Arbitration Needs Municipal Laws to Settle Disputes - Coursework Example

International Commercial Dispute Resolution Abstract The essay analyses the distinguishing aspects of processes of arbitration in contrast to the municipal laws. The various arbitration theories in the context of Kerr’s statement on arbitral procedures are detailed in the essay as well. TABLE OF CONTENTS Introduction……………………………………………………………………….4 History…………………………………………………………………..................4 How is Arbitration Different From Other Municipal Laws................................4 Dispute Management………………………………………………………………6 How Detached Are The Arbitration Procedures From Municipal Laws............9 Theories and Examples That Support The Judiciary Nature Of Arbitration...13 Kerr LJ's Views On Arbitration With Respect To English Law ………………17 Conclusion………………………………………………………………………….18 Refernces…………………………………………………………………………...20 Introduction International Commercial Dispute Resolution can be done by alternative resolution methods. Most often these are structured as dispute resolution methods, which are described using a third person and a result is found with this but this need not involve legal binding. Resolution will be met with the inflexibility of the state court process and will also lead to a fairer outcome for the parties. History The Alternate Resolution movement began in the early 1970s in the United States. They began looking for alternatives to state court proceedings to save time and money. A big step came in 1976 when the Conference took place on the Causes of Popular Dissatisfaction with the Administration of Justice (known as Pound Conference) in Saint Paul, Minnesota. Academics, court staff and lawyers banded together to search for new ways of dispute resolution. The most important and most widely used alternative dispute resolution method is arbitration. An out-of-court settlement of a dispute between opposing parties by a compromise proposed by a neutral authority accepted by both the parties is called arbitration. How is Arbitration Different From Other Municipal Laws? Arbitration is different from municipal laws in the fact that this is a contract that, if replaced with municipal legal procedures1, can resolve a legal dispute out of court: During the conciliation something new is created at will (a contract), and arbitration by an arbitrator is judged on whether the two parties agree to the resolution or not. The motto of the resolution by arbitration courts is: "Penal Point. It's just not necessarily to judge about what is right from both parties, but to find a common solution to the legal conflict, both parties compromise and come to a solution so that they can get along and legal peace is restored. This can also be a solution that would not be decided in this form by a court. The comparisons in front of the offices are just like arbitration agreements before a conciliation board is set up. It must be ensured, however, that the comparisons are designed to be sufficiently precise, so that - if necessary - they could be enforced by a bailiff. However, it remains to be noted that the comparison rate is well over 50% of cases and are not met by the parties. Only for non-compliance, enforcement ever comes into consideration. One big example of arbitration in the field of international commercial dispute settlement is the role of the dispute settlement body in the World Trade Organization (WTO).The Dispute Settlement Body is a body of the WTO, which is made up of representatives of all Member States, and is an important part of the WTO dispute settlement procedure (Dispute Settlement Understanding). If, Member States have a dispute over the interpretation of an agreement managed by the WTO trade agreement, then these parties can call the Dispute Settlement Body. In collaboration with a dispute settlement panel (Dispute Panel) and the Standing Appellate Body, the Panel operates award from one that the winning party must prevail when using coercive measures. A process is initiated by a Member State based on an alleged breach of contract negotiations2. Individuals or companies cannot initiate proceedings. Only Member States are entitled to do this. However, individual companies are free to complain to their governments or the government of another Member State and to request the initiation of a proceeding. Arbitration process is not so helpful in international transactions but it is quite advantageous when it comes to the context of domestic arbitration. The processes only apply before a sole arbitrator and in certain fields like commodities, maritime, documents-only consumer arbitrations etc. The main reason for seeing arbitration clause in commercial contracts is that the government and corporations engaged in such cases are not willing to litigate the process in the ‘home court’ of other party. There are many other reasons too for not playing such type of ‘away game’. The disputing parties will need to engage lawyer knowing local business rules and policies. So, any one of the disputing parties will not be able to engage their trusted lawyers in the entire process. Reaction of the other Member State: The other member state has to respond within ten days and within thirty days of serious negotiations, in order to settle the conflict amicably. In proceedings of 2001 procedures, 28 percent of at this stage resolved by consensus. Dispute Management In many countries across Europe and USA, quite often we hear the phrase ‘Dispute Management’. Sometime this term can be called as ‘Dispute Resolution’ too. In 20th century, we’ve started facing a movement away from three classical forms of intervention of third parties in dispute resolution. If we compare the scenes- the judge in a domestic court, the arbitrator in a conference room of a renowned hotel and a mediator between two parties who is trying to make some settlement of both parties, they all look almost same. ‘Dispute Management’ is a new term in business today and we cannot agree at all, what exactly it means. Actually, it means two things. The first meaning is dispute avoidance which is very important and secondly, it means that when two parties cannot avoid falling into dispute, they like to enter a direct negotiation process which is quite easier process and there is need to involve a third party in order to make the settlement. In case of international trade disputes, the parties should know how to manage the dispute processes and the outcome. It will reduce the intervention of third parties like judges, mediators and arbitrators. People from all cultures and all businesses need some kind of settlement of disputes today. Most of the large companies are reluctant to face the customer’s court. They fear the judges who play a vital role in the court processes. There are many companies who are not familiar with the local laws and that is the reason why they want to avoid the inconsistent outcomes. That’s why the companies like to go for private conflict resolution. When it comes to trading, international relations definitely play a big role. Disputes over commercial international matters 3have been very common in world history. Arbitration has often been used to settle these kinds of disputes. Disputes related to insurance, goods, and trading have been settled by arbitration methods in numerous cases. However, in the 1970s, the legal system of England was not very supportive of arbitration4. The options for arbitration were such that the entire resolution process was extremely time consuming and involved a lot of expenses. This made traders from different countries apprehensive about doing business in England. In 1979, the new Arbitration act reformed the rules and made arbitration more liberal. The case stated procedures were dismissed. This act reduced judicial interference and provided arbitrators with the power to enforce resolution if necessary. The focus was on getting a resolution quickly and without many hassles. The arbitration act in 1996 modified the legalities farther and made arbitration a very good option for commercial international dispute settlement. 5 Arbitration is a legal means of dispute resolution. This is a private court, which will involve only by the respective parties who shall meet and a come to a decision ("Award"). The arrangement is generally in contract form. The award is usually legally binding for the parties and can be declared enforceable in state courts. Almost all arrangements relating to the process are entrusted with the agreement of both parties, no special arrangements are made, and the respective state arbitration law is involved. The number of arbitrators may be designated by the parties themselves (usually a single or three). Besides, the number of referees is also responsible for appointing the contract between the parties. Three Arbitrators are there normally and each party shall nominate an arbitrator, who then, in turn, will agree on the chairman. In case of failing an agreement, the umpire is often appointed by an appointing authority. The party-appointed arbitrator must be independent. Arbitrators who are independent from regular court proceedings are not a new phenomenon. An example is the "social courts" (Arbitration commissions and conflicts) of the GDR, built on the Soviet model and replaced in 1990 by municipal tribunals. How Detached Are The Arbitration Procedures From Municipal Laws? Arbitral processes can be detached from municipal laws, but, only to a certain extent. There are a lot of factors based on which municipal laws are not involved in arbitration. Arbitration comes into play only when the two parties involved choose not to use the municipal laws and the legal system to find a resolution. Arbitration processes are meant to find a middle ground between the two parties. On the other hand, the international law or the legal commercial systems of different countries would focus on deciding which party is right in a respective case. Arbitration leads to a compromise for both the parties. The main ways in which arbitration methods are detached from municipal laws are: Arbitration methods are relatively faster than municipal legal procedures, as, the focus is on speedy settlement of disputes and not on providing justice. There are potential cost benefits in comparison to the large amount of money spent in dispute settlement through municipal laws The methods can be adapted flexibly to the wishes of the parties, for example, in terms of venue and the language used Arbitration, in contrast to trials in general legal systems, involve the confidentiality of the process and the parties may determine arbitrators who contribute, for example, specific legal or technical expertise In disputes between parties from different countries arbitration is detached in the following ways: Unlike municipal systems, the arbitral tribunal may serve as a neutral forum so that none of the parties has a "home advantage" The New York Convention on Recognition and Enforcement of Foreign Arbitral Awards have made it generally easier to enforce a settlement or resolution abroad than in a ruling state Detachment is a very important factor of arbitration. Arbitration resolutions are often floating as different countries and legal systems are involved in a commercial international dispute settlement. Now, each country has a different set of municipal laws that might not relate to one other. The problem is that, even if a solution is reached by using arbitral methods, the settlement is often biased and inclined towards the set of municipal laws the arbitrators have chosen to involve. In 1983, Kerr LJ of the English Court of Appeal had stated that the English law does not acknowledge the existence of any arbitral methods that are completely detached from municipal laws. But, things have changed and the English Arbitration Act of 1996 has made things more open. Today, arbitral methods are quite detached from municipal laws. This factor is very important in using these methods for dispute settlement as, if detachment did not exist, a lot of factors would make arbitration procedures less effective and efficient. The location of the arbitral session would play a big role. In case of two countries having a dispute, the location where the arbitration takes place would be important as the municipal laws of that place would be taken into account. The fact that the arbitral methods are detached from municipal laws means selection of the location a lesser issue. Other factors like language, etc. are made simpler due to detachment. The law that creates the resolution contract in an arbitration based settlement is very important and needs to be recognized from beforehand by both the involved parties. 'The Lex Arbitri' is a theory based on arbitration that analyzes its several aspects6. The three things that play big roles in any dispute settlement are: the jurisdiction of state, the contract based settlement derived by state jurisdiction, and a hybrid theory that comprises of both the above factors. Now, an ideal arbitral method is autonomous and is completely free from the three above mentioned factors. This detachment means arbitration effective in the field of international commercial dispute settlement. If detachment of arbitration methods was denied, then, a party would surely face a lot of problems in using the resolution in countries other than where the arbitration took place. A lot of issues would crop up related to the dispute and thus, the settlement would not be proper. An award of arbitration is recognized equally in all countries and is independent of the respective municipal laws. The judicial dispute resolutions are different in different countries. If you look at the French legal system which is also considered as main civil law system, you can see that there is huge difference between French Dispute legal system 7and the legal system of other countries. There are many other states that followed their system but they have modified it to some extent. France has a constitution like US and the constitution of France was started in 1958. The constitution was supported by Fifth Republic general de Gaulle. The constitution was amended multiple times in past years. In case of specialized courts in France like commercial courts, French law is quite advanced if compared to other common law jurisdictions of France. In US, there is no specialized courts and legal judges but in France, different specialized courts are present and the courts are driven by the major person called Judge. In countries like Scotland and England, there are specialized tribunals who deal with subjects quite professionally at a higher administrative level than a public court of general jurisdiction like tax courts and social security tribunals. In England, there are commercial and admiralty courts that are specially meant deal with issues related to such cases. In Scotland, there is commercial procedure in the Court of Session and the pilot scheme in Glasgow Sheriff Court. Both of these courts do not deal with Scottish commercial cases. The specialized commercial and employment courts deal with cases of particular type. The courts deal with only a single matter. The commercial law in France has jurisdictions over the following factors like: Business disputes between traders, bankers and merchants. The provision of business in France only applies in the transactions that involve money. So, if we take an example, the disputes involving a lawyer will not be entertained here as it does not involve any type of dealing with money. The lawyer does not provide deal in money but he provides service. Disputes between two business partners. Any kind of disputes related to commercial transactions etc. If we look at the arbitration law in England, it is the mostly used arbitration and almost all the businessmen in the world are familiar with this law. The arbitration act in England came into the force in the year of 1997. The arbitration act in England is based on the Model law but a lot of changes were made on this. The important difference between 1996 arbitration act and other model law is it deals with any type of arbitrations, not only the commercial disputes. It applies in all cases of arbitration in England, Wales and Northern Ireland. The arbitration act in England is split into several parts. Part-I: Arbitration Pursuant to an Arbitration Agreement Part-II: Other provisions related to Arbitration. Part-III: Recognition and Enforcement of Certain Foreign Awards. Part-IV: General Provisions Theories and Examples That Support The Judiciary Nature Of Arbitration In the article, 'Arbitration Unbound: Award Detached from the Law of Its Country of Origin' by Jan Paulsson8, it has been mentioned that Arbitrators themselves cannot, any more than commentators, settle the controversy. Their declarations of emancipation from, or, for that matter, subjection to, the legal order of the place of arbitration will have no greater effect than that which courts give them.’ The matter could be settled by international treaty or —— piecemeal and within the limits of international engagements ——- by national legislation. The Lex Arhitri is a legal theory that deals with arbitration9. Some of the aspects of lex arhitri are: The resolution generated by arbitration must be based on a national legal system chosen by both the parties. Thus, the municipal laws make sure that the arbitration is judicial and does not result in anything out of the law. The legal system needs to be of national nature and cannot be used as some kind of private law. It is a mistake to think that just because a dispute is being settled through arbitration, one can come up with any rules he or she wants. It is important to follow a well-recognized legal arrangement. The lex fori is a sub principle of lex arhitri that states that the involved parties can vote to choose an unbiased arbitration court. They can also choose a national municipal system that they feel is convenient for the dispute settlement. But, both parties need to agree on these matters. The lex arhitri states that, "lt would be intolerable if the country of the seat could not override whatever arrangements the parties may have made. The local sovereign does not yield to them except as a result of freedoms granted b himself." Arbitration is not completely detached from municipal law as it needs a basic national legal structure to come to a proper dispute settlement. Also, arbitration methods are not concretely controlled by municipal laws of a nation. That is, suppose a certain dispute has been settled at Thailand, with respect to national law of the country. This does not mean that the law will be enforced by the government of Thailand. If we look at the history we will be able to see a lot of theories and examples that underline the judiciary nature of arbitration in recent years. We can take the WIPO Software Trademark arbitration as an example. A North American software developer registered a trademark for his own business of communication software in USA and Canada. Another computer hardware related businessman used the same identical trademark in many countries across the world for promoting his business. Both of them then went for legal proceedings in various jurisdictions with the registration process and use of their trademarks. Each of them prevented other party to use the trademark in the jurisdictions where it holds priority of rights. So, at last both of the parties went for arbitration clause in order to use and register the identity marks. When the North American company went to use the trademark in an Asian country, it got refused because of risk of confusion with the prior mark held by the other party. Then, the North American company requested the other company to remove the limitations to use the trademark in Asian countries but the other party refused to do so and after this initial arbitration proceedings. The parties appointed a leading IP lawyer as the sole arbitrator. The Pharma Patent License arbitration is another example of global arbitration and it is quite popular example. A Pharmaceutical research and development company of France licensed know-how and patented pharmaceuticals to other French company. It was a kind of licensed agreement and it includes arbitration clause which states that any dispute occurred in any stage of the process will be solved under the WIPO arbitration Rules with the help of a committee of three members as per the French law. But, the company faced a problem when the licensee failed to pay the license fee and both of the parties went for arbitration proceedings. There is another example of arbitration too. A publishing house made a contract with a software development company to make their web presence. The entire project was needed to be completed within one year as per the contract between both the parties. After one and a half year, the publishing company was not satisfied with the work at all and they refused to make the payment of the developer. Not only that, the publisher also asked for damages to the developer. Then the publishing house made a request for mediation. As the parties could not go to any settlement, the mediation between them enabled them to go for arbitration proceedings. As per the term of mediation, the publishing company initiated the arbitration proceedings and the practicing judge was at the center of all. One day hearing was held in Hamburg in Germany and both of the parties were interested to settle the case. Hobbs Padgett & Co. (Reinsurance) Ltd v JC Kirkland Ltd. 1969, 102 Lloyd’s Rep. 547 is another great example of arbitration. The court of Appeal had faced a situation where they had to make a contract where a provision was appeared stating Suitable Arbitration Clause. It was a valid agreement to arbitration. According to Lord Justice Salmon, “It seems to me that 'Suitable Arbitration Clause' means that these parties have agreed that, if any dispute arises between them under the contract, including any dispute as to the meaning of the contract, that dispute should be referred to arbitration rather than to the Courts. If the parties cannot agree upon an arbitrator, then they can invoke the terms of the Arbitration Act, 1950, and an arbitrator will be appointed by the Court.” He also said that in such cases like this the word suitable doesn’t have any meanings. There is another example also where a badly drafted clause was considered and the case is Swiss Bank Corporation v Novorissiysk Shipping Co. [1995] 111 Lloyd’s Rep. 202. In this case the clause was provided as “Arbitration in London – English Law to apply” as this was valid arbitration clause. Mr. Justice Potter tried to fill up the gap in the 1996 arbitration act. The equivalent Model Law provision is meant by the independence and difference between this and impartiality in AT&T Corporation v Saudi Cable Co. [2000] 122 Lloyd’s Rep 127. In this case, the dispute concerned the arbitration clause which incorporated the rules of ICC, i.e. International chamber of commerce. According to Lord Woolf, “the arbitrator's declaration refers to "independence" and do not refer to "impartiality". This is in contrast to the UNCITRAL Model Law 13on international commercial arbitration as adopted by the United Nations Commission International Trade Law of 21 June 1985. Article 12 of the Model Law requires the person approached with regard to a possible appointment as an arbitrator to "disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence". In most situations it will be because of a connection or other relationship with a party that the appointment of an arbitrator will be capable” Kerr LJ's Views On Arbitration With Respect To English Law Kerr LJ had stated in 1983 that the English law “does not recognise the concept of arbitral procedures floating in the transnational firmament, unconnected with any municipal system of law”. This more or less sums up the present scenario related to arbitration. Kerr LJ meant that arbitration methods cannot exist without municipal laws. It is not right to come up with any fictitious legal system or set of rules to settle a dispute out of court. If that were to be allowed, everybody would come up with his or her preferential laws and would settle disputes on their own. The national legal system would be a complete joke. Thus, no such arbitration method is recognized by the English legal system, which does not involve England's municipal laws. This means that if a dispute is settled in France, it is not necessary that the resolution will be recognized in England. An arbitration based award given in a country might be considered against the law of another country. There is no centralized legal system for arbitration methods14. Conclusion Arbitration methods have been widely used in settling international commercial disputes, but, though these are basically out of court settlement procedures, these are not completely detached from the municipal laws15. Arbitration does not mean that the two involved parties can create their own set of independent rules in order to settle their differences out of court. Arbitral methods are based on the legal system itself. These need a basic legal structure and a set of municipal laws with respect to which the arbitrators can award a resolution. Arbitration rules of different countries are different, but, one thing is for sure, in order to commence any arbitral process, the two parties must choose a national law with reference to which the settlement proceedings will take place. But, this does not mean that municipal laws determine and control arbitration. Arbitration is quite detached from municipal laws in the sense that the laws cannot enforce the arbitration. Also, arbitration results are country specific. There have been numerous instances where an award given by the law of one country has not been acknowledged by the law of another country. There is no common or rigid set of rules and laws that are used for arbitration. Thus, it is safe to say that arbitration is detached from municipal laws, but arbitration needs municipal laws to settle disputes. Arbitral methods are out of court, not out of law. References Alvarez, Kaplan and Rivkin (2000) Model Law Decisions: Cases Applying the UNCITRAL Model Law on International Commercial Arbitration (1985-2001), Kluwer Law International Ancel, J. P. (1993), French Judicial Attitudes towards International Arbitration, 9(2) Arbitration Interest 121. Boyd, Stewart C. & Michael, J. Mustill (1989), Commercial Arbitration, 2nd ed. Bernard, Alfred (1937), L'arbitrage Volontaire En Droit Privé Bernstein, Tackaberry, Marriott, and Wood eds (1998) Handbook of Arbitration Practice, London (Sweet & Maxwell 3rd edition) Bernstein, R ed (1998) Handbook of Arbitration Practice Sweet & Maxwell 3rd ed. Bösch (ed.) (1994) Provisional Remedies in International Commercial Arbitration, Walfer de Gruyter & Co. 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