‘Arbitrators should not applythe law inthe same strict way as a judge as it might frustrate the very purpose of Arbitration’: explain.
In this assignment we can describe the subject in three different terms Arbitation, Arbitrator and comparison of regular judgment with alternative judgment. It first attempts to identity the place of arbitration within the theoretical framework of alternative dispute resolution (ADR) by outlining the arguments that have been made regarding the possible advantages of seeking arbitrators and how they correspond with the broad theories of alternate dispute resolution. Furthermore, arbitrator is concerned about its enforceability compared to a judge regarding procedures and rules of evidence. In the area of international commercial arbitration, there are a number of leading international arbitration institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the Swiss Chambers of Commerce and Industry, the Deutsche Institution fur Schiedsgerichtsbarkeit (DIS) and others. In addition, most countries have their own commercial arbitration institutions which deal both with domestic and international arbitrations. Ultimately, from the argument, it is explained that the power of an arbitrator or panel of arbitrators is granted directly by the parties. By including contractual arbitration clauses, parties are agreeing to the resolution of their disputes through a process that consists of very simple proceedings, which are similar, but not equal to the traditional route of litigated settlements.
The legal needs of countries, multinational companies, and ordinary people have changed over the last decade. When faced with a dispute, business people are learning that, whenever possible, it is more advantageous to reach practical and private agreements than to fight for years and spend huge amounts of money in courtroom battles. Due to the vast amounts of time and money involved in the trial process, the American and Italian business communities have increasingly turned to legal alternatives that are more prompt, private and economical than the courtroom
Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal“), by whose decision (the “award“) they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.
Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where the parties agree to hold all disputes to arbitration, without knowing, specifically, what disputes will ever occur) and can be either binding or non-binding.
Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.
“Non-binding” arbitration refers to a situation where the parties agree to use arbitration as a forum to try to resolve their differences, but neither party is bound to comply with any decision by the arbitrator.
Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator (ARBITRATOR) whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. Arbitration is not the same as:
- judicial proceedings, although in some jurisdictions, court proceedings are sometimes referred as arbitrations
- alternative dispute resolution (or ADR)
- expert determination
ADVANTAGE AND DISADVANTAGES
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:
- when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot “choose the judge” in litigation)
- arbitration is often faster than litigation in court
- arbitration can be cheaper and more flexible for businesses.
- arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
- in arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied
- because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
- in most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability
Some of the disadvantages include:
- arbitration may become highly complex
- arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party
- arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees often do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
- if the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
- in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
- in some arbitration agreements and systems, the recovery of attorneys’ fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
- if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
- there are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned
- although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays
PROCEDURES IN ARBITRATION
The arbitration process is governed by the rules to which the parties refer in the agreement. In the absence of specific legal rules, the procedure will be determined by the arbitrators. The arbitration proceeding must be so conducted as to afford the parties a fair hearing on the basis of equality. 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. The technical rules of evidence do not apply to arbitrations. “See section 1, read with section 3, Indian Evidence Act, 1872? as in force in Bangladesh.
The Arbitration Act adopts the approach, that in the working of an arbitration agreement, the parties are free to lay down provisions regarding various matters of procedure. But in the absence of an agreement, the rules contained in the First Schedule to the Arbitration Act, 1940, apply.
An arbitrator can be removed for misconduct. In applying this provision courts generally follow the wide construction adopted in most commonwealth countries, so that, it is not merely misconduct involving moral turpitude that attracts this power, but also misconduct of a technical nature, for example, a breach of the rules of natural justice.
Detailed provisions exist for settling the problems that might arise where two or more arbitrators are contemplated by the arbitration agreement and a difference of opinion arises between them.
Essential of an Arbitration Agreement:
The essentials of an arbitration agreement are depicted below
- An arbitration agreement, to be valid and binding, must be in writing.
- Signatures of the parties are not necessary but it must be shown that they agreed to the settlement of disputes by arbitration.
- It is not necessary that the name of the person who will act as the arbitrator should be mentioned in the agreement.
- The agreement may be to refer present differences or possible future differences to arbitration.
- 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.
- The construction of an arbitration agreement is not to be thwarted by narrow pedantic interpretation.
What matters can be referred to Arbitration?
All disputes, which can be decided by a civil suit, can also be decided by arbitration.
Disputes about property and money; amounts of damages payable for breach of contract; maintenance payable to wife; terms of separation between husband and wife; question of law; etc.
What matters cannot be referred to arbitration?
Matters of personal rights and disputes regarding complement or dignity, which can not be decided by civil courts, can nevertheless decided by arbitration. The following matters cannot be referred to arbitration:
- Matrimonial matters like divorce restitution of conjugal rights.
- Testamentary mattes like the validity of a will.
- Insolvency matters e.g., the adjudication of a person as insolvent.
- Matters relating to the guardianship of a minor or of a lunatic or declaring a person insane.
- Criminal matters. Whether a person is guilty of an offence of not, cannot be decided by arbitration.
Who can refer Dispute to Arbitration?
The arbitration agreement is a contract. Therefore, only those persons, who are capable of entering into contracts, can refer disputes to arbitration.
The persons who can refer to arbitration are enumerated bellow:
- A minor or a lunatic cannot refer disputes to arbitration but the guardian of a minor or of a lunatic can do so on his behalf.
- In a suit proceeding, the next friend or guardian ad litem cannot enter into any compromise on behalf of a minor without the leave of the court.
- A partner can refer disputes relating to the firm to arbitration provided such power is given to him by the partnership agreement.
- An agent cannot refer disputes to arbitration unless especially authorized.
- The manager of a joint Hindu family can submit arbitration for the petition of the joint family property.
- A trustee may refer disputes of arbitration.
- Solicitors and advocates have no implied authority to submit arbitration on behalf of the clients.
RULES OF EVIDENCE
It is often said that the rules of evidence do not apply in arbitrations, and this statement, while true, is, standing alone, misleading. Rules of evidence do apply in arbitrations, they are just not as strictly applied as they would be in a court proceeding. Participants in arbitration are well advised to keep this in mind, for many arbitration participants have been surprised that rules of evidence were applied to their cases. While the application of a particular rule of evidence to a particular fact pattern will vary with the rule, the evidence, and the arbitrator, a few general observations may be in order:
- The more significant the evidence, the more likely the rules will be strictly applied;
- Double and triple hearsay are rarely admitted into evidence;
- While the rules relating to authenticity are not strictly enforced, the arbitrators will often permit an attorney to “testify” as to the source of a document, and third parties are rarely forced to appear solely to authenticate documents; and
- No arbitrator will exclude evidence based on the Best Evidence Rule.
THE ARBITRATOR AND THE COURT
One of the disadvantages of arbitration is that, Arbitrators are given tremendous latitude in their procedures and judgments and absent outrageous conduct or judgments on their part, the Courts will not review their actions. While in civil courts the judges are held to strict application of the law and the complex procedures and rules of evidence, the courts have consistently held that such strict compliance is NOT required of arbitrators who may use any and all equitable procedures or common sense and fairness to determine how to hear a matter. This gives the typical arbitrator far more power than the average judge.
On the hand, the typical arbitration hearing is far more informal than a trial. Generally, Rules of Evidence and Procedure are tremendously relaxed —another reason it often does not work. It was usually believed relaxation was a positive not a negative, but experience indicates that arbitrators often apply the Rules of Evidence arbitrarily. Ultimately, that does not benefit either party. Unlike courts, arbitration tribunals are not required to apply court-established procedural or evidentiary rules, unless the parties specifically agree otherwise or unless the arbitrator takes it upon himself to adhere to such rules. Thus, because the evidentiary rules are applied randomly, documents or testimony containing hearsay or incompetent, irrelevant or prejudicial testimony may be admitted. Supposedly, this evidence is given less weight — but once heard it is part of the “collective conscience” and reality of the arbitration panel. The evidentiary rules are important in any proceeding because they exist to protect the reliability of the decision-making. Further, the Rules of Procedure are designed to ensure fairness, prevent surprise and compel disclosure of critical information. In arbitration there is no tried-and-true consistent mechanism to keep the parties on track. Moreover, because arbitrators are not usually bound by the intricate and exhaustive legal rules governing procedural and evidentiary matters, arbitration may lack the legitimacy associated with judicial forums.
The various arbitration associations do have rules which are to be adhered to and most arbitrators are lawyers or judges and instinctively apply, albeit in more informal ways, the standard rules of procedure and evidence. Nevertheless, assuming an arbitrator is incompetent or unfair, there is little that can be done about it unless the arbitrators’ conduct is completely unreasonable. Indeed, the Courts have even held that an error of law by the arbitrator will NOT result in the court overturning the arbitrator’s decision.
Besides, Arbitrators are given tremendous latitude in their procedures and judgments and absent outrageous conduct, the courts will not review their actions. While in civil courts the judges are held to strict application of the law as well as the complex procedures and rules of evidence, such strict compliance is not required of arbitrators who may use any and all equitable procedures or common sense and fairness to determine how they will hear a matter. This gives the typical arbitrator far more power than the average judge. Once a panel is selected, the arbitration association has little control or oversight over the panel. Therefore, it is imperative that the parties carefully select the arbitrators who will hear the case. One must carefully check the potential arbitrator’s background and reputation because once chosen, arbitrators are nearly impossible to remove.
Historically methods used to settle disputes have ranged from negotiation, to courtroom litigation, and even to physical combat. Arbitration refers to the wide spectrum of legal avenues that use means other than trial to settle disputes. The main Arbitration alternatives to civil litigation are negotiation, conciliation and mediation. Other, more particular Arbitration processes available are early neutral evaluation, mini-trial, summary jury trial, and the judicial settlement conference. Disputing parties use these Arbitration methods because they are expeditious, private, and generally much less expensive than a trial. Arbitration of broker-dealer disputes has long been used as an alternative to the courts because it is a prompt and inexpensive means of resolving complicated issues.
Few businesses elect the expense of litigation if arbitration is available. Put simply, arbitration is a business like forum for resolution of business disputes and while the elaborate safeguards of the legal system are often not available, the need for prompt and private resolution of disputes seems to convince most of the businessman to elect to insert arbitration clauses in most of their contracts. Indeed, some of them consider a refusal to agree to an arbitration clause on the part of the other party negotiating a contract as sufficient cause to reconsider the entire transaction, feeling that rejection of such an efficient system of dispute resolution displays too aggressive an attitude. A successful arbitration hearing however, requires careful preparation and thought, and the process should not be taken lightly, or thought of as being insignificant or unimportant because it is not “in court.”
Arbitrators are allowed to exercise much more discretion than a judge or jury, and thus may be subject to more outside influences and bias. They often take too much personal knowledge and experience into account without fully knowing if it applies to the dispute. Arbitrators generally are not accountable to any supervisory authority. Unlike judges, arbitrators do not have to follow the law and are not required to give findings of fact and legal conclusions, unless both parties request same. Arbitrators may generally make any award that is “just and equitable.” Thus, they frequently disregard the law or contract if they believe it is appropriate to do so because of industry standards or otherwise. So, arbitrators should not apply the law in the same strict manner that a judge does that goes for procedures and evidence as well.
(Books and articles)
Business Law ( Alim al Ayub Ahmed)
AAA 2007 r.21(b).
AAA Commercial Rules r.21(c).
Arbitration, November 2011, retrieved from http://en.wikipedia.org/wiki/Arbitration.
Christian Buhring-Uhle and Gabriele Lars Kirchhof. Arbitration and Mediation in International Business, 2nd Edition (2006)
D.W. Rivkin and D.F. Donovan, Arbitration World: Jurisdictional Comparisons, United States,Evidence Gathering (London: The European Lawyer, 2006), p.403.
IBA Rules on the Taking of Evidence in International Commercial Arbitration 2007Art.3(1).
L.W. Newman and R.D. Hill, The Leading Arbitrators’ Guide to International Arbitration (Huntington: Juris Publishing, 2004), p.271.
Mark J., (2008), Overview of the Securities Arbitration Process, SECLAW.COM, available at, http://www.seclaw.com/arbover.htm.
R David. Arbitration in international trade (1985)
Snider, “The Discovery Powers of Arbitrators and Federal Courts under the Federal Arbitration Act” (1998) 35 Tort & Ins. L.J. 9.