Discuss the Arbitration principles and its applications.

Introduction

In this modern word, millions of peoples are doing business. We enter into contracts day after day. Taking a seat in a bus amounts to entering into a contract. For doing business, people always make a contract. When two parties promises each other to do something or exchange something that is contract in normal sense. But in real world the whole idea of contract is different, and there are dangers of fraud, misconceptions which can create dispute between parties. So, to do this legally and peacefully, we have laws regarding business and contracts. Contract law varies greatly from one jurisdiction to another, including differences in common law compared to civil law, the impact of received law, particularly from England in common law countries, and of law codified in regional legislation. Regarding Australian Contract Law for example, there are 40 relevant acts which impact on the interpretation of contract at the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the state of NSW. In addition there are 6 international instruments or conventions which are applicable for international dealings, such as the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention).[1]

And to put out disputes between bound parties, arbitration clauses are being included in contract, parties do not have to go to court for resolution of disputes. If disputes arise, parties will to arbitrator. It is less expensive and more flexible way to solve disputes. Parties also can set the time about how much time an arbitrator can take for solving disputes. So this system is one of the best ways for solving disputes. But if any disputes arise, parties have to certain procedure for solving this. If parties are not satisfied with verdict, they can apply within a certain time.

 Law of Contract

A contract is a legally enforceable agreement between two or more parties. The promises made by the parties define the rights and obligations of the parties. The first step in a contract question is always to make sure that a contract actually exists. There are certain elements that must be present for a legally binding contract to be in place.

A contract is formed when one party the “offeror” makes an offer which is accepted by the other party the “offeree”. So an offer is an expression of willingness to contract on a specific set of terms, made by the offeror with the intention that, if the offer is accepted, he or she will be bound by a contract.

So, a proposal is defined as “when one person signifies to another his willingness to do or to give up from doing anything, with a view to obtaining the assent of that other to such act or moderation, he is said to make a proposal.”[2] An offer is synonymous with proposal. The offeror expresses his willingness “to do” or “not to do” something with a view to obtain acceptance of the other party to such act or moderation.

Acceptance is an expression of absolute and unconditional agreement to all the terms set out in the offer. It can be oral or in writing. The acceptance must exactly mirror the original offer made.

A counter-offer is not the same as an acceptance. A counter-offer extinguishes the original offer: you can’t make a counter-offer and then decide to accept the original offer. But a request for information is not a counter-offer. If you ask the offeror for information or clarification about the offer, that doesn’t extinguish the offer; you’re still free to accept it if you want.

Contract law varies greatly from one jurisdiction to another, including differences in common law compared to civil law, the impact of received law, particularly from England in common law countries, and of law codified in regional legislation. Regarding Australian Contract Law for example, there are 40 relevant acts which impact on the interpretation of contract at the Commonwealth (Federal / national) level, and an additional 26 acts at the level of the state of NSW. In addition there are 6 international instruments or conventions which are applicable for international dealings, such as the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention)[3].

To make an agreement into a contract, the following has to happen.

– Agreement between the parties.

– Creation of responsibilities between the parties.

– Enforceability by law.

Anson, a famous jurist thus defines a contact as “An agreement enforceable by law made between two or more persons by whom rights are acquired by one or more to act or forbearance on the part of the other or others”.[4]

 

 Typical Contract Provisions

Many contracts include special types of provisions. We’ll discuss these types of provisions which are related to our topic in the next subsections.

Arbitration Clauses

An arbitration clause states that disputes arising under the contract must be settled through arbitration rather than through court litigation. Such clauses generally include the name of the organization that will conduct the arbitration (the American Arbitration Association, for example), the city in which the arbitration will be held, and the method for selecting arbitrators. Arbitration is discussed in “Arbitration” in the U.S. Legal System summary.

Termination Clauses

These clauses ensure that either or both parties have the right to terminate the contract under certain circumstances. Generally, termination clauses describe breach of contract events that trigger the right to terminate the contract (for example, nonpayment of royalties). Termination clauses also describe the methods of giving notice of exercise of the termination right, and whether the breaching party must be given an opportunity to cure the breach before the other party can terminate the contract.

  Arbitration

 “And therefore, as when there is a controversy in an account, the parties must by their own accord, set up for right Reason, the Reason of some Arbitrator…to whose sentence they will both stand, or their controversy must either come to blowes, or be undecided, for want of a right Reason constituted by Nature; so is it also in all debates of what kind soever.”- Thomas Hobbes.[5]

In Bangladesh, the law of arbitration was contained mainly in the Arbitration Act, 1940, there being separate Acts dealing with the enforcement of foreign awards.  There were also stray provisions as to arbitration, scattered in special Acts.  Three types of arbitration were contemplated by the Arbitration Act of 1940, namely (i) Arbitration in the course of a suit, (ii) Arbitration with the intervention of the court, and (iii) Arbitration otherwise than in the course of a suit and without the intervention of the court in practice; the last category attracts the maximum number of cases.[6]

Once an arbitration agreement is entered into for submitting future differences to arbitration, it is not, necessary to obtain the fresh consent of all the parties for a reference to arbitration at the time when the dispute actually arises.

Bangladesh has recently enacted the Arbitration Act 2001 (the Act). It came into force on 10 April 2001, repealing the Arbitration (Protocol and Convention) Act 1937 and the Arbitration Act 1940. The new Act was again amended in 2004 in certain respects. The Act consolidates the law relating to both domestic and international commercial arbitration. It thus creates a single and unified legal regime for arbitration in Bangladesh. The new Act is principally based on the UNCITRAL Model Law; it is a patchwork quilt as some unique provisions are derived from the Indian Arbitration and Conciliation Act 1996 and some from the English Arbitration Act 1996.

The features of the new act are:

• The preamble specifically mentions that it is “An Act to enact the law relating to international commercial arbitration, recognition and enforcement of foreign arbitral award and other arbitrations.” However, the Act is also applicable to domestic arbitration.
• In an international commercial dispute one of the parties to the dispute must be either a firm registered abroad or a foreign national.
• The dispute in question must arise out of a legal relationship, whether contractual or not, but considered as a commercial dispute under the law in force in Bangladesh.
• The parties are free to determine the number of arbitrators. If the parties fail to fix the number of arbitrators, the tribunal is to consist of three arbitrators.
• The parties may choose an arbitrator or arbitrators of any nationality and the chairman of the tribunal may be of any nationality if that is accepted by the parties.

 Here are some definitions of Arbitration given by some popular organizations and courts:

International Chamber of Commerce (ICC)

“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”[7]

 London Court of International Arbitration (LCIA)

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.

• The number of arbitrators shall be [one/three].
• The seat or legal place of the arbitration shall be [city and/or country].
• The language to be used in the arbitral proceedings shall be [language].
• The governing law of the contract shall be the substantive law of [jurisdiction].”[8]

 World Intellectual Property Organisation (WIPO) Recommended WIPO Arbitration Clause:

“Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including, without limitation, its formation, validity, binding effect, interpretation, performance, breach or termination, as well as non-contractual claims, shall be referred to and finally determined by arbitration in accordance with the WIPO Arbitration Rules. The arbitral tribunal shall consist of [three arbitrators / a sole arbitrator]. The place of arbitration shall be [city and/or country]. The language to be used in the arbitral proceedings shall be [language]. The dispute, controversy or claim shall be decided in accordance with the law of [jurisdiction].”[9]

 International Centre for Settlement of Investment Disputes (ICSID)

“The [Government]/[name of constituent subdivision or agency] of [name of Contracting State] (hereinafter the ‘Host State’) and [name of investor] (hereinafter the “Investor”) hereby consent to submit to the International Centre for Settlement of Investment Disputes (hereinafter the ’Centre’) any dispute arising out of or relating to this agreement for settlement by [conciliation]/[arbitration]/ [conciliation followed, if the dispute remains unresolved within [time limit] of the communication of the report of the Conciliation Commission to the parties, by arbitration] pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (hereinafter the ’Convention’).”[10]

 Arbitration principles and its applications

 Efficient arbitration entails a balance between two competing considerations, finality and fairness.[11] At one end of the spectrum, finality is esteemed as one of the cornerstones of arbitration. One of the distinct advantages of arbitration is that it seeks to deliver the final determination of a dispute between parties by requiring that the award is ‘final and binding’. As Professors Alan Redfern and Martin Hunter said, “By choosing arbitration, the parties choose, in principle, finality.”[12] Absent a contractual agreement to the contrary, a final arbitral award which disposes of all matters referred to arbitration, cannot be substantively reviewed save on limited grounds.  At the other end is the rival consideration of fairness, which calls for some latitude of judicial scrutiny over uncanny decisions rendered by arbitrators.

The tension between these two considerations manifests itself in the scope and extent of post-final award relief in international commercial arbitration. Once an arbitral tribunal issues its award, dissatisfied party has limited avenues of redress against the final award. First, in many jurisdictions there are arbitration laws and institutional arbitral rules which enable a party to correct or clarify the award. Second, dissatisfied party can initiate judicial proceedings before national courts at the seat of the arbitration (or lex arbitri) within a specified time-frame to ‘challenge’ or ‘set aside’ the award. Third, the losing party can wait until the successful party starts enforcement proceedings before a national court in order to resist enforcement. This paper addresses the first avenue of redress only, where the defeated party seeks to clarify or correct errors in the arbitral award.

In practical terms, correction requests are common and have increased over the past few years for a number of reasons. First, cases submitted to arbitrators are increasingly complex; accordingly there is more room for error in the operative part, or dispositif, of the arbitral award. Second, requests for interpretation have risen due to the growing acceptance of the United Nations Commission on International Trade Law (UNCITRAL) Model Law (“ML”) and Arbitration Rules.[13] Third, mistakes made by arbitrators are often beyond the scope of the correction mechanism and do not satisfy grounds for annulment because the mistake is regarded as not sufficiently serious to warrant a violation of due process or of public policy. As a result, these requests for correction oftentimes edge on reassessment. Whilst aggrieved parties are often tempted to use this form of relief as a pretense to review the merits of an award, it should be stressed that the correction and interpretation mechanisms should be used to remedy inaccuracies or ambiguities in the text of the award and nothing more.[14]

Arbitration clauses are contractual in nature and parties typically make an informed decision as to whether or not they should include such a clause in a construction contract. Therefore, as a matter of equity it seems appropriate that a party to a contract with an arbitration clause should be entitled to enforce that clause provided that they have followed the contract terms. The Aberdeen and Auchter[15] cases are important decisions based on the fact that they involved the AIA form documents which are so prevalent in the construction industry today. However, these cases also highlight the practical importance of carefully complying with the terms of a contract especially when it comes to procedures concerning resolution of claims and termination.[16]

 Conduct of the arbitration

ü      Nomination of arbitrators shall be by the Institute.

ü      Nothing in these Rules shall prevent the parties to a dispute from agreeing on an arbitrator or arbitrators of their choice.

ü      If a dispute or difference arises of a kind covered by the submission to arbitrate in the Agreement, any party to the dispute and the Agreement may give written notice thereof to the other party or parties to the dispute and the Agreement.

ü      The notice (hereafter referred to as the Notice of Dispute) shall be served at the address for such party or parties specified in the Agreement. Unless otherwise provided in the Agreement, service may be affected personally, by mail, or by facsimile or other means of telecommunication or electronic transmission.

ü      The parties undertake to comply with any order made by the arbitral tribunal.

 Conclusion

There has been a lot of case regarding the arbitration clause and the use of the clause to find remedies in case of disputes of the contract. The judgment in the Fiona Trust v Yuri Privalov[17] case is a further important affirmation that an arbitration clause is a separate contract which survives the termination of the main contract. The Court of Appeal ruled that if a contract is said to be invalid for reasons such as bribery, unless that bribery relates specifically to the arbitration clause, the arbitration clause survives and the validity of the contract as a whole is to be determined by an arbitrator and not by the court. Also in Harbour v Kansa case, the Court of Appeal said “Once it became accepted that the arbitration clause is a separate agreement, ancillary to the contract, the logical impediment to referring an issue of the invalidity of the contract to arbitration disappears. Provided that the arbitration clause itself is not directly impeached (e.g. by a non est factum plea), the arbitration agreement is as a matter of principled legal theory capable of surviving the invalidity of the contract.”[18] So, through the research I found that “A contract bearing ‘arbitration clause’ binds the parties to arbitrate with each other in case of any dispute out of the contract and no party can seek remedy without exhausting the Arbitration Procedure embedded in the contract” this statement is true for the moment in the light of law of contract.

 References

1. Willmott, L, Christensen, S, Butler, D, & Dixon, B 2009 Contract Law, Third Edition, Oxford University Press, North Melbourne.
2. Gulshan, S.S,( April 30, 2009),”Business Law Including Company Law”, New Age International Pvt Ltd Publishers.
3. Willmott, L, Christensen, S, Butler, D, & Dixon, B 2009 Contract Law, Third Edition, Oxford University Press, North Melbourne
4. Odiwuor Kelly – B.Com (Acc. & Aud. Option), L.L.B (Crim., Ban. & Ins. Option), Dip-Law (KSL) Advocate/Lecturer – 0721 438511 / 0736 504008
5. T. Hobbes, Leviathan (Oxford University Press, 1909) p.33.
6. http://www.vakilno1.com/saarclaw/bangladesh/arbitrationlaw/arbitration_law_in_bangladesh.htm
7. http://cmsarbitration.com/wiki/index.php?title=Appendix_1_%E2%80%93_Sample_Arbitration_Clauses
8. W.W. Park, “Why Courts Review Arbitral Awards” 16(11) Mealey’s International Arbitration Report (2001) 27
9. N. Blackaby, C. Partasides, et. al. Redfern and Hunter on International Arbitration (Oxford University Press, 2009) p.588.
10. L.O. Baptista, Correction and Clarification of Arbitral Awards. Paper presented at the ICCA Congress – Rio de JaneiroConference (2010, May). Retrieved from <http://www.josemigueljudice-arbitration.com/en/arbitration-texts/?aID=139>.
11. Blackaby/Partasides, note 3 supra, p.590.
12. Auchter Company v. Zagloul, 949 So. 2d 1189 (Fla. 1st DCA 2007)
13. http://www.lorman.com/newsletter/article.php?article_id=1000&newsletter_id=218&category_id=3&topic=CN
14. Fiona Trust & Holding Corporation & Others v Yuri Privalov & Others [2007] EWCA Civ 20 (24 January 2007).
15. Harbour v Kansa at first instance [1992] 1 Lloyds Rep 81, Steyn J, in a passage (at page 92)
16. B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz (Berne, 2006)
17. N. Blackaby, C. Partasides, et. al. Redfern and Hunter on International Arbitration (Oxford University Press, 2009).
18. G.B. Born, International Commercial Arbitration (Kluwer Law International, 2009).
19. P. Fouchard, E. Gaillard, B. Goldman, On International Commercial Arbitration (Kluwer Law International, 1999).
20. F. Knoepfler and P. Schweizer, Arbitrage international—Jurisprudence Suisse commentée depuis l’entrée en vigueur de la LDIP (Schulthess, 2003).
21. C. Liebscher, The Healthy Award: Challenge in International Arbitration (Kluwer Law International, 2003).
22. M. Mustill and S. Boyd, Commercial Arbitration 2^nd ed.(Butterworths, 2001).
23. J.-F. Poudret and S. Besson, Comparative Law of International Arbitration (Sweet & Maxwell, 2007).