Does the Arbitration Agreement Have Effect before Local Legal Agreements - Assignment Example

 Topic “[A]n agreement to arbitrate will normally have a closer and more real connection with the place where the parties have chosen to arbitrate than with the place of the law of the underlying contract in cases where the parties have deliberately chosen to arbitrate in one place disputes which have arisen under a contract governed by the law of another place.” Critically discuss.1 1 LX5517 International Commercial Arbitration, LLM Assignment, Brunel Law School, Brunel University, 2010 The Assignment Essay Given the increasingly multinational nature of commerce currently, the incidence of conflicts and disputes which cross national boundaries is becoming more and more widespread. In the resolution of such disputes, it is certainly possible to follow the path of legal settlement within courts of law. In most instances, however, it is more pragmatic and economically sound to follow the legal route of arbitration. In effect, international commercial arbitration has become the leading method by which to resolve disputes stemming from commercial agreements. In effect, international agreements between companies, based in contracts, are made with the possibility of future arbitration in mind. Clauses within initial contracts will make provision for the probable need for binding resolutions by selected arbitrators in the event of future conflicts and disputes. When all affected parties have agreed to the process of arbitration, as it may have to take place in their future business dealings, the effective agreement makes it essential that the process and benefit of arbitration have been understood. This understanding must include a sense of the legal imperatives prevalent in the place where arbitration is to take place – the seat of the arbitration. The law of the country/countries in which the original contract is made will have less effect than the law of the country where the arbitration takes place. This, however, is no longer strictly the case. By its very nature, international commercial arbitration has become subject to a more universal set of ethics and governance. Individual countries therefore have become signatories to broader agreements and organisations, encouraging the use of arbitration to resolve commercial conflicts and disputes, both local/national and international. Principal in the decision to resolve disputes by arbitration is the international nature of business. The laws of a particular country may not meet all the requirements of parties based in two or more countries, yet involved in one enterprise. Appeal to the judicial system then, of one particular country, may not suffice. And, pragmatically, resolution through arbitration is likely to result in quicker decisions, better enforcement of settlement requirements and the empowering participation of all parties to the contract. According to the International Bar Association’s Rules on Taking of Evidence in International Commercial Arbitration, disclosure is related to and determined for specific cases, rather than generally dictated.2 Thus, individual parties can be in agreement as to the levels of confidentiality necessary in the process of arbitration – a further advantage of arbitration. A perception may also contribute to the success of arbitration as opposed to purely court-based resolution: the objectivity of international arbitrators may encourage the parties to believe in the integrity and fairness of the process.3 2 Born, G. 2009. International Commercial Arbitration New York: Ardsley 3 Lew, J.M., Loukas, A.M. & Kroll, S.M. 2003 Comparative International Commercial Arbitration The Hague; New York: Kluwer Law International Localised and hence more subjective rulings may be the result of an appeal to national legal processes. It is also more difficult to enforce a court decision in one country on the citizens of another country. Consequently, as referred to above, international agreements and conventions have come into being to regulate international arbitration and these address many of the concerns parties may have. The law now, to lesser and greater extents, takes into account the need for international commercial arbitration, and, indeed, in some instances, models developed for commerce have stemmed from centuries of resolution by arbitration of political disputes.4 One of the most well-known agreements regarding international arbitration stems from the United Nations Convention in Recognition and Enforcement of Foreign Arbitral awards of 1958.5 More than 140 states recognise and enforce the arbitration agreements of other signatory states. Thus a legal framework exists beyond national boundaries, allowing for the enforcement, across nations, of arbitration decisions. Further, many bodies across the globe have evolved in order to enforce the convention’s decisions – among them the London Court of International Arbitration. Legal systems in individual countries, the United Kingdom included have developed statutes which are in accordance with the convention’s conclusions.6 4 Ralston, J.H. International Arbitration From Athens To Locarno date, publisher unknown 5 http://www.uncitral.org.uncitral/en/uncitral texts/arbitration/NYConvention.html and accessed 29/12/2010 6 Charlotte L. Bynum’s Research Guide Revised by Cruz, R.G. 2010 http://library.lawschool.cornell.edu/WhatWeDo/ResearchGuides/Intl-Commercial-Arbitration.cfm and accessed 30/12/2010 It seems, thus, that the place in which parties choose to undergo arbitration is important – but more and more, the international established norms and rules will apply independently of location. The needs of parties wishing to enter into commercial arbitration continue to be similar: impartial, fair and consistent resolution of disputes. Born (2009) outlines what is required if such arbitration is to be possible: To begin, the agreement that arbitration will be the preferred method of resolution has to be included in the initial contract; stemming from this agreement, the scope of events that may occur, which will then require arbitration must be defined; the selections of arbitrators must be decided; a location for the arbitration process be established and, finally, the decision regarding the approach to arbitration must be taken. Institutional or ad hoc rules must be adopted for the arbitration process.7 According to the American Society of International Law,8 an ad hoc arbitration process is independent of an international body and relies only on the rules and conduct established by the parties to the agreement and their legal counsel. An institutional process will involve management by a major arbitration institution. For example, the International Court of Arbitration lays down rules for: the number of arbitrators; fees and control of costs; ensuring the implementation of the rules of the International Chamber of Commerce; determining the place and time frame for the arbitration and reviews arbitral 7 Born, G. 2010 International Arbitration and Forum Selection Agreements: Drafting and Enforcing 38 3rd ed. Aspen: Wolters Kluwer 8 The American Society of International Law available at http://www.asil.org.arb1.cfm and accessed 30/12/ 2010 awards.9 The American Society of International Law advises that institutional frameworks tend to avoid long, drawn-out processes of appeals, as both parties have agreed to abide by the standards of the institution they have decided to use.10 Such actions may also prevent the arbitration process being ineffective, unenforceable and unfair. Taking the institutional arbitration route also allows the parties, and the institution to select the seat of the arbitration process. This implies that the arbitration process will be biased toward the law of a particular country. In reality, that is not always so. In the United Kingdom, the Arbitration Act 1996 (Commencement No. 1) reflects the approach to international commercial arbitration which has allowed England to become a preferred location for such arbitration. While England has adopted laws reflecting the New York Convention agreements, some provisions still reflect a favourable bias toward the citizens of England and Wales or Northern Ireland. The law of the country is made provision for throughout. In the General Principles of the Act, the statement that “... parties should be free to agree ... subject only to such safeguards as are necessary in the public interest”.11 A clear implication of this is that the interests of the U.K public should be served. This does not, however, present an exclusive insistence on UK law: 9 The International Court of Arbitration available at http://www.iccbwo.org/court/arbitration/id4400/index.html and accessed 30/12/2010. 10 The American Society of International Law available at http://www.asil.org.arb2.cfm and accessed 30/12/ 2010 11 The Arbitration Act 1996 available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 one clause of the Act – “Mandatory and non-mandatory provisions” – does reflect that “The choice of a law other than the law of England and Wales or Northern Ireland as the applicable law ... is equivalent to an agreement making provision about that matter”.11 UK law does still, though, apply if the “... seat of arbitration is outside England and Wales or Northern Ireland” (Scope of application of provisions: 3).11 The Scope of Application of Provisions additionally, in sections (a) and (b) notes that the securing of witness, and the powers of UK courts extend to arbitrations beyond the borders of the country. It is then clear that the English courts, and her legal system, do influence aspects of the arbitration process, within and without the United Kingdom. But the intention of the law is to ensure that external systems, of a more internationally agreed upon nature, are the basis of arbitrations held under UK law. The undertaking is to adhere to both the provisions of the Geneva Convention of 1923, and those of the New York Convention (see: 99 Continuation of Part II of the Arbitration Act, 1950).12 An international framework certainly takes precedence. As evidence of the general trend of nations which are signatories to international conventions, Germany also has devised its law to give credence to the international nature of commercial arbitration. Section 1025 of the German statute books refers: 11 The Arbitration Act 1996 available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 12 99 Continuation of Part II of the Arbitration Act of 1950 available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 “And the provisions of this Book apply if the place of arbitration as referred to in section 1043 subs. 1 is situated in Germany. (2) The provisions of sections 1032, 1033 and 1050 also apply if the place of arbitration is situated outside Germany or has not yet been determined. (3) If the place of arbitration has not yet been determined, the German courts are competent to perform the court functions specified in sections 1034, 1035, 1037 and 1038 if the respondent or the claimant has his place of business or habitual residence in Germany”.13 Section 1026 adds: (1) “Recognition and enforcement of foreign arbitral awards shall be granted in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (Bundesgesetzblatt [BGBl.] 1961 Part II p. 121). The provisions of other treaties on the recognition and enforcement of arbitral awards shall remain unaffected”.14 In the same manner, the law of the United Kingdom, as stated, does consider international precedents. The New York Convention agreements in effect do prescribe the management of international commercial arbitration in 13 German Statutes(1025) available at http://www.trans-lex.org/600550 and accessed 31/12/2010 14 German Statutes (1026) available at http://www.trans-lex.org/600550 and accessed 31/12/2010 many countries and certainly for the signatories to the agreement. This is explicit in the UK law. Reference is made to “... any state which is party to the ... Convention ...”15, and the statement is made that an “... award shall be treated as made at the seat of the arbitration, regardless of where it was signed, despatched or delivered ...” (Section 2 (a)).15 The decision was to conform to a legal system beyond the national and ensure that the laws of the New York Convention would apply to the citizens of all the signatory states. Further, the laws would be applied by British courts in the same manner as they would apply national law (Section 2).15 There has been provision made for the Refusal of Recognition or Enforcement in the UK law,16 where it is stated: “(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made.” This may serve to suggest that the seat of arbitration is most influential in the process of arbitration, as the UK is not prepared to recognise or enforce arbitration decisions which contradict the local law of the country in which such a decision was made. The same refusal to acknowledge or enforce applies to the composition of a tribunal, though – when that composition is not in accordance with the law of the country in which the tribunal takes place.17 15 The Arbitration Act 1996: 100 New York Convention Awards available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 16 The Arbitration Act 1996: 103Refusalof recognition or enforcement available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 17 The Arbitration Act 1996: 103Refusalof recognition or enforcement Section 2 (e) available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 The implication is that the UK will act in deference to the law of a country of origin’s legal system. It thus seems then even more desirable to plan future arbitration in the country of choice, with both parties agreeing to the location, and to the laws governing the arbitration process in that location. And this selection and agreement should be heavily influenced in favour of countries that are signatories to such agreements as those stemming from the New York Convention. Perhaps, to go a step further, the decision should be influenced by such current decisions as those made in countries like Belgium: an explicit statement has been included in Belgian law to shield international commercial arbitration from all local interference.18 While this is perhaps just to attract business to the country’s legal firms, it does reflect the general trend toward the internationalisation of commercial arbitration. As this trend continues, bodies such as the United Nations Commission on International Trade Law (UNCITRAL) continue to refine the rules of international commercial arbitration. The publication of the UNCITRAL Model Law on International Commercial Arbitration moves to entrench international law to govern such arbitration, rather than national laws. 18 Bynum, C.L., revised by Cruz, R.G. 2010 Charlotte L. Bynum’s Research Guide available at http://library.lawschool.cornell.edu/WhatWeDo/ResearchGuides/Intl-Comemrcial-Arbitration.cfm and accessed 1/1/11 This Model Law is designed to apply to “... international commercial arbitration ... between this State and any other State or States”.19 But, very significantly, provisions of the law, except for certain articles, apply “... only if the place of arbitration is in the territory of this State”.20 Further, though, definitions in Chapter 1, Article 1 (a) and (b) prescribe the conditions required if arbitration is to be called international. If parties have, at the time of signature, places of business in different states, subsequent arbitration can be specified as international. Likewise, if one of the places listed below is outside the state in which the parties conduct business, the contract can specify international arbitration: The location specified for arbitration The location where substantial business is conducted The location to which the “... subject matter of the dispute is most closely connected.”21 Also, arbitration may be defined as international when “... the parties have expressly agreed ...” that they require the procedures and rules of arbitration to relate to more than one country.22 19 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 1 (1)). ISBN 978-92-1-133773-0 20 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 1 (2)). 21 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 1 (1) (a)). 22 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 1 (1) (b)) It is further essential to note that the Model Law specifically states that “... any other law of this State by virtue of which certain disputes may not be submitted to arbitration only according to provisions other than those of this law”.23 According to the tenets of this Model Law, then, the seat of arbitration is pivotal. As much as the Model Law does suggest international standards, it also ensures that local law is able to take precedence. Importantly, again, it is implied that the selection of the seat of arbitration in the original contractual agreement between parties is vital. The definitions in the original contract must specify the international nature of any arbitration that may be required in the future. Although arbitration is subject to, and governed by, systems such as those formulated from the Geneva Convention of 1923, or the New York Convention, or by organisations such as UNCITRAL, local laws can restrict or change the process of commercial arbitration, theoretically. In reality, cases by courts within certain countries are being decided to favour an approach advocating minimal intervention by local judicial systems in international commercial arbitration. Nandakumar Ponniya and Dian Chen (for White & Case) report on two such cases decided in Singapore.24 23 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 1 (5) 24 Ponniya, N. and Chen, D. (for White & Case) , 2010 Policy of Minimal Intervention Reaffirmed by Singapore High Court available on KluwerArbitrationBlog at http://kluwerarbitrationblog.com/blog/2010/12/22/policy-of-minimal-intervention-reaffirmed-by-singapore-high-court/ accessed on 29/12/2010 ALC v ALF (ALC v ALF [2010] S.G.H.C. 231 (“ALC v ALF”)25 and Equinox (Equinox Offshore Accommodation Ltd v Richshore Marine Supplies Pte Ltd [2010] S.G.H.C. 122 (“Equinox”)26 are both examples of cases where the Singapore High Court favoured minimal local interference in arbitration processes, albeit for different reasons. Ponniya and Chen stress in their article the similarities between the English Arbitration Act 1996, UNCTRAL Model Law and the International Arbitration Act (Cap 143A). This supports the contention that International Commercial Arbitration is underpinned by a law which is steadily becoming more universal. In both the cases referred to in the article, a local High Court – the Singapore High Court – decided that local interference in a process of arbitration should be minimal. The ruling granted in the ALC v ALF matter was despite the fact that the arbitration could have been classified as subject to domestic arbitration laws: “Nonetheless, the Court’s observations would likely apply in the international context,” according to Ponniya and Chen (for White & Case 2010). The Court refused to uphold the issuing of a subpoena to a witness not approved by the arbitrator in this case. In so doing, the court upheld, completely, the contractual arrangement and agreement on procedure between the parties, ALC and ALF. 25 ALC v ALF [2010] S.G.H.C. 231 (“ALC v ALF”) 26 Equinox Offshore Accommodation Ltd v Richshore Marine Supplies Pte Ltd [2010} S.G.H.C. 122 (“Equinox”) In that agreement, the parties had “... clearly agreed that the arbitrator would have final say as to the calling of witnesses ...”.27 Thus, the contract, and the consequent arbitration were given precedence, even though this could have been a domestic matter. Ponniya and Chen (for White & Case 2010) do caution, however, that the ruling does not provide for cases where prior agreement as to arrangements and procedures for arbitration do not exist. Article 27 of the UNCITRAL Model Law28 and Section 43 (2) of the English Arbitration Act 199629 would address the situation as presented in this case, but Section 13 of the International Arbitration Act “... does not expressly provide that and arbitral tribunal should be consulted before applying to a court for a subpoena”.30 In the Equinox case, the Court ruled that it had no power to order pre-arbitral discovery. Again, the arbitration agreement in place between the parties took precedence over the local legal arrangements, and was enforced by the Court. In both cases cited in this article, it appears that the Singapore High Court is insistent on minimal interference by local legal structures in the process of arbitration. But, again in both cases, the rulings were made based on 27 Ponniya, N. and Chen, D. (for White & Case) , 2010 Policy of Minimal Intervention Reaffirmed by Singapore High Court available on KluwerArbitrationBlog at http://kluwerarbitrationblog.com/blog/2010/12/22/policy-of-minimal-intervention-reaffirmed-by-singapore-high-court/ accessed on 29/12/2010 28 UNCITRAL Model Law on International Commercial Arbitration, Ch.1 Art. 27 29 The Arbitration Act 1996: Section 43 (2) available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 30 The International Arbitration Act available at http://www.iccbwo.org/court/arbitration/id4400/index.html and accessed 30/12/2010. the consideration of the contracts in place between the parties, and the specific references to arbitration in those contracts. Local authorities appear to be avoiding excessive involvement in international commercial arbitration and to be favouring the more internationally established norms pertaining to this process. Likewise, international institutions do exist to ensure that arbitration is carried out with an awareness of almost universally accepted standards. Nonetheless, the influence of the location of the seat of arbitration can, and does, have some effect on the processes, procedures and rulings of arbitration. Therefore, it remains that, despite the intent of local judiciaries not to interfere in international commercial arbitration, the parties entering into an agreement should consider carefully the parameters of that agreement as they relate to any potential arbitration in the event of conflict or disagreement. Locating the arbitration process correctly can certainly affect the possibility of resolution through arbitration. International Commercial Arbitration is certainly influenced by the law of the place of arbitration – and to a lesser degree by the laws of the location where the original contracts were signed. Bibliography Specific References and Quotations in order of appearance in the essay 1 LX5517 International Commercial Arbitration, LLM Assignment, Brunel Law School, Brunel University, 2010 2 Born, G. 2009. International Commercial Arbitration New York: Ardsley 3 Lew, J.M., Loukas, A.M. & Kroll, S.M. 2003 Comparative International Commercial Arbitration The Hague; New York: Kluwer Law International 4 Ralston, J.H. International Arbitration From Athens To Locarno date, publisher unknown 5 http://www.uncitral.org.uncitral/en/uncitral texts/arbitration/NYConvention.html and accessed 29/12/2010 6 Charlotte L. Bynum’s Research Guide Revised by Cruz, R.G. 2010 http://library.lawschool.cornell.edu/WhatWeDo/ResearchGuides/Intl-Commercial-Arbitration.cfm and accessed 30/12/2010 7 Born, G. 2010 International Arbitration and Forum Selection Agreements: Drafting and Enforcing 38 3rd ed. Aspen: Wolters Kluwer 8 The American Society of International Law available at http://www.asil.org.arb1.cfm and accessed 30/12/ 2010 9 The International Court of Arbitration available at http://www.iccbwo.org/court/arbitration/id4400/index.html and accessed 30/12/2010. 10 The Arbitration Act 1996 available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 11 99 Continuation of Part II of the Arbitration Act of 1950 available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 12 German Statutes available at http://www.trans-lex.org/600550 and accessed 31/12/2010 13 The Arbitration Act 1996: 100 New York Convention Awards available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 14 The Arbitration Act 1996: 103Refusalof recognition or enforcement available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 15 The Arbitration Act 1996: 103Refusalof recognition or enforcement Section 2 (e) available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 16 UNCITRAL Model Law on International Commercial Arbitration, (1)). ISBN 978-92-1-133773-0 17 Ponniya, N. and Chen, D. (for White & Case) , 2010 Policy of Minimal Intervention Reaffirmed by Singapore High Court available on KluwerArbitrationBlog at http://kluwerarbitrationblog.com/blog/2010/12/22/policy-of-minimal-intervention-reaffirmed-by-singapore-high-court/ accessed on 29/12/2010 18 ALC v ALF [2010] S.G.H.C. 231 (“ALC v ALF”) 19 Equinox Offshore Accommodation Ltd v Richshore Marine Supplies Pte Ltd [2010] S.G.H.C. 122 (“Equinox”) 20 The Arbitration Act 1996: Section 43 (2) available at http://www.legislation.gov.uk/ukpga and accessed on 30/12/2010 21 The International Arbitration Act available at http://www.iccbwo.org/court/arbitration/id4400/index.html and accessed on 27/12/2010 General/ Course Reading alphabetically by author/s 22 Allan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (4th edn, Sweet & Maxwell, London 2004) 23 Andrew Tweeddale and Keren Tweeddale, Arbitration of Commercial Disputes (OUP, Oxford 2005) 24 Campbell McLachlan, Laurence Shore, and Matthew Weiniger, International Investment Arbitration - Substantive Principles (OUP, Oxford 2008) 25 David St John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (23rd edn, Sweet & Maxwell, London 2007) 26 D. Mark Cato, Arbitration Practice and Procedure (2nd edn, LLP, London 1997) 27 Emmanuel Gallard and John Savage (eds), Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, The Hague 1999) 28 Jonathan Hill, International Commercial Disputes in English Courts (3rd edn, Hart Publishing, Oxford 2005) pp 621 – 738 28 Lucy Reed, Jan Paulson and Nigel Blackaby, Guide to ICSID Arbitration (Kluwer Law International, The Hague 2004) 30 Michael Mustill and Stewart Boyd, Commercial Arbitration (2nd edn, Butterworths, London 1989) 31 Michael Mustill and Stewart Boyd, Commercial Arbitration – 2001 Companion Volume (Butterworths, London 2001) 32 Permanent Court of Arbitration, Multiple Party Actions in International Arbitration (OUP, Oxford 2009) 33 Tibor Varady, John J. Barcelo III and Arthur T. von Mehren, International Commercial Arbitration (2nd edn, Thomson West, 2003) Read More