When if ever, should a court have power to decide that, the despite the agreement to arbitrate, dispute should not be arbitrated?

   1: INTRODUCTION

 1.1: Importance of arbitration:

Commercial arbitration has undergone a remarkable transformation as rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. At the same time, however, the rate of industrial growth, modernization, and improvement of socio-economic circumstances has, in many instances, outpaced the rate of growth of dispute resolution mechanisms. Rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication of commercial disputes[1].

Arbitration is designed for just such occasions, in that it can be designed for quick, practical and efficient resolution. Unlike a judicial process, arbitration is conducted outside the court system by impartial arbitrators who are selected by the parties based on criteria that best fits the nature of the contract. Arbitration is usually conducted by either one arbitrator or a panel of three arbitrators with the structure, format, site and scope of arbitration all decided by the parties and memorialized in the arbitration clause of their contract. The parties usually negotiate the arbitration clause at the same time they develop the initial contract. A properly structured provision will help establish a framework for expeditious resolution of contract disputes.[2]

 Arbitration allows the parties greater flexibility than a court proceeding. Parties can decide to have abbreviated time periods in which to respond to claims, where the arbitration will be conducted, how formal the process will be, or whether to involve lawyers in the arbitration

 In this paper, the court power to reject arbitration agreement as per provisions under arbitration law and practice in Indian sub-continent as well as allover the world has been explored.

 The Article proceeds as follows: Chapter 1 of this paper lays out the some key concepts related to arbitration.  Chapter 2 provides a brief discussion of arbitration law in Indian sub-continent, English law and American law and other issues related to arbitration agreement. Chapter 3 explores the court cases, judgements, examples / legal footing regarding uses of court power to reject arbitration agreement. Finally, in Chapter 4 in the Article offers conclusion.

1.2: Some key concepts related to issue to be addressed

Arbitration is a way for parties to resolve disputes outside of the court system, and without going to trial. Nearly any type of dispute can be arbitrated, from commercial and employment disputes to automobile injury and Internet domain name disputes– and almost anything in between.[3]

Arbitration ,is a  process in which a disagreement between two or more parties is resolved by impartial individuals, called arbitrators, in order to avoid costly and lengthy litigation.[4] Arbitration can be either voluntary or mandatory and can be either binding or non-binding.

 Why Arbitrate[5]

Voluntary or by Prior Agreement

Low Cost

Reach a Faster Conclusions

Why Arbitrate?

More Private than Litigation

Better Control over Outcome

Lower Stress & Pressure on Parties

More Creative Solutions and Settlements

Friendlier Than Litigation

Advantages of Arbitration over Litigation:[6]

i) Impartiality of Decision Maker, ii) Enforceability of Arbitral Awards, iii) Confidentiality,

iv) Expertise, v) Limited Discovery, vi) Expense, vii) Brevity &viii) Relationships

The Agreement to Arbitrate is an agreement amongst parties where each has consented in writing to submit all or certain disputes to arbitration that have arisen or may arise in the future between/ or among them. Dealing with the requirement of “writing”, the Legislation has extended the definition in order to take account of modern technological advances. The written requirement is met if the agreement is included in an exchange of letters, telexes, telegrams, or other means of telecommunication. It is not necessary that all the terms of the agreement should be contained in one document. Such terms may be ascertained from the correspondence consisting of number of letters[7].

 Arbitration agreements are formed at one of two points in time: during the negotiation of a contract, or after a legal dispute arises. Because the contract negotiation process offers greater opportunity to develop an arbitration format without the acrimony that can develop after a controversy arises, inclusion of an arbitration agreement as a clause in a contract is preferable and can streamline the dispute resolution process. The arbitration agreement is generally incorporated into the contract governing the transaction.

02: BRIEF HISTORY OF ARBITRATION LAWS

2.1: Arbitration Law in Bangladesh[8]

Bangladesh has repealed both the Arbitration (Protocol and Convention) Act of 1937 and the Arbitration Act of 1940, and has enacted a new arbitration law, “The Arbitration Act, 2001,” (the Act) principally based on the United Nations Commission on International Trade Law (UNCITRAL)  Model Law in International Commercial Arbitration (1985). The new arbitration law consolidates the domestic and international arbitration regime in Bangladesh.

 The Act provides that an arbitral tribunal may rule on its own jurisdiction, unless otherwise agreed by the parties in terms of the following questions: (a) whether there is a valid arbitration agreement; (b) whether the arbitral tribunal is properly constituted; (c) whether the arbitration agreement is against public policy; (d) whether the arbitration agreement is capable of being performed, and (e) what matters have been submitted to arbitration in accordance with the arbitration agreement.

Chapter VI, entitled “Conduct of the Proceedings,” provides in Article 24 that the arbitral tribunal shall not be bound by the Code of Civil procedure and the Evidence Act of Bangladesh, and that the arbitral tribunal shall follow the procedure to be agreed on by the parties. In terms of setting aside arbitration awards, Chapter VIII of the Act, entitled “Recourse against arbitral awards” is similar to Chapter VII, Article 34 of the UNCITRAL Model Rules[9].

 2.2: The Applicable Arbitration Law in India

Arbitration has a long history in India. In ancient times, people often voluntarily submitted their disputes to a group of wise men of a community called the ‘panchayat’ for a binding resolution[10].The Indian Arbitration and Conciliation Act 1996 the governing arbitration statute in India. It is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. Previous statutory provisions on arbitration were contained in three different enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration and Conciliation Act, 1996 has repealed the Arbitration Act, 1940 and also the Acts of 1937 and 1961[11].

2.3: Arbitration Law in USA[12]

In 1925, Congress passed the Federal Arbitration Act (FAA), which directed courts to uphold predispute arbitration clauses and provided only narrow grounds for judicial review of the resulting awards.[13]

2.4: International Conventions on Arbitration[14]

(01) The United Nations Commission on International Trade Law (UNCITRAL) was established by the United Nations General Assembly by its Resolution 2205 (XXI) of 17 December 1966 “to promote the progressive harmonization and unification of international trade law”.

Model laws

A model law is a legislative text that is recommended to States for enactment as part of their national law. Model laws are generally finalized and adapted by UNCITRAL, at its annual session, while conventions requires the convening of a diplomatic conference.

• UNCITRAL Model Law on International Commercial Arbitration (1985) (text)
• Model Law on International Credit Transfers (1992)
• UNCITRAL Model Law on Procurement of Goods, Construction and Services (1994)
• UNCITRAL Model Law on Electronic Commerce (1996)
• Model Law on Cross-border Insolvency (1997)
• UNCITRAL Model Law on Electronic Signatures (2001)
• UNCITRAL Model Law on International Commercial Conciliation (2002)
• Model Legislative Provisions on Privately Financed Infrastructure Projects (2003)

 (02)  The ICC (International Chamber of Commerce) Rules of Arbitration:

 “All disputes arising in connection with the present contract shall be finally settled under the Rules of [Conciliation and] Arbitration at the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.” Parties should also designate the place of arbitration in the clause, otherwise, the ICC will choose.”

(03). NAFTA Advisory Committee on Private Commercial Disputes:

“Any dispute, controversy or claim arising out of, relating to, or in connection with, this contract, or the breach, termination or validity thereof, shall be finally settled by arbitration. The arbitration shall be conducted in accordance with [identify rules] in effect at the time of the arbitration except as they may be modified herein or by mutual agreement of the parties. The seat of the arbitration shall be [city, country], and it shall be conducted in the [specify] language. The arbitration shall be conducted by [one or three] arbitrators, who shall be selected in accordance with [the rules selected above].”

(04) The Geneva Protocol on Arbitration Clauses of 1923

(05) The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927;

(06) The New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and ratified it on 13th July, 1961

2.5: International Arbitration Institutes

A. American Arbitration Association (AAA)

B. Commercial Arbitration and Mediation Center for the Americas (CAMCA)

C. International Chamber of Commerce (ICC) Court of Arbitration

D. Inter-American Commercial Arbitration Commission (IACAC)

E. London Court of International Arbitration (LCIA)

F. International Center for the Resolution of Intellectual Property Disputes (WIPO Arbitration Center)

G. The ICSID Convention (Disputes between Foreign Investors and host Governments)

CHAPTER-03: ARBITRATION AGREEMENT: A CRITICAL REVIEW

3.1:  Significant differences between the governing law and The Model Law

The Arbitration Act, 2001 in Bangladesh is based on the UNCITRAL Model Law. However, on certain aspects the provisions of the 2001 Act differ and some of the major differences can be stated thus:

ÿ       Section 11 of the 2001 Arbitration Act deals with the number of Arbitrators and mandates that, unless otherwise agreed between the parties, the number shall not be even[15].

ÿ       The Model Law permits the parties to approach a Court or Authority for appointment of a third Arbitrator or Sole Arbitrator as the case may be, in cases where the parties fail to reach an agreement. Under the Arbitration Act 2001, this power in the case of the domestic arbitration is vested with the District Judge and in case of international commercial arbitration this power is given to the Chief Justice or any Judge of the Supreme Court designated by him.

3.2: Matters that are Dealt with by the Arbitration Act 2001 and The Model Law (UNCITRAL) is silent as under[16]:

• Award of interest by the arbitral tribunal {section 38(6)}[17]
• Costs of arbitration {section 38(7)}[18].
• Enforceability of an award in the same manner as if it were a decree of a Court under section 44 in situations where the award is not challenged within the prescribed period or the challenge has been unsuccessful.
• Appeals in respect of certain matters (section 48)[19].
• Fixing the amount of deposit as an advance for the cost of arbitration (section 49).
• Non-discharge of arbitration agreement by death of a party, (section 51).
• Rights of a party to an arbitration agreement in relation to insolvency proceedings (section 52).
• Identification of Court having exclusive jurisdiction over the arbitral proceedings (section 53).
• Applicability of the Limitation Act, 1908 to arbitrations as it applies to proceedings in Court and related issues.

3.3:  Jurisdiction

As per provision under section 54 of the Arbitration Act, 2001, nothing of this Act shall apply to the Industrial Relations Ordinance, 1969 or to under any other law making special provisions for arbitration. The Arbitration (Protocol and Convention) Act, 1937 and the Arbitration Act, 1940 have been repealed by section 59(1) of the Arbitration Act, 2001. The saving clause provides that the repealed enactments shall be applied in relation to the proceedings which commenced before the Act came into force.

 Section 10(1) of the Arbitration Act, 2001, makes it obligatory on the part of the judicial authority to refer the parties to arbitration if action brought before it is a matter which is covered by the arbitration agreement, provided such request is made not later than submitting to the Court the first statement on the substance of the dispute.

Pursuant to section 10(2) of the Arbitration Act, 2001, the Court, if it is satisfied that an arbitration agreement exists, refers the parties to arbitration and stays the proceedings, unless it finds that the arbitration agreement is void, inoperative or incapable of determination by arbitration[20].

 Decisions under the old Arbitration Act, 1940 would have a bearing on this issue. Under the old Act a Court decided on the facts of each case whether sufficient cause had been made out or not for the dispute to be referred to arbitration and in doing so, the Court was not limited to the kind of causes referred to in the Arbitration Act. When the dispute required investigation into the charge of fraud the court could have refused to refer the matter to arbitration. When the dispute between the parties raised difficult and complicated question of law which required a decision by the court, it could have refused to refer the dispute to arbitration. The Court also considered the conduct of the applicant and considered whether such conduct was sufficient cause for not making the reference. Moreover, undue delay could be sufficient cause for not ordering the reference.

Section 20 of the Arbitration Act, 2001 states that the High Court Division may, on the application of any of the parties to the arbitration agreement, after serving notice upon all other parties, determine any question as to jurisdiction of the arbitral tribunal if it is satisfied that the determination of the question is likely to save substantial cost, the application was submitted without any delay and there is good reason why the matter should be decided by the Court.

3.4: Selection of Arbitral Tribunal

If the parties fail to select arbitrators, section 12 of the Arbitration Act, 2001 sets out the default procedure for such selection and states that the District Judge in case of arbitration other than international commercial arbitration and Chief Justice or a Judge of the Supreme Court designated by the Chief Justice in case of international commercial arbitration would select arbitrators[21]. In order to invoke section 12, either party may apply to the Court for appointment of an arbitrator.

3.5: The Court’s power to intervene Arbitration Agreement

• Appeal against the decision of arbitral tribunal challenging arbitrator (section 14(4)) of the Arbitration Act, 2001.
• Power to decide on termination of mandate of the arbitrator in the event of his inability to perform his functions or failing to act without undue delay (section 15(2)) of the Arbitration Act, 2001.
• Powers of High Court Division in deciding jurisdiction (section 20) of the Arbitration Act, 2001.
• Power to enforce interim measures taken by arbitral tribunal (section 21(4)) of the Arbitration Act, 2001.
• Power to issue summons upon the application of the arbitral tribunal (section 33) of the Arbitration Act, 2001.
• Power to direct determination of any question in connection with insolvency proceeding by arbitration under certain circumstances (section 52) of the Arbitration Act, 2001.
  

Under the old Arbitration Act, 1940, the Court had wide powers to grant interim relief. Though these provisions have been omitted, it can be reasonably anticipated that the Court may grant some interim relief in aid of the arbitration proceedings.

 The only limit to the scope of the arbitrator’s authority with respect to ordering the disclosure of documents is set out in section 33(2) of the Arbitration Act, 2001 which states that a person shall not be compelled under any summons to produce any document or material which that person could not be compelled to produce at the trial in an action before the Court[22].

 Section 38 of  the Arbitration Act, 2001 sets out the requirements relating to the form and content of an arbitral award and requires the award to be written and to contain the signatures of the majority of the members of the arbitral tribunal along with a valid reason for any omitted signature. The Act does not require reasons to be given by the arbitral tribunal if the parties have agreed that no reasons are to be given or the award is an arbitral award on agreed terms {Section 38(3) } of the Arbitration Act, 2001.

 The arbitral award may include interest in the sum for which the award is made at such rate as the tribunal deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. Subject to what is specified in the award, interest on the sum directed to be paid by the arbitral award at the rate of 2% per annum more than the current Bangladesh Bank rate is payable for the period between the date of award and the date of payment[23].

3.6: Arbitral Discretion to Ignore the Law as a Prospective Waiver

Courts frequently grapple with questions as to what constitutes a “waiver” of the right to sue. Courts have considered, for example, whether arbitration agreements placing burdensome costs on plaintiffs are void by virtue of the contract’s power to inhibit plaintiffs from pursuing their legal rights.[24] In another line of cases, courts have evaluated whether choice-of-forum and choice-of-law clauses amount to impermissible, prospective waivers of U.S. law.[25] This Section approaches waivers from a different perspective—as the product of added uncertainty over whether and to what extent disputes will be  resolved under established rules of law.

3.7:  Reading the Contract to Avoid an Unenforceable Waiver

 In the vast run of cases, of course, the arbitration agreement is silent regarding the arbitrator’s duty to apply substantive law.[26]Contract law is well equipped to grapple with this situation, however. The law recognizes that contracting parties may fail to address a contingency for any number of reasons, and courts are prepared to imply a term, at times to advance the interests of “society in general.”[27] Likewise, courts faced with contractual vagueness or ambiguity presumes that the contracting parties meant to execute a legally enforceable agreement. This canon of interpretation aims to give effect to the parties’ actual intentions.[28]

 3.8:  Some Court Decisions in Abroad

(01)  New Jersey Appellate Court Issues Broad Opinion Refusing to Enforce Arbitration Agreement against Discrimination Claim[29].

 (02)   U.S. Supreme Court decides that courts must determine whether a dispute is arbitrable, unless that in the arbitration agreement the parties have agreed to submit that question to arbitration. Courts should apply ordinary principles of law.  First Options vs. MK Investments, 115 S.Ct. 1920 (1995). {N/R}[30]

(03)   Illinois Supreme Court concludes that a ban on class actions in an arbitration clause is unconscionable and unenforceable. Kinkel v. Cingular Wireless, #, 2006 Ill. Lexis 1639, 2006 WL 2828664 (Ill. 2006); also see Kristian v. Comcast, #04-2619, 446 F.3d 25 (1st Cir. 2006). [N/R]

  04: CONCLUSION

4.1: Observations from court decisions:

(01) Courts refusing to enforce Arbitration   Agreement against Discrimination Claim.

(02) Courts have to review the substance of arbitral awards. Courts and commentators have grown particularly concerned that certain “public law” rights will not be handled properly in private arbitration, to the detriment of the arbitrating parties and the public at large.

(03) In determining the validity of an agreement to arbitrate, courts apply state-law principles governing the contracts.

(04) Some judgements illustrate the importance of careful drafting of arbitration agreements.

4.2: Conclusion

Arbitration in Bangladesh is still evolving. The Arbitration Act, 1940, dealt with only domestic arbitration. Arbitration is generally considered cheaper over traditional litigation and is one of the reasons for parties to resort to it. However, arbitration in Bangladesh is becoming quite expensive vis-à-vis traditional litigation. The enforcement of arbitral accolade was discovered to be slow and cumbersome. An accolade could only be enforced after getting an alignment from the District Court and that was a slow and much challenged process. There was furthermore substantial question if it was likely to enforce arbitral accolades regardless of the detail that Bangladesh acceded in 1992 to the New York Convention, 1958. Generally the court is compelled to mention parties to arbitration where an arbitration affirmation exists[31].

In Bangladesh, the Arbitration Act 2001, conduct judicial proceedings under the regulation pertaining to arbitration utilized to be ruled by the Arbitration Act, 1940. Many provisions of the Arbitration Act, 1940 were anachronistic vis-à-vis the up to date nationwide arbitration regulations which are discovered all through the world. 1940 encompassed comprehensive function of the enclosures in the method of arbitration, its supervision and enforcement of arbitral awards.

The enforcement of arbitral accolade was discovered to be slow and cumbersome. An accolade could only be enforced after getting an alignment from the District Court and that was a slow and much challenged process. There was furthermore substantial question if it was likely to enforce arbitral accolades regardless of the detail that Bangladesh acceded in 1992 to the New York Convention, 1958.

In general, the court is compelled to mention parties to arbitration where an arbitration affirmation exists. No judicial administration is commonly to discover any lawful proceedings filed by one party to the arbitration affirmation contrary to the other till the arbitration method is tired and that hearing will be finished in a kind prescribed by this Act.

APPENDIX-A

 Bibliography:

(01)  Anthony, Ragozino (2005); Domesticating the United States’ Securities Laws: The Ninth   Circuit Joins the Majority in Enforcing Forum Selection and Choice of Law Clauses

(02)  Arthur, L. Corbin (1998); Cobin on Contracts § 24.22, at 235–38 (Joseph M. Perillo ed., 1998): 24.22, at 235–38 (Joseph M. Perillo ed., 1998)

(03)   Hossain, M. Kawsar (2011); The Arbitration Act, 2001, 1^st Edition, Mahit Publication, Dhaka

(04)   Islam, M. Zahurul (2006); The Arbitration Act, 1^st Edition, New Warsi Book Corporation, Dhaka

(05) Mia, S. Rahman (20i10); The Arbitration Act,4th Edition, Bangladesh Law Book Corporation, Dhaka

(06)   Jennifer L. Peresie, Case Note, Reducing the Presumption of Arbitrability, 22 YALEL

         & POL’Y REV. 453, 455–60 (2004)

(07)   www.rtiindia.org

(08)   ww.osec.doc.gov/ogc/occic/arb-98.html

(09)   www.pearsonschool.com/index.cfm?

(10)   www.investorwords.com/249/arbitration.html#ixzz1joZ8E7x7

(11)   www.arbitrationanswers.com/home/Arbitrationincontracts.aspx

(12)   www.gibbonslaw.com/news_publications/articles.php?action=displaypublication

(13)  file:///C:/Documents%20and%20Settings/Administrator/Desktop/ARBI-Bangladesh.htm

(14)  http://en.wikipedia.org/wiki/Alternative_dispute_resolution

(15)  http://www.iccindia.org.

(16)   www.morganlewis.com/pubs/618155B1-D9CB-4430

(17)  http://madaan.com/arbitration.html

(18)  www.supremecourt.gov.pk/ijc/Articles/7/4.pdf

(19)  http://findarticles.com/p/articles/mi_m3495/is_11_48/ai_111170592

(20)  www.aele.org/law/Digests/empl12.html

(21)   http://en.wikipedia.org/wiki/Alternative_dispute_resolution

(22)   http://legalsutra.org/212/adr-arbitration-clause-%E2%80%93-separability-and-law-applicable

(23)   http://www.charteredcounsel.co.in/Default.aspx

(24)  http://www.lawyersnjurists.com/resource/articles-and-assignment/when-ever-court-power-decide that-agreement-arbitrate-dispute-arbitrated/

 Bibliography……………………………………………………………………….                    14