the process is heading and thus to be continued.

7)      As soon the introduction of hearing takes place, awards are provided in reference to security of costs, scope of arbitration agreement etc.

8)      Parties submit the pleadings of claims or counterclaims and their response to counterclaim.

9)      Next is to prepare the agreed documents after it is been investigated.

10)  Expert reports are being prepared which helps making the claims by the parties much stronger.

11)  In the presence of the arbitrator, experts and all parties with witnesses and representatives the hearing takes place.

12)  The end results in award which is based on the decision and even costs are been specified.

13)  Under the process if non compliance occurs and a standing need to be figured then, action for enforcement or challenge of or to award is decided.

 Advantages & disadvantages of Arbitration

 It is important to point out the advantages and disadvantages of the whole process of arbitration. It gives a clearer idea is to why parties can choose to arbitrate in case of dispute. The following are as such:

 Advantages

• Arbitration is almost always cheaper and faster than court litigation.
• Strict rules of evidence do not apply.
• Anything relevant that might help get to the truth and resolve the dispute may be considered by an arbitrator
• Sometimes evidence may be submitted by declaration rather than having a witness actually come in and testify.
• Expensive discovery procedures such as depositions, interrogatories are normally not permitted in arbitrations

 Disadvantages

• Arbitration is normally binding when the parties agree to it
• There is no right to appeal the decision of the arbitrator.
• There is no jury.
• The case is decided by one or more experienced arbitrators.
• The arbitrators may have ties and contacts in the industry or field in which the dispute is set.
• Although they have the power to do so, arbitrators normally do not award punitive damages and typically their awards are less than jury verdicts in comparable cases.

 Analysis of statement with examples

According to the statement which clearly states that in case of dispute parties have an agreement with arbitration clause has to exhaust it before going out of contract and seeking remedy. Therefore parties must use the arbitration process as a way of getting settlement other than going out of contract and in case of seeking remedy. Various example, under arbitration act 1996 under UK legislation show cases of such arbitration plots to take in effect. Some of them are described in following paragraphs.

OAO Northern Shipping Co v Remolcadores De Marin SL [2007]

There was an application that was made by the Claimant Buyers, OAO Northern Shipping Company under section 68 of the Arbitration Act 1996 which setting aside an arbitral award dated 18 October 2006 for further consideration of alternative remittance. The ruling was given on 15 June 2007 by judge Mrs Justice Gloster, DBE. The application which was made was served by the seller, Remolcadores De Marin SL and also on the arbitrator. The dispute was raised due to sale and purchase of an ice classed tug for which an application for award was in addressed to by the buyers. In the light of these contentions, Buyers’ counsel presented the case to the Tribunal on the basis that: “The Seller in their   Defence   Submissions   appear   to   accept   that   they   provided   the   particulars   of   the  Vessel  by  way   of   her   class certificates … and have not denied that there was a representation … The Seller’s only contention as regards the documents handed over to the Buyer is that the documents revealing the true power of the engine were in fact given to the Buyer prior to delivery. It is presumed that the Sellers are therefore alleging that the Buyer did not rely on the representation that the engine’s power to be 1,265 kW”.[4] Before this claims were made, sellers also pleaded that the true engine power of the vessel was indeed 1265 kW and it was represented in the GL certificate. Under these circumstances with further proof of the authenticity of the case, tribunal judgment went for the buyers after they experienced serious irregularity under s68(2) that states that:

“Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a)failure by the tribunal to comply with section 33 (general duty of tribunal);

(b)the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);

(c)failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

(d)failure by the tribunal to deal with all the issues that were put to it;

(e)any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;

(f)uncertainty or ambiguity as to the effect of the award;

(g)the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;

(h)failure to comply with the requirements as to the form of the award; or

(i)any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.”[5]

Therefore the case shows how arbitration plays a part how fixing dispute between parties when no other solution could take place.

Mylcrist Builders Ltd v Buck [2008]

In the year 2004, a woman named Mrs. Buck decided that she wants to build a single story extension built in front of bungalow and also hired architect to draw the plan. She then contacted Mr. Geoff Mylcirst of Mylcrist Builders. They made an agreement to build the building, in the term and condition under difference clauses was the existence of arbitration clause. This clause stated that, “”Should any other disagreement arise in connection with or out of this contract the matters in dispute shall be referred  in accordance with the Arbitration Act 1950 or any statutory modification or re-enactment thereof for the time being.in force.”[6] Dispute arose between Mrs Buck and Claimont regarding whether certain amount of the total money that is in the agreement should be provided or not. Mrs. Buck claimed that number of clauses in the agreement was unfair and court should take the decision of which is fair and which is not.  In March 2006, Claimant sent a notice of arbitration to Mrs. Buck. But Mrs. Buck during June 2006 informed clearly that she did not wish to take part in the arbitration process. Claimont had paid the deposit for both parties to take part in arbitration process and only they signed the arbitration application. As a result, it was decided that Mrs. Buck was liable to pay the claimant which included fees for arbitration. Claimant’s submission was not accepted and one of the reasons that was provided was because sec 9 of arbitration Act 1996 stated that an arbitration clause prohibits or stops consumer right to take right decision. Secondly, arbitration clause also stated that Mrs. Buck and Claimant cannot access the court as it might create an imbalance. Thirdly, it was also stated by the judge that, “Equally, whilst there is no suggestion that the Claimant deliberately took advantage of Mrs Buck’s  necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract or weak bargaining  position,  I  consider  that  the  Claimant  by  including  arbitration  in  the  Claimant’s  standard  terms  did  take  such  disadvantage,  albeit  unconsciously.”[7] Also, it was stated that during the time of contract of clause Mrs. Buck would have objected to the clauses as her approach to arbitration shows. So under regulation 8(1) the arbitration provision which was stated in paragraph 11 of contract was decided to not be binding on Mrs. Buck.

Conclusion

The history of arbitration along with details about its requirement and steps and also the two case examples clearly shows the validity of the statement. The cases show contrasting example is to how arbitration takes place between parties and therefore the statement is valid. Arbitration agreement and its use on legal jurisdiction under UK law is more precisely been identified in the above.

 Bibliography

1.          i.            Ramsey :, Justice. “Mylcrist Builders Ltd v Buck [2008] APP.L.R. 09/19.” THE NATIONWIDE ACADEMY FOR DISPUTE RESOLUTION (UK) Ltd. Web. 06 Mar. 2012. <http://www.nadr.co.uk/articles/published/Arbitration/Mylcrist%20v%20Buck%202008.pdf>

1.        ii.            Gloster, Justice. “OAO Northern Shipping Co v Remolcadores De Marin SL (Remmar) [2007] APP.L.R. 07/26.” THE NATIONWIDE ACADEMY FOR DISPUTE RESOLUTION (UK) Ltd. Web. 06 Mar. 2012. <http://www.nadr.co.uk/articles/published/ArbitLRe/OAO%20v%20Romalcadores%202007.pdf>

1.       iii.            “Arbitration Act 1996.” Legislation.gov.uk. Web. 06 Mar. 2012. <http://www.legislation.gov.uk/ukpga/1996/23>.