International Commercial Arbitration - Assignment Example

International Commercial Arbitration Word Count: 4,254 Prepared by Submitted to 1. Introduction As per the comprehensive environmental response, compensation and liability act of 1980 and other laws dealing with the environmental contamination, the lessee will be liable for all types of laws regarding hazardous materials act. As per the lease agreements available, the lessor can default his obligations of lease up to a limit and may not have a liability beyond the interest of estate with respect to damages judgments. 1 In the present case of ABC, leasing land from XYZ the case is not the contamination of the land after the lease but the case of being contaminated before the lease. This imposes responsibility on lessor as he is the owner or liable for any contamination of the land before the lease. In order to make ABC liable for the contamination occurred, a witness of contamination done intentionally after the lease is necessary. According to litigation filed by ABC it is clear that XYZ has not informed lessee about the contamination on site and as it is not due to the activities of ABC, the liability laws may not apply here and ABC has sued XYZ for compensation. As the suit resulted in arbitration, the FAA conditions for arbitrations and American law regarding arbitration prevail over the decisions of lower or higher courts in solving the dispute. As FAA provided exclusive conditions for vacating an arbitral award, the context demands review of the agreement between ABC and XYZ. However, the main clause that prevails is whether, the contamination occurred before or after the lease. The American Approach to the arbitration commercial disputes is needed in this connection. 2. Commercial Arbitration According to American Law Arbitration is having dual nature; one is of private nature and other is about the exercise of adjudication. The second one prevails over the former. This means, the exercise of adjudication can vacate or nullify the private agreement if it is unlawful or corrupted. This case of ABC and XYZ involves both the angles of arbitration as they have private agreement and higher court nullified the private agreement. The balance between the contractual and jurisdictional models of arbitration is drawn differently and has different contexts in legal system. As far as US law is concerned in majority cases, the contractual model is dominating the legal system. This may be because of the perception to avoid the legal hassles. According to Alan Scott Rau, the arbitration in United States should be understood through the view of contract rather than adjudication, though the later prevails over the former. The prevailing nature of the later should be used in serious circumstance like protecting the law or punishing the violator. As far as no violation is observed according to private agreement of arbitration, the contract terms can be considered while taking a decision. The enquiry of the court should concentrate on the assumptions of the contracting parties. As far as this case is concerned, the higher court did not take into consideration the assumptions of the parties and cancelled both award and arbitration. This can be considered as an important legal argument regarding the arguments of ABC against the order of the higher court. This is underlined because the regulatory bodies like antitrust, securities, RICO and civil rights legislation are subjected to arbitral decision making and the underlying concept is that this facility should be accessible to private parties also. In the present case, the custom tailored arbitration clause is necessary as ABC is complaining that the environment pollution happened before the lease. Keeping this in view, the lower ruled in favour of ABC but higher court viewed it from the side of arbitration clause only. That too, considered the private arbitration clause not withstanding the law. This can be termed as legislation of arbitration but not withstanding the New York convention. This again brings the image of courtroom in all dispute resolutions thus demeaning the arbitration procedures. According to American litigators, the transnational arbitration undoubtedly has a role about habits and duties of arbitration. This is to push or enlarge the limits of appeal and thus expanding the control of courts over private justice. This same law cannot be applied for the arbitration between the dispute and arbitration between two parties regarding a lease agreement involving the environment issue. In cancelling, the focus is often on contractual provisions that enable to expand the grounds for the judicial vacatur of awards. This is because of ensuring predictability in the application of legal standards. The desire to guard against rogue decisions of tribunals also helps in making arbitration crucial for contractual issues. According to culture of arbitration that minimises the judicial interference, ABC should have more legal provisions to get compensation the claim of environment pollution before contract is true. 2 In the present context, ABC is in a position to loose the compensation granted by arbitration award. As different states in US have expressed split view on the issue and even Federal appellate courts have split view, the expanded arbitration award issue needs FAA provisions to decide in the present ABC and XYZ case. In case of Baize.v.Eastridge Companies (2006) 142 Cal. Pp. 4th 293 court decided that the arbitration award could not be vacated on the ground that the arbitrator did not apply a law regarding a particular state, here California. ABC can use this as an argument to reverse the direction of higher court on arbitration award. As both ABC and XYZ included a provision to review the arbitration award if it is not according to legal procedures, ABC can argue that the award given in its favour is according to contract law regarding the breach of contract issue by defendant XYZ. To get back the arbitration contract that was being reviewed, ABC should prove in higher court that the award issued in its favour is according to compensation granted in breach of contract or condition cases. XYZ did not mention the environment pollution in the site in the contract agreement. This amounts to the statement that the site is not polluted or ABC has not been informed by XYZ about the pollution. Court can treat this as a breach of condition in contract and can rule in favour of ABC. Question 2 Context of Employees and Employers Agreements: According to United States Equal Employment Opportunity Commission, the mandate binding arbitration of discrimination claims as a condition of employment are contrary to the fundamental principles involved in these laws. The EEOC expressed this view on Alternative Dispute Resolution Motion 4, (adopted April. 25, 1995). The employers are seeking the employees to give up the right to pursue employment discrimination claims and the binding of arbitration awards is a consequence. EEOC opines that despite case law regarding enforcing specific mandatory arbitration agreements as per the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., (1991), the agreements between employers and employees binding the arbitration awards are inconsistent. As this is the case between employees and employers, the civil rights issues of employees come to the fore. There is no such commission’s view regarding the binding of arbitration in other contract issues. While considering the binding nature of the arbitration agreement the Federal Government’s responsibility of the enforcement of federal employment discrimination laws are important. In that sense the arbitration awards cannot be termed as binding if they are not in line with the employment discrimination laws. US congress emphasises that the enforcement responsibility of Federal Government prevails over the compliance of employers, thus nullifying the binding nature of arbitration award on the employees. The important fact that brings this conclusion is that the arbitrator’s authority is defined and conferred by private agreement, instead of public law. This factor also questions the binding nature of arbitration agreements on employers. 3 Trade Agreements and Cross Border Contracts: In the age of increasing international trade and contracts, the arbitrations are supposed to be an option that has very little chance to appeal for losing parties. Still there is a chance to minimise it by including the appeal instrument in arbitration agreement. As per the views of CPR commission on arbitration, the alternative is a necessity for the arbitration awards. This is based on the fact “one size does not fit all” regarding the legal hassles. In New York, the right to cross-examination is a crucial element of due process. As this process of cross-examination is unavoidable, the binding nature of arbitration award does not withstand the legal procedure. As per the New York Convention, the governments should hold police power in the contexts of enforcements of arbitration awards are against the fundamental interests of the individuals and society. This neutralises the binding nature of arbitration agreements. 4 As it was mentioned in the afore-mentioned context, the New York convention emphasises the intervention of state in case of violation of fundamental rights of society. As it has been asked in Brown and Green case to decide based on New York Convention, the arbitration award is not binding on the either parties. It can be nullified if court of law feels that there is violation of fundamental rights of society. As Egypt has become a party for the New York Convention in 1959, the intervention of state in the form of court to nullify or review the arbitration is possible. The clause in the agreement avoiding the intervention of courts or state in implementing the award does not withstand according to New York Convention. New York Convention states that, “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place”. As Egypt ratified the New York Convention, it is the law of the land that the arbitration can reviewed in case of violation of fundamental rights of the society. The validation of nullification of the Egyptian court is legal if the clause in the agreement avoiding the intervention of the state in reviewing arbitration award is legal according to Egyptian Law. According to Egyptian Arbitration Law, there is a provision for annulment of award if the aggrieved party approaches court of law within the 90 days of the proclamation of Award. As per this clause, the express provision in the arbitration agreement is illegal as Egyptian Arbitration Law allows the aggrieved party to approach court for invalidate the award. Moreover, Brown approached US court before 90 days of proclamation of award and that is not legal according to Egyptian Arbitration Law. As per Egyptian arbitration law procedures, the party who got the award can request its enforcement in any valid court only after 90 days. Therefore, as per the New York convention or as per Egyptian Law, Green has right to approach court for annulling the award and the approach of Brown for enforcement is not valid as he approached within the expiry period of 90 days. 5 According article 5 of New York Convention, “the parties to the agreement referred to in article II were, under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”. As Nigerian court decided that, the award granted to Red is against the parties’ submissions in the agreement. According to this aspect, the Nigerian courts can stop enforcement of the award. Red’s application in US court cannot grant enforcement as per New York convention as it states that the parties and the agreement of arbitration should be according to the law of the country. 6 In case of Electro and Rio deal, the former agreed to purchase electricity from later and did not turn to purchase. Though Rio got arbitration award, the clauses in the agreement are not mentioned in this context. As the Columbian highest administrative court ruled that the clause in agreement of arbitration is against Columbian law, the award cannot be enforced if any court of the state in which the agreement has taken place reviews the decision. In this case, the Columbian court has termed that the agreement clause is against the Columbian arbitration law and thus according to New York Convention, the US court cannot grant enforcement of the award as long as the arbitration agreement is termed as illegal by Columbian Courts. Question 3 The disclosure of consultations with winning party is not intentionally ignored. The disclosure of consultations depends on the agreement of arbitration. If the disclosure of consultations is present in arbitration agreement, then both the parties should know about the consultations of arbitrator with the other party. In this context, the non-disclosure of consultations with winning party is an allegation of losing party. There is no mention about the disclosure of the consultations with losing party to winning party. As winning party does not bother about the disclosure, it is the duty of the arbitrator as per the fundamental legal duties to disclose the information about consultations. This point can have a legal stand as long as the arbitration award had any clause that is against law. As per the arbitration law, the arbitration hearing has to take place in United States courthouse on the time specified in the notice. The hearing in the absence of a party is allowed if the party did not turn up even after notice. According to Rule 45 of arbitration law, the copies of all exhibits except those intended for impeachment must be marked for identification and delivered to opposing parties. In this case, this rule was not followed regarding losing party and this can be a point for L to move against arbitrator in the court of Law. According to same rule, an opposing party have a right of giving notice 5 days before the hearing about the authenticity of the exhibit. If there is no information about the deliberations and consultations with winning party, the losing party cannot exercise that right of rising objection to the exhibits provided by winning party. In this case, the losing party can claim that they are made devoid of exercising that right by not following the rule of informing them about the exhibits 10 days before the hearing. This clause provides a ground for the losing party to proceed against arbitrator and thus the award. As the arbitrator must be neutral, his disclosures for the attorney of the winning party may be at the cost of losing party and can provide advantage in the process of hearing. This enables losing party to proceed against arbitrator and arbitration award regarding corruption aspect. 7 According to 83.7.5 –Arbitratory hearings clause of Arbitration law, the date of hearing should be between 150 to 180 days from the date the answer was failed. Thus, a period can be given to the requesting parties not exceeding total time of 180 days from the date of filing the answer. As losing party requested for only a week’s extension of the hearing and the date he requested is not after 180 days from the date of fling the answer, the party making the request has every right to get it. In this case, the arbitrator did not allow the losing party to get a time seven days to present his witnesses. The change in the presentation of witnesses is capable of affecting the decision of arbitrator and this can be termed as discrimination against the losing party. They can proceed against the arbitrator thus against the arbitration award according to 83.7.5 –arbitrator hearings clause in alternative dispute resolution law. If the losing party has filed the request for an extension of seven days, within the twenty days of filing the responsive pleading, there is an opportunity for the losing party to move against the arbitrator and arbitration award as they are not according to law of arbitration. 8 The sequence of events which include the appointment of arbitrators, arranging for the hearing, conducting the hearing and making the final award are in the hands of parties, the arbitrators, and the arbitral institutions. These are regulated in most cases by the international arbitration rules adopted by parties. According to Edward Brunet in his book ‘Arbitration Law in America: A Critical Assessment’ the afore-mentioned procedure is the essence of the arbitration practice. As per the disclosure issue mentioned in this question, it depends on the agreement between losing party and winning party. If the arbitration agreement between the parties demands the disclosure of the consultations with the opposing party by the arbitrator, then losing party in case of not receiving those consultations of the arbitrator with the winning party can move against the arbitrator and arbitration award in the court of law. In the next point mentioned by loosing party, the arbitrator acted in favour of winning party by assisting their attorney exceeding the limits of mediation. According to Local Civil Rule 83.11 – Mediation 83.11 (b) – Mediation Procedures, the mediator in the course of mediation is allowed to meet the opposing parties jointly and separately. In this course, he has to try to bring the parties to mutual consent resolution as per the arbitration procedure and accepted law. Helping the attorney of a particular party in filing witnesses and disclosing crucial information about the other party does not amount to mediation and raises the voice of corruption. If losing party is able to prove that the disclosures and assistance of arbitrator for winning party had deprived the losing party to exercise the right of filing evidence and presenting witnesses, they can move against the arbitrator on that ground. Influenced by Articles 12 and 13 of the Model Law, all arbitration rules compel the continuing duty of disclosure on potential and appointed arbitrators. There are requirements in the arbitration agreement for disclosure, challenge and removal. If the agreement between winning and losing parties mentioned in the question, does not contain the clauses for disclosure, challenge and removal, the agreement can be considered as illegal. The losing party can proceed on the arbitrator according to those provisions that are absent in the arbitration agreement. 9 Question 4 In this context, the case is about the compliance of the parties to the provisions in the agreement. The client is mentioning the quality of the furniture and the clause about the quality of the furniture in the agreement between them and there is no mention of it. The chance of winning litigation depends on the presence of legally accepted clauses in the agreement. If not, the client must prove that the opposing party is derogative to the benefits accrued by contract. According to ICC arbitration award 8128 of 1995, in the context of the contract having no directly applicable law, the arbitrator, must determine the applicable law according to rules of arbitration of the ICC. Here in the initial stage of the case study itself, the arbitration issue is mentioned because, it is difficult to assess the client-supplier agreement according to laws of two countries; Australia and Singapore. In this case, the Australian Law, which applies in the place of business of the client (the purchaser); Singapore Law, which applies in the place of business of supplier (seller) are important and the international arbitration should apply according to the laws of these two countries. As both the countries are signatories for international arbitration according UNCITRAL, the dispute can be resolved according to laws of both the countries. As these are common law countries, there is very little chance for rise of disputes regarding legal matters. According to Vienna Convention 1980, the client in the status of the buyer can declare the contract void if he can prove the supplier is unable to perform his obligations. The failure of the performance of the obligation of the contract amounts to breach of contract. The client is mentioning about the adherence to quality requirements and demanding accurate delivery schedules. The benefit for the client by adhering to contract is getting supply of furniture to sell for commensurate prices. According to breach of contract defined in Article 25 of the Vienna convention 1980, the supplier (seller) is accused of fundamental breaches of contract such as quality of the supplied goods and not adhering to delivery schedule. To prove this the client needs to prove that the furniture supplied by the suppler (seller) is not consistent and the client (buyer) cannot demand commensurate price from his/its customers. One of the essential obligations of the supplier (Seller) is to give instructions, which would have allowed the buyer to get commensurate prices. As this has not done by supplier, there is chance for our client (buyer) to proceed on international arbitration. Here mediation is not mentioned because, the efforts in the form of letter communication have happened and the process of mediation may not work as the supplier is in a view that the client is in a mood to get the reduction of prices. This context demands arbitrator who can consult both parties and give an award accordingly. Though the client is having enough financial resources, he should take into consideration the amount of just $7, 50,000 that is involved in the litigation. As it is just more than the limit prescribed for international arbitration, the expenses accrued though are affordable for client and not affordable by the supplier, the client needs to consider the financial benefits of the award. As per the immediate financial benefits, the approach to international arbitration may not seem to be viable, but if the supplier is able to supply the goods according to the award in future, for a substantial time, the approach for international arbitration is suggestible. 10 The client can approach for Dispute Review Board, while going for international arbitration with his supplier. As it is mentioned in the case brief, that the supplier is not financially as better as the client is, compliance to the recommendations of the dispute review board will be difficult to him. If he fails to comply with recommendations issued by board, the client can refer the failure itself to arbitration under the Rules of Arbitration of the International Chamber of commerce by one or more arbitrators appointed in accordance with the said rules of Arbitration. If any party sends a written notice to the other party and DRB expressing its dissatisfaction with any recommendation, as provided in the rules, the dispute shall be finally settled under the rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed according to rules of Arbitration. If supplier (seller) finds it difficult in adhering to recommendations of DRB, though he objects the recommendation, considering his financial status compared to the client cannot withstand the expenses of international arbitration. Thus, the situation will be favourable to the client (buyer) and he can mediate privately with the supplier (seller) at that stage. If he does not comply with the mediation, client can proceed according to the international rules of arbitration, as he is able to prove the breach of contract of the supplier. 11 According to Article 17 of the ICC Rules, there is no provision for express choice of law for the parties. The arbitral tribunal shall apply the rules of law that is appropriate. The exploration of the possible laws that can be applied will be the basis for the tribunal’s decisions about adopting the law. In this case, the buyer jurisdiction is Australia and the seller’s jurisdiction is Singapore. As per the International rules of Arbitration, the arbitration panel with the consent of the both the parties can choose English law as the law of the seat of the arbitration. This forces both the parties to afford the expenses of the arbitration procedures. As the client is in a good position financially, it will be difficult for the supplier to meet the expenses. This makes him/it to comply according to the demands of the client. In the present case, the argument that the parties should obey to the English Law is reasonable and there is every chance to make it applicable with the consent of both the parties. No party can insist on application of the law of the land it belongs to, as the opposing party may not like it. This makes both the parties to select a law that is nearly similar to the law of the land. In this case, whatever country law both the parties may choose, the financial position of the client provides him a more opportunity to have a upper hand over the supplier as he is not as good as him/it financially. As the English Law is considered as the seat of arbitration and both Singapore and Australian laws are having similar clauses to English Law, the party opposing the English law should suggest another law that is accepted by opposing party. In case of non-compromise attitude by both the parties in case of deciding the applicable law, the arbitration panel can decide the English Law applicable for the dispute resolution. Though Singapore and Australian laws offer more and wider range of remedies for the claim than English Law, there is no other alternative for opposing parties if they are not coincident about the law they have to decide. 12 As per the international law prevailing in the Australia Region, the conflicting findings do not form a ground for setting aside the award. This gives every reason for client to proceed for international arbitration, but as per the last aspect regarding future business with other suppliers, he/it should take decision according to the expected results in the award. 13 References: 1. http://www.ok.gov/~clo/REM/TexomaRFPPackage.pdf 2. Big Dog Holdings Inc., 1998, Annual Report, Big Dog Holdings Inc, Volume information not available, Retrieved on 16th March 2008 from http://www.secinfo.com/dV3hz.7b.b.htm 3. Alan Scout Rau, 2005, The Culture of American Arbitration and the Lessons of ADR, Texas International Law Journal, volume information not available., Retrieved on 18th March 2008 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=721023 4. Jonathan C. Scott, 2007, Business and Technology Law, Scott & Scott, Volume information not available, Retrieved on 18th March from http://blawg.scottandscottllp.com/businessandtechnologylaw/2007/06/judicial_review_of_arbitration.html 5. EEOC, 1997, Policy Statement on Mandatory Binding Arbitration Of Employment Discrimination Disputes as a Condition of Employment, EEOC, Volume Information not available, Retrieved on 20th March 2008 from http://www.eeoc.gov/policy/docs/mandarb.html 6. William H. Knull, III, Noah D. Rubins, 2000, THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION, Mayer Brown, Volume. 11, Retrieved on 20th March from http://www.mayerbrown.com/publications/article.asp?id=1246&nid=6 7. Kosheri, Rashed, Raid, 2007, The Egyptian Arbitration Law, Legal500.com, Volume Information not available, Retrieved on 20th march 2008 from http://www.legal500.com/index.php?option=com_content&task=view&id=2902&Itemid=93 8. United Nations, 1958, United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards , UN, Volume Information not available, Retrieved on 20th March 2008 from http://www.jus.uio.no/lm/un.arbitration.recognition.and.enforcement.convention.new.york.1958/doc.html 9. Leonard Correale, 2001, Alternative Dispute Resolution in New York, Widener University, Volume information not available, Retrieved on 20th March 2008 from http://www.adrlawinfo.com/nyadr.html 10. Edward Brunet, 2006, Arbitration Law in America: A Critical Assessment, Cambridge University Press, Volume Information not Available, Retrieved on 20th March 2008 from http://books.google.co.in/books?id=p60A202MiNcC 11. Serge Lapine, 1995, ICC Arbitration Award 1995, CISG, Volume Information not Available, Retrieved on 20th March 2008 from http://cisgw3.law.pace.edu/cases/958128i1.html 12. ASIL, 2007, ASIL Electronic Guide, ASIL, Volume Information not Available, Retrieved on 21st March 2008 from http://www.iccwbo.org/court/arbitration/id4114/index.html 13. Max Bonnell, 2008, No Choice of Law; A case Study, Mallesons Stephens Jaques, Volume Information not Available, Retrieved on 21st March 2008 from http://www.mallesons.com/publications/update-combine.cfm?id=537166 14. Bree Farrugia, 2008, Arbitration issues and developments, Australasia region, Mallesons Stephen Jaques, Volume Information not Available, Retrieved on 21st March 2008 from http://www.mallesons.com/publications/update-combine.cfm?id=537166 Read More