Concept of Arbitration as a Type of ADR - Coursework Example

? Arbitration The Concept of Arbitration as a Type of ADR The idea of Arbitration usually arises in a situation of settlement of a deal. Arbitration refers to a range of procedures for resolving disputes out of courts of law. It is a type of Alternative Dispute Resolution (ADR). The term ADR includes different forms of processes, which are sponsored by different organizations with a variety of rules. Parties involved in disputes usually choose these types of ADR to reach a decision about their arguments instead of subjecting their cases to traditional litigation procedures. The advantage of arbitration is that parties can manipulate it to suit their specific requirements. In the present world, majority of lawyers and business people frequently encounter the concept of arbitration. When a dispute first arises, none of the parties may think about resorting to arbitration in the initial stages. However, any one of the disputing parties may propose that instead of the going through the usual legal procedure, the dispute can be resolved by the method of arbitration under the mutual agreement. Again, there are certain cases of dispute, where arbitration clauses are included in the standard agreement. In such cases, the parties involved in the dispute are needed to go through the arbitration process irrespective of whether arbitration can provide a mutually agreeable solution to the case. In the present world, many courts of law are exploring the option of sponsoring an arbitration process themselves. These processes are expected to resolve a number of pending cases and thus reduce the huge burden of the courts.123 The table below shows the different legislation processes that are included under ADR and also classifies them according to their formality. Arbitration is considered to be a more formal form of ADR. 4 The various legislation relating to arbitration give an idea about its international character. However Poudret and Besson have provided a formal definition of the process: “Arbitration is the institution by which a third party decides on a dispute between two or more parties by exercising the jurisdictional mandate, conferred on him by the latter.”5 Arbitration in the United Kingdom The Arbitration Process in the United Kingdom (UK) is implemented according to the “English Arbitration Act 1996 (The Act)”6, which became operational from 31st January 1997. After The Act came into effect, both England and Wales witnessed an increase in the number of dispute cases settled by arbitration, while London developed into a renowned hub for international arbitration. A report published in 2007-2008 reviewing this Act declared that the legislations under the Act had been prevalent in the regions for more than ten years and were successful in providing out-of-court solutions for a large number of cases. Therefore, the Act was not required to be subjected to any significant alterations. However, the report also stated that there was still significant opportunity for the arbitrators in the country to implement strong and rational practices in the process of arbitration. The English Arbitration Act was actually an instrument which was required to be utilized effectively by the arbitrators while resolving disputes. Till the year 2007, the legislation governing arbitration in England and Wales has remained more or less the same. However, arbitration cases in Scotland were subject to a separate legislation framework, from that of England and Wales. The Law Reform (Miscellaneous Provision) (Scotland) Act 1990 monitors the application of the UNCITRAL Model Law to commercial arbitration cases in Scotland that fall within the area of international jurisdiction. 7 Therefore, the mandatory legislations enumerated in the English Arbitration Act, 1996 can be applied to the arbitration cases which originate in England, Wales and Northern Ireland. However, the arbitral agreements do not fall under the jurisdiction of the English Law. The fundamental legislations in the Act exhibit that the process of arbitration is not a completely private and autonomous procedure. The State has imposed certain mandatory regulations on the dispute-settling process and in this way it exerts its control procedure through the Courts of Law. The disputing parties are allowed to select the arbitrator of their case, though the area of their choice is limited. According to the English Law, the state court as well as a single judge can function as an arbitrator, as they are usually endowed with more authority to settle the dispute case, compared to a normal arbitrator. The traditional viewpoint in Law firmly believes that the judges and the Courts of Law are the ideal authority to impart legitimate justice in cases of contention. Since they derive their power from such a strong background of legislation, they are also recognized as appropriate authorities to settle the cases which have resorted to an out-of-court settlement.8 During the second half of the 20th century, the Arbitration Act, 1950 (UK) contained the laws regulating the arbitration procedure implemented out of the Courts under the consent of the disputing parties. This particular Act (1950) consolidated the legislation enumerated in the Arbitration Act, 1889 (UK) and the Arbitration Act, 1934 (UK). The regulations in the Act of 1950 was later supplemented by two newer versions of laws: the Arbitration Act, 1975, (UK) and The Arbitration Act, 1979 (UK). Of these the Act of 1975, was applicable solely to arbitration processes falling under the category of International jurisdiction. 9 The Arbitration Act, 1979 (UK) was formulated to substitute all the existing solutions against the arbitration awards with the help of mainly two methods: a plea sent to the High Court from the arbitral awards and a petition to the High Court containing the issues raised in the process of arbitration. During that period of time, traders were apprehensive of that fact that London was losing its reputation of being a famous centre of arbitration due to the Courts of Law being overburdened with a huge number of arbitral cases. Therefore, this reform was included in The Act, 1979 to significantly reduce the amount of arbitration cases that approached the Courts for settlement. Later, The Arbitration Act, 1996 replaced the 1979 Act. The 1996 Act placed a limitation on the authority of the Courts of Law to interfere in the proceedings and results of the arbitration procedures and their solutions. The 1996 Act was formulated by consolidation all the previous Arbitration Acts of the country and in general, was directed at simplifying the arbitration legislation in the UK. 10 11 Section 68 of the English Arbitration Act 1996 The laws contained in The Section 68 of the English Arbitration Act 1996, govern the dispute cases which are related to “Challenging Awards on the Grounds of Serious Irregularity”. It has sometimes been noticed that certain sections of The Act supervises the way in which the English Court of Law should settle dispute cases relating to arbitration, instead of governing the implementation of the arbitration process within the country or in the international arena. From the time The Act came into force in 1996, the Section 68 of The Act has been the most frequently utilized compared to the other sections. This particular Section has legal provisions which permit a disputing party (which has resorted to arbitral proceedings) to challenge an arbitration award on the basis of severe irregularities that influence the tribunal, the arbitration measures or the award itself. A brief overview of the three articles of Section 68 of The Act is presented in the following lines. Article i states that Arbitrators are allowed to infer their own decisions about the dispute case taken on the basis of their experiences. However, the decisions should solely be based on the proof provided to them and not on any external source of evidence. Article ii enumerates that an arbitration application under Section 68 is probable to be fruitful only if the Arbitrators discover the Irregularity to be extreme and therefore corrects the original decision. Article iii of the Section 68 declares that if the Arbitrators find that the Award was secured by a Fraudulent Policy or by a method that is in contradiction to Public Policy, then they are empowered to repeal the award on charges of deliberately suppressing important evidence related to the case. 12 UK’s legislation with respect to International Arbitration During the period from 1986-1996, UK witnessed significant changes to the national legislation governing the arbitration procedure. The United Nations Commission on International Trade Law (UNCITRAL) is the UN Organization that regulates and monitors activities in international trade jointly with the World Trade Organization (WTO). In 1985, the UNCITRAL accepted the Model Law and published it in ‘International Commercial Arbitration’. This gave rise to a huge debate on whether the rules of English legislation should be altered to comply with the international standards of regulation as set forth by the Model Law. In 1993, Lord Steyn, the Chairman of the Departmental Advisory Committee on Arbitration Law made an interesting observation. He noted that UK should utilize the UNCITRAL Model Law as a measure for evaluating the country’s existing laws governing the arbitration process and then take necessary steps to improve them. According to Steyn, the Model Law had influenced the drafting of UK’s arbitration bill at that point of time.13 The English Arbitration Act 1996 was formulated in 1996 and adopted in the following year. This Act was structured to bring the “statutory law of arbitration” and the related procedure under a single statute of legislation. However, there were significant alterations made to the existing statutory law to consolidate it under the Arbitration Act 1996: there was a basic change effected in the distribution of authority between the Courts of Law and the arbitrators and the disputing parties and the tribunals were given a huge amount of flexibility for implementing the arbitration process. It was the responsibility of the Courts of Law and the arbitration authority to utilize The Act 1996 in an effective manner to ensure that the arbitration practice in London continued to flourish. In 1989, Lord Bingham examined the important issue of the delays involved in implementing the procedure of arbitration. He proposed that the arbitrators should be given adequate authority to implement the arbitral process according to their decisions so that there would not be unnecessary hindrances in the settlement of cases. In addition to this, the disputing parties should be allowed to eliminate such power as stated in the arbitral agreement or in any of the institutional rules. Lord Woolf had suggested that the arbitrators should be provided with access to the justice system. In 1995, Arthur Marriott QC further reiterated this point in addition to other issues related to the arbitration process. He discussed the possibility of modernizing the social justice system and also the prospects of introducing and developing the concepts of ADR (Alternate Dispute Resolution). His suggestions provided significant insights regarding the development of the modern ADR system in the history of English legislation.14 15 Many countries including the UK have formulated laws that embody a two way alternative with regard to the agreements about the consumer arbitration procedures. The legislation either validates the arbitration agreements on the basis of specific requirements or prevents the enforcement of arbitration clauses on the consumers prior to the dispute cases. There are legal provisions in the UK Arbitration Act 1996 as well as in the European Union Directive on Unfair Terms in Consumer Contracts, which support the adoption of such a regulation. Many of such countries which have formulated laws to protect the interest of the consumers have also happened to be staunch advocators of the practice of commercial arbitration.16 The laws governing the international arbitration procedures of UK state that the arbitrators of the country are required to apply the British “conflict-of-law” legislation even to those dispute cases which fall within the purview of international jurisdiction. However, the Courts of Law in UK find it virtually impossible to assess the “Choice-of-law” procedure implemented by the arbitrators as also the results of these arbitration cases. This is because, in settling dispute cases having an international character, the UK adopts an exclusion clause with respect to the international contracts which also excludes the possibility of appealing against an award. 17 18 In the case of a dispute which possesses an international character, the choice of venue regarding the implementation of the arbitration procedure depends upon the choice of the disputing parties. The paper assumes that a charterer from an oil company is engaged in an international dispute case. A charterer belonging to a US-based oil company would prefer the arbitration formalities to take place in New York while a charterer hailing from a UK-based oil company would select London as the location for the implementation of the arbitration procedure.19 Comparison between the UK and US Arbitration Processes The legislation monitoring the arbitration process in the UK has certain characteristic features which distinguishes it from the arbitral procedures followed in other countries of the world. The UK happens to be a close ally of the USA and the arbitration processes in the two nations can be compared to gain an idea about them. The UK arbitrators are expected to maintain their unbiased and independent character in dispute cases, which resort to the procedure of arbitration for obtaining a settlement. The arbitrators are only allowed to engage in limited communication with the disputing parties so that the opinions of the latter do not influence the decisions of the arbitrators and the case can retain its impartial character. On the other hand, an arbitration panel conducts the procedures of arbitration in the USA. One of the disputing parties is supposed to appoint an arbitrator who then actively argues for the interest of his respective party. In the UK, the arbitration panel is inclined to making awards where there is a clear demarcation between the victor and the loser. In contrast, the panel of arbitrators in the USA are inclined to provide awards where it is extremely arduous to distinguish between the winner of the case and the loser. In addition to this, the awards in the country are given accompanied by the reasons supporting the arbitration decision. This practice leaves a provision to the losing party to appeal to a higher Court of Law challenging the decision of the arbitration process. There is also a vital difference between the two countries regarding the source of financing of the arbitration process. In the UK, the loser of the arbitration case is supposed the pay his own legal costs as well as those of his opponent where as in the USA each of the disputing parties bear their own legal costs. 20 21 References 1. Arbitration Act 1996, from http://www.legislation.gov.uk/ukpga/1996/23/contents (24th October 2011) 2. Berg V.D Yearbook Commercial Arbitration Volume 30 The Netherlands, Kluwer Law International, 2006 3. Bennet, S. C.. Arbitration: Essential Concepts, American Lawyer Media, Inc. USA, 2002 4. Kluwer, W The Baker and McKenzie International Arbitration Yearbook 2007, Baker and McKenzie, UK, 2008 5. Chamlongrasdr D Foreign State Immunity and Arbitration London, Cameron May, 2007 6. Cooley J W and Lubet S. Arbitration Advocacy National Institute for Trial Advocacy, USA, 2003 7. Miller, F.E Arbitration: preliminary publication on the recommendation and survey on the law and practice of arbitration in England and Wales, Ruthtrek Limited UK 1988 8. Fenn, P. and Gameson, R., Construction Conflict Management and Resolution, Chapman and Hall, England, 1992 9. Georgios, I.Z, International Commercial and Marine Arbitration, Routledge-Cavendish, USA, 2008 10. Lew J.D.M, Mistelis, L.A, Deringer F.B, Arbitration Inisights: Twenty Years of the Anuual Lecture of International Arbitration, Kluwer Law International, The Netherlands, 2007 11. Rovine, A.W, Contemporary Issues in International Arbitration and Mediation, Martinus Nijhoff Publishers, The Netherlands, 2009 12. Gillies, P. and Moens, G International trade and business :law, policy and ethics Routledge, Great Britain, 1998 13. Naon H.A.G Choice-of-law problems in international commercial arbitrationMohr Siebeck, Germany, 1992 14. Redfern A. Law and practice of international commercial arbitrationBath Press, England, 2004 15. Tusiani M.D The Petroleum Shipping Industry: Operations and practicesPenn Well Corporation, Oklahoma, 1996 16. Jones R. and Moens G. International Trade and Business Law Review, Volume 12Taylor and Francis, USA, 2002 17. Poudret J.F and Besson S Comparative Law of International Arbitration UK, Sweet and Maxwell Ltd., 2007 18. Paulsson J, Rawding N and Reed L, The Freshfields Guide to Arbitration Clauses in International Contracts The Netherlands, Kluwer Law International, 2010 19. Merrills J.G, International Dispute Settlement UK, Cambridge University Press, 2011 20. Bagheri M, International contracts and national economic regulation: dispute resolution The Netherlands, Kluwer Law International, 2000 Read More