International Commercial Arbitration Law - Assignment Example

? International Commercial Arbitration Law - What do you understand by the principle that the existence of a valid arbitration agreement is a prerequisite for arbitration? International commercial arbitration has been an element of study owing to some of the unique features it is associated with. In the era of globalization, the volume of disputes between parties in trade has increased significantly, and often the judgment provided by the local jurisdiction fails to satisfy the parties to the action. The delay in the procedure of judgment also hampers trade activities between them and becomes significant in determining market conditions. International commercial arbitration tries to solve a few of these problems by providing a mutual solution to the issues on the basis of judgment provided outside the legal framework of either country.In matters of international arbitration, the agreement covering arbitration has gained importance over the years. This paper attempts to analyse the significance of the arbitration agreement in matters of international arbitration. It also attempts to support the validity of the notion that the presence of a valid agreement is a prerequisite for the arbitration process. The importance of the arbitration process isdiscussed in detail along with the factors prerequisite for the arbitration to continue. The relationship between the agreement to arbitrate and the arbitration process is established in order to reach a conclusion regarding the notion. The nature of the arbitration agreement and various provisions of it are considered in the overall analysis. International Arbitration The method of international arbitration is widely popular for resolving disputes that arise from international commercial agreements and a wide variety of international relationships. The main advantage of international arbitration lies in the fact that parties originating from different backgrounds of culture and legal framework can resolve disputes without the consideration and formalities of the legal systems of their respective countries. Other advantages of international arbitration include the fact that it allows the avoidance of uncertainty and the practices associated with local courts regarding the procedure of litigation so that quick and efficient decisions can be reached and the dispute resolved within a short time. The process of international arbitration also grants a high amount of flexibility to the parties in the process of designing the arbitral procedures. In casesof international commercial transactions, the parties have various choices in including mechanisms for resolving disputes that arise under the contract. If a party in the arbitration remains silent for a period of time, then the disaffected party can initiate legal proceedings in a court and can attain jurisdiction over the other with ease (Redfern, 2005: 15). International Commercial Arbitration International commercial arbitration tends to resolve disputesinvolving commercial contracts under the guidance and supervision of a number of international institutions and bodies framing international rules. The popular bodies that deal with the issues are the International Chamber of Commerce and the International Centre for Dispute Resolution. Most of these bodies use the “terms of reference” to summarize the claims and issues of the disputes in a particular procedure, and this is then signed by the parties before the start of the legal proceedings. One of the important characteristics of international commercial arbitration is that thearbitrators try to mitigate disputes before moving to the courts. The decision imposed by international commercial arbitration is binding on both parties. Another attraction of international commercial arbitration is that distrust of foreign legal systems often influences the parties in the action, as does the anticipated cost of using such legal systems. However, switching to international commercial arbitration reduces these types of risks considerably. Arbitrators have significant expertise in the fields involved and easily gain the confidence of the parties so that they accept the decision of the arbitrators and no further conflicts arise in the process. The confidentiality of the process also helps to instil confidence in parties who do not want to reveal the outcome of the arbitration. Of the two major kinds of arbitration,adhoc arbitrationis more flexible than institutional arbitration. In the case of adhoc arbitration, the process is undertaken independently and the final judgment is provided on the basis of rules that have been specified by the parties and their respective attorneys (Kohler, 2004: 8). However, the International Court of Arbitration conducts cases based on institutional arbitration (Lamb, et al., 2009: 104). The London Court of International Arbitration (LCIA) is one of the supervising bodies of the arbitration institution. The LCIA acts as the final authority in proper application of LCIA rules and regulations. It is also responsible for appointing tribunals and controlling overall costsof the arbitration process. In spite of the various advantages associated with international commercial arbitration, several disadvantages are apparent if it is viewed from a different perspective. The process of arbitration does not involve the right of appeal.This fact is beneficial in that it ends the process, but if the decision implemented is based on an incorrect presentation of facts and arguments, one of the parties may suffer considerably and be a victim of false judgment. Another crucial disadvantage of the process of arbitrage is that the arbitrators in the action cannot exercise enforcement powers. This means that they cannot impose penalties on a party that does not comply with the judgement passed by the tribunal, and this often leadsparties to ignore the judgement. This is more common in cases involving multipleparties, some of whom ignore the judgment,and it can lead to a complete disruption of the system (American Society of International Law, n. d.). Owing to the overall effectiveness of international commercial arbitration, various countries have participated in it. However, to take advantage of international commercial arbitration, all parties need to adhere to basic prerequisites for their cases to be considered. The parties to the contract must have the legal capacity to enter into the contract. If the contract in view is entered into by a party that does not have the capacity to enter, the arbitration process is not applicable for that particular party. However, the context of capacity to enter into contract varies significantly from state to state. The capacity of a party to enter into a contract primarily depends on the law of the place of incorporation. Before entering into an arbitration agreement with a foreign party, it is necessary to check whether that party has all the associated requirements to enter into the process of arbitrage and possesses the necessary authority to do so. Often parties include a statement in the contract to put this in effect. Another prime requirement for the arbitration process to be effective is the creation of the arbitration agreement. The process of arbitration arises out of the mutual consent of both parties. The arbitration agreement should stress this issue. The arbitration agreement must consider arbitration as a process that has originated from the free will of all parties. Entry into the process of arbitration is not held as valid if any of the parties entering into it has been forced or influenced to enter the agreement. Another prerequisite for the arbitration process is that the matters in dispute should be arbitral. Cases that are not held as arbitral are matters of distrust, disputes involving security exchange or statutes that involve a strong public policy (McIlwraithand Savage, 2009: 29). Arbitration Agreement Arbitration agreementsare mostly in written form and are the basis of the negotiation. However, in some countries the arbitration process is accepted in other forms.The main governing body for arbitration, the New York Convention, does not accept agreementsin other than written form. Amendment to this particular section of law dealing with arbitration is not possible, as the international convention has nearly 150 members and enough support cannot be generated among such a large number of participants. Other than strictness in the written form of the agreement, the agreement also needs to be signed by all parties entering into arbitration. However, the arbitration act in England signifiesthat agreement may be not signed by the parties but should be in written form. The validity of an agreement exists without the written form if all parties to the contract agree to it. The written form of the agreement is held to be valid if it includes the record of one of the parties oris signed by a third party with the permissionof all parties to the agreement. Other than the written form of arbitration agreement, the agreement can also be in the form of various means of telecommunication, including telegram or telex (Moses, 2008: 15-20). There are two types of possible recourse against award of the arbitration which are the request for the appeal and the request for setting aside. The request for appeal is issued for the purpose of reviewing the decisions of the arbitrators who had provided the award. The process of review involves the evaluation of the evidence in the case and the laws applicable and the interpretation of it by the arbitrators. On the contrary, the request for setting aside declares the award by the arbitrators as invalid on the basis of the fact that the award does not satisfies the requirements set by the law. in the modern era a trend is noticed in waiving the request for the process of appeal and there exists only few institutional rules and laws regarding the procedures of such appeals. The right to set aside cannot be enforced by the will of the party. There is nothing radically wrong with what you are doing is considered as a matter of public policy as it involves the judicial control over the private jurisdiction of the arbitrators. The waiving of this particular recourse is allowed under the laws of only few countries and even in cases it is being waived off it is done by imposing various conditions. In drafting of the agreement of the arbitration the due consideration must be provided regarding the procedural laws which are applicable to the recourse of the awards provided by the arbitrators. (Dispute Settlement, n. d: 55-56) Importance of the Arbitration Agreement Parties entering into arbitration decide to solve their disputes outside any traditional court system. The agreement to arbitration involves relinquishing the right to resolve the dispute in judicial terms. The parties can choose their own rulesto govern the process of arbitration, the law of the arbitration, the place of arbitration, and the language of the arbitration process. The agreement to arbitrate provides power to the arbitrators to decide the dispute and also defines the application and its scope. With help of the arbitration agreement, the parties create their own system of justice that helps create an amicable solution that the courts of their various countries might fail to provide (Fouchard and Gallard, 1999: 12-15). The arbitration agreement also provides the parties the opportunity to select their decision makers in the process of arbitrage so that people with the necessary expertise can handle the case efficiently. The general concept of the arbitration agreement comprises two types. The first type holds the arbitration agreement as a clause in a contract through which the parties to the contract undertakes the process of arbitration in response to disputes that may emerge because of the contract. The other view of the arbitration agreement is that it is a special type of agreement through which the parties involved in the dispute have already submitted the dispute for arbitration. The parties entering into arbitration thus define the subject matter of the arbitration with reference to the relationship that undertakes the process of arbitration. In the process of arbitration, jurisdictional powers are granted to private individuals because the power of the local court in resolving the issue has been waived off. However,if in the process of arbitrage one party files a lawsuit in relation to the matters in dispute, the other parties have the capability to challenge the role of the court because it has been waived off in the agreement. The negative enforcement of the arbitration agreement is accepted universally and does not depend on the type of arbitrage agreement (Sammartano, 2001: 252). However, the positive enforcement of the arbitration involves a submission agreement because some local arbitration laws do not grant the arbitration process autonomous status. The submission agreement should specifically mention the name of the arbitrators and should also identify the matters that require the submission. The required submission agreement makes the arbitration clause insufficient. On the other hand, the arbitration clause deals with disputes that did not exist at the time of the execution of the agreement. And the existence of such disputes should never be mentioned in the arbitration agreement. The importance of the arbitration agreement also lies in the fact that it provides guidelines for selecting and determining the law applicable to the arbitration process. The law in charge of the arbitration process is responsible for the formation, validity, and the application of the arbitration agreement being decided by the tribunal. The applicable law also helps in the process of coming to a decision regarding the necessity of a submission agreement.However, the process of determining the law for the arbitration agreement depends on various criteria. Some laws chosen for the arbitration are selected by the parties without taking into consideration the law governing the arbitration process (Lew, et al., 2003: 166). However, certain laws for the arbitration agreement are applicable to the contract and are mentioned in the clause of the agreement. In the case of absence of an arbitration agreement, the procedural laws govern the process of arbitration and are held as the principal law in the whole process. In some cases, law for the arbitration is determined by the place of arbitration, and the law pertaining to that place is considered in the arbitration agreement. In this context,the ModelLaw and the New York Convention are important to consider. The Model Law does not contain any special rules for the choice of law in the arbitration agreement, but provides that the validity requirement for the agreement be applicable in the state. The New York Convention, on the other hand, is guided by the principle that the parties to the agreement are free to select the law for the arbitration, which may be different from the law of the place of arbitration.First preference for selection of the law goes to the parties;otherwise the law of arbitration is held applicable for the case. In the absence of any laws,the parties often prefer to choose the substantive law that they think would be suitable to settle the conflict. The overall structure of the laws to be used in the arbitration agreement is made effective in the arbitration agreement (Born, 2009: 174). Rules for the termination of the agreement are also mentioned in the arbitration agreement, and based on those rules, the process of arbitration will be held as null and void (Ferrari and Kroll, 2010: 58). The most popular way for the arbitration agreement to be terminated is by mutual consent of all parties. A possible reason for termination could be when a complaint is raised by one of the parties and the party defending the complaint fails to cite evidence for the lack of jurisdiction as a defence for the complaint. However, in respect to other grounds for termination, the death of one of the parties doesnot result in the termination of the agreement. According to the laws of termination, the successor of the party who has expired inherits all the rights and responsibilities. In case of merger or acquisition of an organization, the responsibilityfor carrying out the decision of the agreement falls on the organization resulting from the merger or acquisition. If a client declares bankruptcy, the termination of the agreement depends on factors such as the law pertaining to the place of the agreement. The death of the arbitrators is not held as a valid ground for the arbitration process to be terminated (Poudret and Lesson, 2007: 325). However, certain laws declare the arbitration process terminated when the parties do not consider intervention of another arbitrator as replacement for the expired arbitrator. The rules for termination are expressly provided based on certain special laws (Dispute settlement, 2005). Few years back, it was interpreted that the arbitration agreement was a mere clause contained in the contract and the clause formed a vital part of the contract. Due to the importance provided to the contract, it was held that the invalidity of the contract also made the arbitration agreement invalid. Because of these obligations often arbitrators had to suspend the proceedings of arbitrations whenever a party in the agreement pleaded for the invalidity of the contract and challenged the jurisdiction of the arbitrators. The process of arbitrations in such cases was not resumed until the matter of validity was settled by the court. In respect of such arguments the modern laws in arbitration process have brought in two main principles which are the principle of independence of the arbitration clause and principle of “Kompetenz- Kometenz”. The declaration of the arbitration agreement as autonomous and the separation of it from the main contract have removed the possibility of declaring an arbitration agreement as invalid on the basis of the invalidity of the arbitration contract. The arbitrators are also provided with much power to evaluate the pleas raised by the parties against their jurisdiction while handling the process. This step has further prevented the suspension or the dismissal of the arbitration process on the mere notion of the lack of jurisdiction of the arbitrators. The empowerment of the arbitrators in the process of arbitration was done by the inclusion of the principle of “Kompetenz-Kompetenz”. The ultimate result of the inclusion of these provisions was that arbitration clause lost its importance as just a clause in the contract of the arbitration agreement and empowered the arbitrators to handle matters relating to jurisdiction in a much better way. The Requirement of a Valid Arbitration Agreement for the Process of Arbitration As the process of arbitration is carried out to resolve matters of dispute regarding international trade and commerce, the effectiveness of arbitration depends on the overall structure of the process determining it. The basic framework for the arbitration process is defined in the arbitration agreement. Without the presence of this agreement between the parties, the process of arbitration cannot be completed. The agreement contains almost all guidelines required for the process from its start to its finish.It is mandatory for the parties to adhere to these rules during the tenure of the arbitration. As laws pertaining to any nation are not applicable for the process of arbitration, the specifications of the rules that will drive the process are framed in the agreement (Greenberg, et al., 2011: 242). The agreement also contains other important aspects,such as selection of arbitrators and place of agreement, as discussed above. The arbitration agreement often determines the fate of the arbitration,because the agreement verifies whether the issue under consideration can be rendered by the arbitration. The validity of the arbitration is a must because the agreement is the only legal basis through which the arbitration can be carried out. The overall scope and applicability of the arbitration are based on the framework of the agreement. The framework of the arbitration agreement applies to parties to the agreement in all countries involved and has been universally accepted as the only mode of conducting arbitration. The arbitration agreement is so strong that it is considered valid even if the clause mentioning the agreement is declared inapplicable under certain situations. Validity of the agreement is another important aspect, and the role of the New York Convention is important in deciding validity of the arbitration for perusing the case. Overall importance of the arbitration agreementnecessitates formal writing of it,and the way the agreement is framed determines how arbitratorscarry out the proceedings. Arbitrators dealing with the case must completely understand the agreement so they can provide a solution and bring all parties to mutual consent. Overall importance of the agreement to the process is also demonstrated by the fact that the agreement specifies that no third party can moderate the rules and regulations specified in the agreement. Thus it has been demonstrated that the agreement forms the heart and soul of the arbitration process in play between the negotiating parties (Kronke, et al., 2009: 96). Conclusion International arbitration has gained prominence in the era of globalization. International arbitration is the process of conflict resolution under the supervision of an arbitrator chosen by all parties.The arbitrator’s judgment is outside the jurisdiction of national law of the country in which the arbitration process is carried out. Because the arbitration is carried out by this locally formed body, laws pertaining to the arbitration are often decided upon by the parties to it. Owing to the numerous benefits of arbitration, which include cost savings and quick and efficient judgment to settle the issue, many countries are adopting its use. One of the primary and vital elements of international arbitration is the presence of the arbitration agreement, which provides guidelinesfor the entire proceedings of the international arbitration. This agreement is the prerequisite and contains almost every element required to conduct the process. The agreement provides the details of the arbitration process,including the legal framework covering it. The agreement also spells out the fact that the decision of the arbitrator is to be adhered to by all parties in the case. Owing to the importance of the arbitration agreement, the international bodies dealing with arbitration have declared that any agreement relating to arbitration needs to be produced in written form so that its validity can be ensured and it becomes transparent. The validityof the agreement is a must because the agreement contains the legal matters to be dealt with in the case. Because one ofthe advantages of international arbitration is that parties can choose their own arbitrators, it is mandatory to specify this in the agreement. The agreement also contains necessary information regarding the onset and termination of the arbitration process.However,not all cases can be dealt with by international arbitration, and the eligibility of a case is decided in a clause of the agreement. In view of the importance of the agreement to arbitration, regulatorybodies are needed to put controlson arbitration agreements so that no manipulation by the parties to the arbitration can seek to resolve the issues to their own benefit unfairly. Because the arbitration process is being conducted without supervision of the laws of the country, the conflict resolution techniques should be detailed in the agreement and should not violate the basic rights of any party country.This study has established that the basic driving force for international arbitration is the agreement pertaining to it. References American Society of International Law. (n. d.). Available at: http://www.asil.org/erg/?page=arb (accessed on 21 January, 2012) Born, GB (2009) International Commercial Arbitration.Hague: Kluwer Law International. United Nations Conference on Trade and Development. (2005) Dispute settlement.Available at:http://www.unctad.org/en/docs/edmmisc232add39_en.pdf (accessed on 21 January, 2012) Fouchard & Gallard (1999) International commercial arbitration. Hague: Kluwer Law International. Ferrari, F & Kroll, S(2010) Conflict of laws in international arbitration. Berlin: Walter de Gruyter. Greenberg, S, et al. (2011) International commercial arbitration.Cambridge: Cambridge University Press. Kohler, GK (2004) International arbitration in Switzerland.Hague: Kluwer Law International. Kronke, et al. (2009) Recognition and enforcement of foreign arbitral awards.Hague: Kluwer Law International. Lamb, et al. (2009) International intellectual property arbitration.Hague: Kluwer Law International. Lew, JDM, et al. (2003) Comparative international commercial arbitration.Hague: Kluwer Law International. McIlwraith, M & Savage, J (2009) International arbitration and mediation. Hague: Kluwer Law International. Moses, ML (2008) The principles and practice of international commercial arbitration?.Cambridge: Cambridge University Press. Poudret, JP& Lesson, S (2007) Comparative law of international arbitration. London: Sweet & Maxwell Limited. Redfern, A (2005)Law and practice of international commercial arbitration. London: Sweet & Maxwell Limited. Sammartano, MR (2001) International arbitration law and practice.Hague: Kluwer Law International. Read More