International Agreement of CheapStock Corp and George Ltd - Coursework Example

? Law No: Scenario: George Ltd is a plumbing firm in London. It has entered into a five year agreement with the Malaysian company CheapStock Corp. for the supply of toilet flushes. Their contract contained the following term:  Any disagreement or dispute between the parties is to be settled by arbitration.  A year after the signature of the contract, George Ltd wishes to terminate the agreement due to changes in the business environment. CheapStock considers the termination a violation of their agreement.  Advise George Ltd as to the validity of the arbitration clause and on the steps that need to be taken to commence arbitral proceedings. Introduction Arbitration is an alternative way to settle disputes out of the court by the parties through arbitrator. The decision of arbitrator is binding and easy to implement. CheapStock Corporation and George Limited are engaged in an agreement for five years. According to the contract, the involved parties should ask for arbitrator’s involvement if there is some dispute or disagreement. George Limited soon after a year wanted the termination of the agreement, which is regarded as a violation of the agreement by CheapStock due to which, suitable arbitration process is required. This paper includes a number of laws related to breach, termination of agreement and arbitration. Basis of Arbitration Arbitration is consensual: Arbitration process can be implementable if both parties agreed on it. In order to resolve the issues through arbitration, the parties at the time of agreement includes arbitration clause in it. The parties in disputes may refer the matter to arbitrator by submission of agreement executed between them. No one can withdraw from arbitration unilaterally1. The parties choose the arbitrator: Under the Arbitration rules parties can chose sole arbitrator to settle the disputes. Arbitration is neutral: The applicable law, language and venue of the arbitration is utmost important. Arbitration is a confidential procedure: In specific circumstances, the Rules empower a party to restrict access to its trade secrets or other confidential information to the arbitral tribunal or its advisor. The decision of the arbitral tribunal is final and legally enforceable by both sides2. Merits and Demerits of Arbitration Merits of arbitration are a) if the disputed matter is highly technical, arbitrators should have an expertise to deliver b) it is faster than the court proceedings c) cheaper and flexible d) its proceedings can be made confidential e) here language of arbitration can be chosen, whereas in judicial proceedings it cannot be chosen f) easily enforceable g) it limits the duration of the dispute and associated liability3. Demerits of arbitration are i) highly complex ii) in case arbitration is mandatory and binding, the parties deprive their rights to access the courts iii) ambiguous decisions cannot be reverted since limited scope for an appeal iv) fewer enforcement options than judgments in other legal systems v) not directly enforceable4. Arbitration Agreement In theoretical terms, it is a consensual process duly agreed by both the parties to comply with. Such sorts of agreement can be categorized as: a) if a dispute arises; it can be resolved through arbitrator b) submission agreements are those that signed after a dispute has arisen5. In the common wealth countries, the earlier is considered suitable. In the cited countries, each executor has to bear the cost in conventional arbitration and not in submission agreement. The law accepts validity of arbitration clauses in spite of its language not linked with legal contracts. Those clauses are: a) English law is applicable if venue arbitration is London b) suitability of clause c) if it is in line with the ICC Rules in London6. The competent court of law respect the clauses to resolve the disputes provided i) arbitrator should take into account the principles of practical business ii) globally acclaimed principles of law governing contractual relations7. If a party successfully claims that a contract is not workable due to non compliance of contractual obligations, then each clause inclusive of arbitration clause contained in the contract can be treated as in fructuous. However, in most countries, the courts have other views: a) only court has the discretion to declare the contract void b) Tribunal shall also be an appropriate forum to declare the contract void based cogent reasons8. Arbitration Clause The arbitration clause in a contract usually inserted aims at to resolve the disputes through arbitration process without referring the matter to the court of law. Since this clause has reduced the burden on judicial systems to resolve disputes, hence, the US government supports this sort of arrangement. In the US federal arbitration act in favor of compulsory and binding arbitration wherein the parties surrender their rights of appeal to a competent court of law against the decision of arbitrator. Arbitration clauses usually linked with geographic forum selection clauses and choice of law clauses9. The competent court of law in some occasions, either exclude or restrict the possibility of arbitration due to weak protection of consumers. The arbitration agreements have its validity if they are singed. However, the restriction does not apply to notarized agreements, presuming that the contents of agreements and its implication have been fully understood by the consumers10. English Contract Law Usually a contract shapes up when a person offers the terms and the other person agrees to abide the terms of contract. The court intervention is not needed if it works perfectly. In an unforeseen situation or circumstances where one party of the contract faces it difficult to perform, it may invoke the jurisdiction of arbitrator if the clause of arbitration is inserted. It amounts to breach of the terms of contract11. The affected party can file claim for compensation in an appropriate forum permissible under the law. In English law, the affected party can claim full compensation for complete losses. In specific circumstance, defaulters make restitution for their gains if breaching of a contract is happened12. As per the English law contract, executors are bound to discharge their obligations as per the terms of agreement when they have consented for it. These factors are necessary for formation of a contract: have the capacity to contract, contract must be purposeful, contract must be legal, create a legal relationship and the parties have consensus13. Breach of Contract Two or more parties if agreed or mutually consented in writing for initiating legal business can be a contract. It can also be formed orally between the interested parties. The only remedy available in law for breach of contract is damages or in other words monetary compensation to the aggrieved party14. Legal remedy for breach of contract arises when one the party’s performance not up to the level of agreed terms relating to goods and services. It does not match with the price and quality of goods in the market. It shall include costs and expenses borne by the plaintiff to locate alternative goods or services15. Such type of disputes may invoke common law, statutory law or both as the case may be. Every state has settled its own common law of contracts, comprised of jurisprudence, which is developed with the passage of time by trial and appellate courts on a case to case basis16. Termination of Contract As per UK law, contract can be terminated by consent or by breach. However, one or more business partners can eliminate it with mutual consent. Termination notice can be issued either of the stakeholders on non-performing of the assigned obligations17. In most of the business contracts, notice of termination of contract may be issued by the mediator wherein either of the partners does not wish to address or a desire to plug in the loopholes, the grey area within the specified time period. Care should be exercised while terminating the contract that the termination is valid and legally enforceable18. Of course, termination notice to end a business without valid reason amounts to serious consequences. Issuing notices to terminate contractual obligations is a good if it is in the right direction and as per the terms of agreement. If it is not done in the right direction, may have the serious repercussion in view the legitimate rights of business partner or partners associated with the business19. Compensation The money paid as remedy to compensate an individual or company's loss is termed as compensation. In accordance with English Law, irrespective of a contract is terminated or not, any breach of contract confers the right to remedy. In this respect, discretion of the court to award remedy is final and binding against defendants for not fulfilling the obligations mentioned in the agreement or in a contract, provided defendants should not be insolvent. Remedial measures of such sorts to protect the interest of the plaintiff. However, where the performer proved inefficient, the cost incurred for removing deficiencies is awarded by the competent court of law. The court reluctant to allow recovery for any disappointed breach of contract20. Arbitration award in fact award of damages against defendants. Tribunals have an array of remedies forming part of award that includes payment of conventional damages21. In some jurisdiction tribunal enjoying the power of a court to order injunctive relief, specific performance of a contract, setting aside or cancellation of a deed. Unless the parties expressly allow arbitrators to decide cited matters, its option to decide in favour or against the entitlement of damages will be limited22. To mitigate the damages, the burden of proof lies on the shoulder of contract breaker. A contract breaker may appeal against the claimant's damages to be reduced in line with the quantum of fault. The court may if deem fit and proper can reduce the damages in the interest of justice. Courts sometimes allow claimant or the claimants to file a suit to cover his or her expenses in preparing the contract23. Conclusion George Limited, a plumbing firm by profession, based in London inked an agreement with the Malaysian Company Cheap Stock Corporation for the supply of toilet flushes and now intends to terminate its agreement due to business environment before five years. As per English law, contract cannot be terminated unilaterally. There are two ways to terminate the agreement a) by way of consent or b) by breaching the terms of contract. The termination of contract without valid reason and without the consent of other party or parties may invoke the arbitration proceedings as per the permissible arbitration act of UK provided the arbitration clause is inserted in the agreement. The arbitrator, tribunal or the competent court of law as the case may be, award compensation to Cheap Stock Corporation as remedy for the losses incurred due to unilateral termination of contract before its maturity. After reading all the concerned laws related to contract breaching and breaking the contract on mutual agreement, it is quite clear that the Malaysian company Cheap Stock Corporation will be benefited in terms of awarding some compensation for the unilateral termination of contract, as the Malaysian firm is not interested in breaking the contract. It is George Limited, which is responsible for terminating the contract, therefore proper legislation will be applied on the company. References A Redfern and M Hunter, Law and Practice of International Commercial Arbitration (4th edn, Sweet & Maxwell, London 2004). C Buhring-Uhle and G Lars Kirchhof. Arbitration and Mediation in International Business (2nd edn, Kluwer Law International, London 2006). E McKendrick, Contract Law (8th edn, Palgrave, London 2009). Gillhams Solicitors, ‘Notice of Termination’ (Notice of Termination, Contract Law London 2011) < http://www.gillhams.com/dictionary/519.cfm> accessed 28 October 2011. H Collins, Contract Law in Context (4th edn, CUP, Cambridge 2003). Julian Lew, Loukas Mistelis, Stefan Kroell, Comparative International Commercial Arbitration (1st edn, Springer, London 2003). PS Atiyah, An Introduction to the Law of Contract (Clarendon, Oxford 2000). R Stevens, ‘The Contracts (Rights of Third Parties) Act 1999’ (2004) 120 LQR 292. SA Smith, Contract Theory (Clarendon, Oxford 2004). T Varady, J J Barcelo, and A T Von Mehren. International Commercial Arbitration: A Transnational Perspective (4th edn, Thomson/West, New York 2009). Read More