Arbitration as a Mechanism of Resolving Global Business-Related Disputes - Essay Example

Student's Name: Course Name and Number: Instructor's Name: Date Submitted: (Word count: 4801) Question 1 In the past three decades, arbitration has become the main means of resolving business-related disputes throughout the world. The main reason why arbitration has become popular in the recent past is because of its impartiality, flexibility, enforceability and irrevocability. This essay analyzes arbitration as a mechanism of resolving global business-related disputes. The essay discuses arbitration procedure and the relationship between arbitration, terms of agreement and the legislation of the jurisdiction. The discussion gets evidential support from the different Rules and Bodies that govern the arbitration procedure. International Online Training Program on Intractable Conflict (1998) defines arbitration as the process of through which conflicting parties resolve their difference of opinion. The two parties in dispute present their case to an intermediary who is a third party. The intermediary may be a panel or a single person who examines the available evidence and makes a binding decision that the parties have to respect. The two different parties present their case in the arbitration as adversaries. Each party tries to prove how right they are and how wrong the opponents are. The parties do not cooperate, and mostly the third party’s duty is to attest one side right and the other erroneous. If there is a way that both parties could benefit though, the mediator usually recommends it. Arbitration lacks the formality of the court proceedings. In any arbitration, the rules may alter to meet the different party’s needs (Dugan et al., 2005). According to Mazirow (2008) the merits of the process include the following; the cases have a speedier conflict resolution. Also, the process sis relatively cheaper compared to other ways of solving disputes. The procedures maintain all the confidentiality possible due to the absence of public records. The system does not expose the defence, to punitive damages, unlike court process. Also, the arbitration process is advantageous in that, the parties are able to control the rules they wish to follow and to make convenient choices. Issues like choice of language, location of hearing, rules to follow and the arbitrators. The procedures of arbitrations are also extremely informal with issues concentrating on the parties in question and not so much on formalities (Thomson/Sweet & Maxwell, 2010). Terms of agreement Terms are the rules establish the disposition and scope of an agreement. They are the conditions needed for agreement (Webster's dictionary 2002). An agreement a contract properly implemented. The agreement legally binds the parties concern. The terms of the agreement are particularly important in the arbitration procedures because they are the common ground of the two conflicting parties. The terms of the agreements are what bring them together and, therefore, make it possible for the third party to have a basis for judgement. The rules to conduct arbitration The rules to conduct arbitration vary across the different arbitration bodies that the parties in dispute choose to engage in the resolution. The rules of the arbitration should be flexible depending on the agreements between the two parties and the situations surrounding the conflict. Some of the bodies dealing with international arbitration include; the ICC rules of 2012, ACICA rules, HKIAC administered arbitration rules the CIETAC rules of 2011, the ICDR rules, the CEAG rules 2010 and the UNCITRAl Arbitration among others. The rules provide provisions for Commencing the Arbitration and explain how one would request for Arbitration. It gives guidelines for the answer to the arbitration request and the counterclaims. The rules clearly give provision on how to deal with multiple parties, multi contracts, and the parties involved. They guide the arbitrators on how to form, challenge or replace a tribunal. It gives the jurisdiction of the governing body and the tribunal. Also, these rules help determine where, when and how the hearing of the disputes will take place. The rules also guide on the costs and awards of the procedure. The parties have the mandate to choose rules that they wish to follow as per their convenience (Information institute, 1992). Legislation of the jurisdiction According to the Webster’s Dictionary (2012), legislation relates to the use of power as well as creating set of laws that are enforceable. Jurisdiction is usually placed where both the substantive and procedural law intersects. Thus, it plays a crucial role of providing meaning to a law. According to researchers, it is imperative to know how the three elements that is; terms of agreement between the parties, rules under which they have chosen to conduct their arbitration and the legislation of the jurisdiction they have chosen, interact. Resolution agreement It is the legal agreement that the two parties make. It contains the method that they wish to use and the schedule for solving the conflict between them. The two parties decide on the rules that they wish to follow in the resolution of the conflict. In order to ascertain the evidentiary as well as other rules that administer the arbitration process, the arbitrators make their own set of rules on an adhoc basis. The arbitrators usually refer to the already the existing arbitration procedures like the International Chamber of Commerce (ICC) rule of 2012.Other bodies that administer the Arbitration rules include the honk Kong International Arbitration Centre HKIAC that administers Arbitration rules and the China International Economic and Trade Arbitration Commission (CIETAC) rules of 2011. The ICDR rules, the Community Environmental Advisory Group (CEAG) rules 2010 and finally the United Nations Commission on International Trade Law (UNCITRAL) Arbitration rules 2010 also act as terms of reference for the arbitrators. In each of these governing bodies, there is a provision which ensures that the parties are content using the rules that they administer. For example, Section I article two clearly states that the parties have to agree in writing that their dispute should refer to the ACICA Arbitration Rules and that the disputes solutions should be accordant to the rules. The provision also acknowledges that the parties may modify the rules prior to the arbitration. Arbitration and ADR Rules also have the same provision. Article 6 of the ICC Arbitration and ADR rules state that when the parties agree to submit to their rules they are to submit to ipso fact to rule on the commencement date. The provision, however, allows the rule to commence on the date of their agreement if they had earlier agreed to it. Article 6.2 binds the parties to the agreement that in accepting the arbitration they accept to have it administered by the court. The IBA rules on the Taking of Evidence in International Arbitration also have a provision for the same. The law states that the parties in the dispute or the tribunal itself may decide to follow the rules fully or partly. The rules allow for the tribunal and the parties to vary the rules to suit their convenience. The rules may just be a guideline to enable the parties and the tribunal to develop their own procedures. The IBA rules do not intend to limit the users. In fact, their main aim is to give all the possible flexibility for the optimum function of the dispute resolution process. The parties actually have the freedom to adopt the rules according to the situation. Article 1 of the International Bar Association rules gives the scope of application. The article states that if the parties decide to use the International Bar Association Rules of Evidence or in case the tribunal decides than it shall be so. The article gives fro provisions of exceptions when the provisions of the rules are in conflict with other laws that are incorporated. According to the article then the other law prevails. Article 1 section 2 states that when the parties have consented to apply the IBA Rules of Evidence, the agreement is on the use of the version as of the agreement date. Section 3 provides for the application of IBA Rules of Evidence in case there is conflict between the IBA rules and the general rules. The section directs that the process should ensure that it accomplishes the purpose of both rules unless the parties decide otherwise. The article mandates the tribunal to interpret the rules in the context. The different bodies all have their own provisions for the scope of application. Some rules cover provisions for everything, yet some are specific. Most of the time in solving disputes; the parties may have to rely on more than one of the rules. Jurisdiction The procedure of getting resolutions through the international attributions heavily lies on the legislation of the jurisdiction in which they have chosen to arbitrate. After deciding on the rules under which they conduct their arbitration, which have a heavy influence of the terms of agreement both before and after the conflict, the parties also have a chance to choose the legislature of the jurisdiction. All the elements interact at every stage of the arbitration process. Article four of Section I of the ACICA rules that deal with the Notice of the arbitration stress that among other things; the notice shall include a reference of the contract that relates to the dispute. This same introductory clause is in all the other rules in different words. This proves that the first point of consideration is the agreement between the disputing parties. The two parties in some cases also have jurisdiction in the composition of the tribunal. Article 8 of section II of The ACICA Rules give the parties involved provision to agree on the number of arbitrators. The ACICA only decides on the number of the arbitrators if the parties fail to decide or agree on the number. Article 9 of the same section also gives the parties the mandate to propose an arbitrator of their choice in case of a sole arbitrator. Article 10 deals with the case of three arbitrators where each party has the opportunity to choose one arbitrator. Proceedings The ACICA Arbitration Rules incorporating the Emergency Arbitrator (2011) section III gives the general provisions for an arbitral proceeding. The first provision allows the tribunal to conduct the arbitration as they see fit. The condition to follow is to treat both parties equally and to make sure that they both have an equal opportunity to present their cases fully. The second provision incorporates the rules and the decisions of the two parties. The provision governing arbitration allows the parties to request the tribunal to hold the hearings in the presence of a witness including expert witnesses. Section III also allows the parties to decide and agree in writing if they wish to have the hearings in private. The matters of the arbitration are confidential to the parties and the mediator according to the provision. However, there is provision for either parties to disclose the information after notifying the other party, the tribunal and ACICA. The parties have the jurisdiction to decide on the seat of the proceedings. The ACICA, article 19 of section III declare that the location of the settlement shall be in Sydney only when the parties have not previously agreed on the seat. Concerning the Language of the hearing, article 20 of the ACICA rules clearly states that the language of choice is subject to the parties’ agreement. The ICC rules also have similar provisions. According to the ICC even when the two parties do not agree, the language of choice by the tribunal is by the original contract between the two contradicting parties. The legislative jurisdiction control by the parties is also clear in the amendment and defence clause. This clause in the ACICA rules, section III article 23 allows the parties to amend or supplement changes. Although this is much more an operational rule than it is a jurisdiction procedure, it allows power of a decision to the parties. It is not possible for such a step to be involved in a normal, formal procedure. Legislative jurisdiction control is also in the evidence and hearings in accordance to article 27 of the International Bar Association Rules on the Taking of Evidence in International Arbitration. The party agreement is to prevail at all the time. Another case is the Interim Measures of Protection where the parties decide the rules to play by. The award The parties also have a choice in the ruling when it comes to the awards. They get to decide what they want and how they want their awards through the different rules provision. The ACICA Rules that govern the Award section four state that the parties may decide to subject the tribunal to state reasons for the award or not. Section 34 provides for the parties to designate the rules of law. On the settlement or termination of dispute cases, the parties may agree to settle the dispute forcing the tribunal to issue an order of termination. The parties may allow the tribunal to record the settlement. This is according to the article 35 of the ACICA rules. The Jurisdiction of the Arbitral Tribunal, however, is not powerless because the tribunal has the power to rule on the objections even when it has no jurisdiction. The tribunal may decide the existence and legality of a contract. Sections 24 of the ACICA rules provide that the arbitration clause is a contract and, it mandates power on the tribunal. Pertaining to the issue on time, Arbitral Tribunal fixes the time for the parties to follow yet the deadline and time limits give the parties the jurisdiction to decide on when to do the needful. This plays a crucial role of influencing the overall time taken for the procedures. The rules under discussion are mostly the ACICA rules. However, that does not mean that the other rules do not give as much jurisdiction to the parties as these rules. In fact, some may even give more provisions for the parties’ jurisdiction. The other rules echo similar provisions for the proceedings. This is because the main aim of the arbitration procedure is efficiency and it would fail if there were standardization. Also, the parties involved come from different countries with different political and economic traditions. The contracts that bind these parties are extremely different and some are custom made for the particular function. With regards to language agreement, article 20 of the International Chamber of Commerce (ICC) arbitration and ADR rules that the parties in dispute must be in agreement on the language of the arbitration. Other cases where the parties have a right to rules are article 21, which mandates them to agree upon the rules to be applied, and article 24 which gives the parties the right to modify the time limits of the cases. Part II Part two deals with a case study of Condesign, a famous architectural firm based in New York, USA and Statinvest, an agency of the Ruritanian State, which administers state investments, including the construction of infrastructure projects in Ruritania. Condesign’s complaint is that, after settling their part of the deal, the Statinvest agency did not pay the dues. The discussion involves the provision of legal authority in from of the statutes applied, cases, protocols and guidelines. Question 2: The dispute resolution clause, “Art. 47: Mediation and Arbitration: All disputes as a result of or in connection with this Agreement ... using one or more arbitrators chosen by the ICC Court of Arbitration at Melbourne Australia. New York law to govern,” is imperfect. The claimant instituted the arbitration proceedings under ADR ICC rules and the ICC rules of conciliation. This is because first the clause includes a mediation clause. The resolution clause refers the parties to the ICC court in case the mediation does not succeed. According to chapter II of the arbitration agreement article 7, the reference of a contract has to make the clause part of the contract. The whole case refers it terms to the ICC Rules (Craig et. Al . 2001). Question 3 A good draft for arbitration clause should specify the seat of the arbitration. The arbitration clause reads as follows: “ Arbitration: All disagreements arising out of or related with this Agreement shall be resolved by institutional arbitration, using one or more arbitrators depending on the choice of the parties. The ICC Court of Arbitration at Melbourne Australia shall resolve the case. The Australian law is to govern the tribunal.” (Friedland, 2007) Question 4 When the ICC Court decides to appoint a sole arbitrator, it is likely to choose someone else as the sole arbitrator instead of Dr Les Sunderkay who was the earlier choice or Ms Dona Ixtapa proposed by the respondent. This is because according to article 13 (5) the sole arbitrator shall be of any ethnic group other than those of the conflicting parties. The fact that Dr Les Sunderkay is an American, and Ms Dona Ixtapa is Ruritanian justifies the choice of another arbitrator. The respondent showed doubt in Dr Les Sunderkay alone, and that could be an indication of an objection according to Article 13(5), which continues to state that in suitable circumstances if none of the parties objects the sole arbitrator may be of any nationality including of either parties (International Chamber of Commerce-ICC, 2011). Question 5 According to article 20 of the ICC (2011), the parties to be in the arbitration proceedings are to decide on the language of use during the proceedings. However, if they do not agree as in the case under study, the arbitration tribunal determines the language. The language of choice in the arbitration may most likely be both English and the Ruritanian. This is in accordance with Article 20 of the ICC rules whereby the tribunal determines the language or the languages by considering the condition of the contract. The language of the contract was English. The claimant firm has English as the native language. The tribunal cannot ignore the Ruritanian language because the respondent states that the project involves land that is in Ruritania and the witnesses speak in that native language. Question 6 In this case, the tribunal will not choose a president. This is because there is only one sole arbitrator. In case the arbitration would use the three arbitrators, then the two proposed arbitrators Dr Les Sunderkay from America and Ms Dona Ixtapa from Ruritanian would choose the president of the arbitration. This is in accordance with the articles that govern the choice of the arbitrators. According to article 12, the court appoints the president when there are three arbitrators. The two arbitrators from the two different parties will pick one neutral arbitrator who will be the president of the tribunal. The two will also choose the president of the tribunal having in mind the different nationalities of the parties. The president should not be from the member states having the case (International Chamber of Commerce - ICC, 2011). Question 7 The parties have agreed that the place of the arbitration (seat) is Melbourne Australia. Also, they have agreed that the New York law is to govern. According to the ICC the parties may be free to decide which procedure to use. Article 21 of the ICC rules states that the two parties are open to agree on the set of laws that they wish to follow through the procedure. They are to decide what the tribunal will apply in their case. If they do not agree, the article requires the tribunal to decide on the appropriate rule of law considering the contract that the parties had entered. The parties may give the tribunal powers of an amiable ‘compositeur’ (Legal information institute, 1992). The New York jurisdiction’s procedural law will be the law of choice. This is because it was the choice of the claimant as the clause states. The respondent did not raise any objections to it, which qualifies it as an agreement. The seat of the arbitration determines the law that governs that procedure (International Chamber of Commerce-ICC, 2011). Question 8 The ICC has to determine and verify the details. The terms of reference are outlined in Article 23 of the ICC rules. The terms include; the full names and descriptions and contact details of both parties and any other person wishing to speak on behalf of the party. It contains contacts or relevant parties. In addition, the terms contain a summary of the claimant’s claims as well as the relief sought. It also considers the respondents counter claims. The tribunal needs to establish the facts of the case. According to article 25 of the ICC rules, the tribunal needs to study the submissions from the two parties and hear what they have to state. The parties may also decide to hear the witnesses and the witness experts that the parties appoint. The witness experts speak on behalf of the different parties. The tribunal according to part 5 and 6 of section 25 may listen to the parties again or decide the cases by using the documents only. The tribunal has to consider the terms of the contract that the parties are conflicting on and the terms of agreement that they have as their rule of law. The tribunal needs to consider the political and economic climate of the two different countries of the parties. It also needs to consider the nature of contract breach and awards that the complainant is seeking in comparison to counter that the respondent is giving. The tribunal needs to put the whole conflict in the context of the general rule of law so that the resolution is legal (International Chamber of Commerce –ICC, 2011). The tribunal also has to consider the time and resources available and those required by the case. This enables the tribunal to assess the cost of the arbitration process (U.S. Securities and Exchange Commission, 2011). Question 9 To deal with the application, the tribunal may consider the rules on the interim measures of protection. The measure will be a temporary solution to protect the respondent. The ICC rules under article 28 provides these measures to provide security for legal or other costs of the party or to preserve the assets that the award may satisfy (International Chamber of Commerce –ICC,2011). The criteria to use in deciding whether to grant the order are the preservation of the rights of the respondent and the rights of the claimant. The decision should consider that the respondent would not sustain loss. However, it should ensure that the claimant is able to present the claims (Pessey, 2011). The tribunal should consider the merits of the case so that in any case the respondent can recover his costs from the client. The rationale behind security for costs is to make sure that the respondent is not positioned in a condition where they are unfair when the claimant’s suffer financial distress as a result of the respondent’s fault. With this regards, the decision made should grant the order. It is only fair that both parties are accountable in case the decision goes either way. If Respondent wins the arbitration, they fear that the claimant will not be able to pay the order because they have no assets (Born, 2010). Question 10 The claimant can write to the tribunal ordering the respondent to return to Claimant immediately the Letter of Credit, or that the tribunal issues an injunction preventing the Respondent from calling the Big Bank & Trust Letter of Credit. To deal with the application, the tribunal may consider the rules on the interim measures of protection. The measure will be a temporary solution to protect the claimant. The ICC rules under article 28 provides these measures to provide security for legal or other costs of the party or to preserve the assets that the award may satisfy. After deciding to grant the application, the tribunal will address it to the bank. This is to offer maximum security to the claimant. The claimant did their part of the deal clearing the first part of provision of design and consulting services to Statinvest for the construction of the Futurocity. The First Stage was the research, concept and design of the project, which they completed on time. They did not receive their due payment two months after the contractual agreement. The political atmosphere in the respondent’s country is no longer favourable for business. By granting the application and addressing it to the bank, the tribunal ensures that the order is followed. The respondent also claims that the all the asset are under the new management which means that the extra measure is necessary. The new management may assume the outstanding debt and hope to continue with the transactions (International Chamber of Commerce ICC, 2011). Question 11 When the claimant requests postponing of the hearing or the moving of hearing from Melbourne to Paris there are issues to consider. First is the time limit of any started arbitration case. Second is the distance and finally is the decision of the parties. According to the rules, the hearings may be at any location, and the tribunal has the jurisdiction to deliberate any place that they find appropriate. The tribunal, therefore, decides to move the case to Paris because even the respondent agrees that it is convenient. Question 12 The respondent’s lawyer insists that according to the IBA rules the witness statement becomes invalid when the witness refuses to turn up. There are things that the tribunal will consider; first, this is a star witness, which means that the statement is very important for the case. Second, the witness has got a valid reason not to travel because he has phobia of flying which is a known psychological condition. According to Article 4 clause 7 of the IBA the person named as witnesses shall make an appearance as requested and should not fail unless they have a valid reason. The star witness in the case above has a valid reason aviophobia. Clause 2 of the same article gives permission, however, for any person to present the evidence even as a representative. The first option will be to let the star witness get a representative to serve as the witness on their behalf. If that is still impossible, then the other option will be to use the witness statement without questioning the star witness. The tribunal may also decide to make use of the CIArb Protocol for E-Disclosure in Arbitration to get the witness for questioning. If no options are possible, then it will just mean striking out the evidence. This is because according to clause 8 of article 4 of the IBA rules on the taking of evidence for the international arbitrations, there is no verification of the witness statement. Either party cannot agree to the correctness of the evidence. Another option is in the witness representation in the proceedings. According to International Arbitration Act 1974, a party may have representation from a qualified practitioner or by any other person that they may choose. Question 13 After reviewing the notes and transcripts, there is a discovery. A loophole needs addressing to make logical and fair decision. According to article 27 of the ICC rules, after closing of the proceedings, the parties cannot submit, argue, or produce new evidence. However, they can do so if the tribunal requests them to. This means that it is possible for the tribunal to look into the newly discovered evidence. In this case, it is not new because it had been there all the time before the case ended (International Chamber of Commerce-ICC, 2011). Alternatively, the tribunal may use the Conservatory and interim measure provided by Article 28 of the ICC Rules to allow for correction or interpretation of the award. The decision to correct this award or to interpret it shall be in the form of an addendum. Question 14 In response to the Counsel discussion on the merits of the case, the response is as follows. In reference to the case study, Mazirow (2008) and IBA argues that the merits of the case are tangible. First, the case had a speedier conflict resolution. Second, in the end, the cost would be relatively low in comparison to other ways of solving the case. The case maintained all the confidentiality possible due to the absence of public records. The system thus, does not expose too much the defence to punitive damages. The greatest merit of the case is that the parties are able to control the rules that they wish to follow and also make convenient choices. Issues like choice of both English and the Rutirian languages and the choices of venue were to the advantage of the different parties. The case was also informal with issues concentrating on the parties in question and not so much on formalities. The case achieved the intent of the International Arbitration that is, to provide a fair ground for parties with different legal procedures. The rules are economical and hence an efficient way to handle commercial disputes. REFERENCES ACICA Arbitration Rules incorporating the Emergency Arbitrator .2011. Australia .2011 .International Arbitration Act 1974 Act No. 136. Australia Born, G. 2010. International Arbitration and Forum Selection Agreements: Drafting And Enforcing 38.Ed:3. Australia. Chartered Institute of arbitrators CIArb.2008. Protocol for E-Disclosure in Arbitration ICentre for Arbitration and Mediation. London: United Kingdom. Craig, W.et.al.2001. International Chamber of Commerce Arbitration .Oxford: Oxford University Press Friedland, D.2007. Clauses for International Contracts 61-69.Ed:2. Information institute .1992. Award of arbitrators; confirmation; jurisdiction; procedure International Bar Association (IBA).2010. Rules on the Taking of Evidence in International Arbitration. London: United Kingdom. International Bar Association .2010. Rules of ethics for International Arbitrators. London: United Kingdom. International Chamber of Commerce (ICC) .2011. Arbitration and ADR rules. Paris, France: International Chamber of Commerce International Online Training Program On Intractable Conflict.1998. Arbitration Conflict Research Consortium. University of Colorado: USA. MGE Community Environmental Advisory Group (CEAG) .2010. Meeting of Minutes MGE Community Environmental Advisory Group December 8 2010. Mazirow, A.2008. The advantages and disadvantages of arbitrations compared to litigation. Los Angeles, California: The Counselors of Real Estate. Pessey .2011. When to Grant Security for Costs in International Commercial Arbitration: the Complex Quest for a Uniform Test. Georgetown: Georgetown University Law Center. Thomson/Sweet & Maxwell.2010. Commercial Arbitration Student Version,2010,Ed:5. UNCITRAL United Nations Commission on International Trade Law.2012. Status 1980 - United Nations Convention on Contracts for the International Sale of Goods .Retrieved December 13 2012 from United Nations Commission on International Trade Law.2006. Schedule 2 UNCITRAL Model Law on International Commercial Arbitration. U.S. Securities and Exchange Commission.2011. Arbitration. Retrieved December 13 2012 from Read More