International Commercial Arbitration - Honest Dealers - Assignment Example

Introduction Arbitration is a form of settling disputes among two international parties with an aim of not involving the courts in its proceedings. Arbitration can take place in different country rather that the claimants local residence country. In this case, the arbitration is between John frost Limited, a livestock transporter and Honest Dealers limited a company which is a company that deals with cattle buying and delivering to various parts of the world. Both parties are from two countries namely, Hong Kong and Melbourne, Australia. The arbitration is to take place at Melbourne on April 4, 2010. The arbitration has decided that it has a jurisdiction which concerned the offer the Livestock transporter (John Frost) in Melbourne to transport livestock to Indonesia for Honest Dealers Limited, where the transport company attempts have a case protesting against a unilateral decision that was made by Honest Dealers in regard to a shipment that John Forest had carried out. John frost limited is a company in Melbourne that normally deals with livestock. It owns 2,000,000 hectare property and delivers cattle all year round for its clients to various parts of the world. It has a contact with Honest Dealers limited a company that purchases cattle to be transported to Indonesia. John frost had observed that Honest Dealers was in need of purchasing and transporting livestock from Indonesia. They wrote a letter 1 to Honest Dealers to enquire if they could be awarded the responsibility of delivering the livestock (cattle) to Indonesia. 1December 1, 2009.John Forest wrote a letter stating ‘we have noted that you purchase live cattle to be transported to Indonesia…….. we can deliver cattle all year round. In their reply 2, Honest Dealers stated that they were pleased to find out that John Frost was able to deliver cattle as they were not happy with the current transporter. They gave their conditions for the shipment, weight, cattle fat content place of shipment and port of destination which was to be Padang. They further stated that incase they need further assistance on the general terms, they visit their website. On December 15th 2009, John frost wrote a letter in reply to the confirmation letter they received from Honest Dealers and stated that they were satisfied with the number of cattle and their mix. In addition they stated that were also satisfied with ports of embarkations and disembarkations. However they stated in their letter that they only stocked Angus cross cattle and not the usual North Australian breeds and that prices were to be determined in pursuant to the spot price at the Melbourne Stock Exchange at the day of departure. Honest Dealers replied to the letter and confirmed by an email that they were happy with the terms. They however reminded John Frost of their 3arbitration clause which was to be found on their website. The clause was part of the trading terms that stated that “if there would be breach of contract arising out of the shipment, it shall be resolved by an act of arbitration in accordance with SIAC Arbitration Rules. In addition, the arbitration shall take place at shall be in Hong Kong and the language that the arbitration will be conducted will be in English”. On December 21, 2009 John Frost replied to the email and wrote that they had accepted the order and confirmed that they accepted the arbitration clause. The email also added that the cattle were inspected as per Honest Dealer’s phone instructions and found to be conforming to their request. _________________ 2 December 10, 2009. Honest Dealers limited wrote a reply stating their acceptance of enlisting John Forest to do their shipment. On January 1, 2010, John Frost wrote another email confirming that they had noted that the letter confirming their trade and conditions has not yet been sent to Honest Dealers. However the email reminded Honest that they had previously discussed the terms over the phone on December 15th 2009 and that Honest had agreed on the terms. They stated that they were sending them over for the completion of the paper work. They added that they always retain the services of a Dr. Diddi Zeller, a veterinary surgeon who normally verifies the quality and state of health of the cattle and that her report can be accessed on demand. On March 7, 2010, Honest Dealers wrote a letter that stated that they were confirming the phone conversation that took place that day and that they were pleased with the last shipment. They added that they have been contracted by a big supermarket chain that was starting up business in china. And that they wanted cattle on trial basis. They inquired if the company was interested in the shipment and that the consignment will be the same terms as previous shipment. On March 10, 2010, John Forest wrote a reply to Honest stating that they can’t oblige this year since they have already sold all aged cattle. On April, 2010, Honest Dealers confirmed their phone conversation that took place that day and added that they looked forward to the next shipment since the last one was very good and that their customers were very happy. On June 23, 2010, Honest Dealers wrote a letter of complaint stating that John Forest had breached the agreement between the two companies. They stated that “counting the cattle in the last shipment, we noted that the heifer count was 12 % and not the allowed 10%. ___________ 3 the claim stated that “any dispute, controversy or claim arising in connection with shipment, shall be solved by arbitration in accordance with SIAC Arbitration Rules.” We will therefore deduct 5 per cent per kilo of the whole shipment to cover the extra costs of placing the meat at the relevant outlets. However on July 20, 2010 John Frost wrote a reply protesting at the unilateral decision. They claimed that a deduction of 5 per cent over the whole shipment amounted to a penalty clause which was not allowed in common law. In addition they further stated that Honest Ltd have sold all the heifers to a live market and covered their expenses. They warned Honest that if they will not hear from them in two weeks they will commence arbitration pursuant to their clause. On august 20, 2010 Mr. Francis , the secretary general , ICC Melbourne wrote to a letter to Honest Dealers stating that an arbitration has been lodged a claim against the company by John Forest and that the proceedings was to take place on April 4, 2010. They also enclosed a statement of claim from John Frost (the claimant) who had selected their arbitrator by the name Mr. Delbon a managing director of the elders group of shipping companies. On September 30, 2010, Honest Dealers limited wrote to the Secretary General, Mr. Francis and replied that they had received his letter and that they had selected a Mr. Ying as their arbitrator. They stated that he worked for the law firm Springer in Hong Kong. They also demanded they be supplied with a chairperson for the initial arbitration. The letter stated that amongst other reasons which will be detailed in their memorial will be principally objecting to the competence of their tribunal as the claimant by implication excluded the UNCITRAL mode law. They stated that they will file claims that litigation was appropriate and they file a claim with the Supreme Court in Melbourne within two weeks. Issue 1: Jurisdiction of the tribunal In one of their letters, Honest Dealers had indicated that an arbitration clause was to be found on their website indicating their terms. The clause was part of the trading terms given by Hones Dealers which stated that incase of any dispute emerging from an error in the shipment, shall be resolved by an act of arbitration in accordance with SIAC Arbitration Rules. In addition, the arbitration proceedings shall take place at Hong Kong and the language that the arbitration will be conducted in will be in English”. According to uncitral rules, (2010) Article 18 in the case of the Place of arbitration “if the parties have not previously agreed on the place of arbitration, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case. Consequently, the award shall be deemed to have been made at the place of arbitration (uncitral)” This jurisdiction issue gave rise to a number of interesting questions. These issues included, How does the tribunal have any jurisdiction in Melbourne where as the contract stated that “any that any dispute, controversy or claim arising out of, relating to or in connection with shipment, shall be resolved in Hong Kong?, If there are any questions regarding the contract, does the Tribunal have any jurisdiction? Could there be arbitration if there was no valid contract? What would be likely happen if arbitration proceedings were denied? What harm would the rest of transporters suffer in John frost arbitrating? Os there any consequences if the if arbitration was denied? Was John Forest seeking the advantage of having a dispute resolved in its home court, Is not international arbitration the norm for resolving international disputes? What were the parties’ expectations in case the proceedings are carried on? Issue 2: Did John Frost Company conform to the qualities that Honest Limited held out to him. It is impossible to argue that John Forest Company had the qualities that Honest Limited were looking for in a company. CISG Article 35(1) provides that “The seller must deliver goods which are of the ... quality ... required by the contract ... (uncitral)” The contract that John frost and Honest Dealers agreed on described the goods by their name but did not specify their quality. However, Article 35(1) provides that they must be required by the contract, not that they must be provided for in the contract. Naturally Honest dealers praised John Frost shipments after the deliveries. Particularly in his letter of On March 7, 2010, that stated that they were confirming the phone conversation that took place that day and that they were pleased with the last shipment. They added that they have been contracted by a big supermarket chain that was starting up business in china. And that they wanted cattle on trial basis. They inquired if the company was interested in the shipment and that the consignment will be the same terms as previous shipment. He said repeated the same in his letter of April, 2010, where he confirmed their phone conversation that took place that day and added that “they looked forward to the next shipment since the last one was very good and that their customers were very satisfied”. While this seems to be normal sales talk, it’s not sufficiently and specific enough to constitute any kind of the desired warranty. Questions to be addressed included: Did Honest Dealers Limited have any obligation to notify John Forest that after counting the cattle in the last shipment, they had noted that the heifer count was 12 % and not the allowed 10%? Was John Forest responsible for the heifers being 12% and not 10%? Does Honest Company violate any law by deducting 5 per cent per kilo of the whole shipment to cover the extra costs of placing the meat at the relevant outlets? Can breach of agreement be declared if John frost was not given a chance to rectify the situation? Issues Out of the Arbitration Given the limitations on time, certain issues were to be excluded from discussion in the Arbitration. These issues were The deductions that Honest Dealers claimed by for the alleged breach of the contract of shipment; The language that was to be used in the arbitration. The choice of language that is to be used in the proceedings is very important since not all parties have the same language. The allocation of various arbitration costs. These costs included the fees of the arbitral, parties travel allowances and other miscellaneous expenses for the arbitrators and witnesses, costs of expert’s advice and the legal fees incurred by the parties in relation to the arbitration. Question 2 Explain why “an arbitration clause” must be part of a contractual document and why in this case litigation is not possible. In the arbitration proceedings, “the arbitration” clause means the clause that binds the parties involved to a type of resolutions outside of the court. Parties normally resolve their disputes through an arbitration process. They do so to reduce the burden of the courts in resolving disputes. International commercial arbitrations provide a good platform for the arbitrations. The term international arbitration means the difference between arbitrations which are purely national or domestic and those which can be arbitrated outside national boundaries (Redfen, Hunter, Blackaby and Constantine, 21). Arbitration is the generic term used as a form of binding dispute outside the national court system (Lew, Mistelis and Kroll 31). In addition ‘commercial arbitration is interpreted as the intervention that covers all matters that come up in relation to that concerns any commercial nature. This is in regard to whether this is contractual or not. The following transactions include any trade transaction for the supply of goods and services and commercial representation or agency. In addition, it also includes factoring, leasing, distribution agreement, construction of works, engineering, licensing, investment, financing, banking, insurance, exploitation agreement or concession, joint venture businesses and other forms of industrial or business co-operation. Relatively it also involves carriage of goods or passengers by air, sea, rail or road (Lew, Mistelis and Kroll). More generally, according to ASIL International Commercial Arbitration is the procedure that is involved in solving differences or disputes arising between different parties by intervening in between rather that using the normal court procedures. (ASIL Electronic Resource Guide).this often relievs the courts of the burden to solve cases. An arbitration clause is the agreement that is often used by the parties in a contract that states that if any disputes arise in the course of business, the parties will solve through the arbitration and not through the courts. These are legal solution for commercial disputes outside the court system. However the final decision for the arbitration is enforced by the courts. The decisions in arbitration are made by arbitrators. This method has been found to be fast in settling disputes and more affordable than settling the disputes through the courts. Arbitration ensures confidentiality, it has tailored results, it maintain commercial relations , the awards in arbitration are not available in summaries and most often arbitration suits some cultures better like for example china and Indonesia. Arbitration is the most advisable for international business parties. Their advantage ranges from having clear process and also the fact that it’s cheap and effective than the court procedures. In business dealings, an Arbitration clause must be part of a contractual document. This is a document that normally binds any agreement between two parties. Many parties involved in a dispute view that by not having an arbitration clause in your agreements leaves you and your company open to the various whims and unreasonable demands and possibly exposure of the blank check effect of litigation. This gives the parties no power to file any dispute through the courts which might drag for a longer time and becomes costly. So this makes a contractual document very important in the clause. According to Watkins, It is important to understand that, litigation is not possible because by agreeing to arbitration, a party is giving up the right to file a lawsuit in court and in particular the right to a jury trial (Watkins). “An arbitration clause generally prohibits a consumer from filing any lawsuit in a court of law (Eble)”. Explain why Australian Granites limited case is now a bad law. In Australia, it’s the International Arbitration Act 1974that has been mandated to legally establish the basic parameters for private international arbitration. According to IAMA, “International arbitration act adopts and applies the Model Law as well as applying the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (IAMA)” According to US Legal, a hard Case refers to a lawsuit involving equities. In a hard case, like that of Australian granite limited, a judge is tempted to disregard the principle of law at issue but does not do so (US Legal). In a unanimous decision, the Supreme Court of Queensland's Court of Appeal has held that parties had not excluded the UNCITRAL Model Law by selecting the UNCITRAL Arbitration Rules 1976, effectively considering the principles raised in the much debated decision of Australian Granites Ltd v Eisenwerk Hensel Bayreuth (Dipl-Ing GmbH).  While not revisiting the question of whether that case was correctly decided, the court strongly suggested that the case would not be decided in the same manner if it was before the court again. The issue of the status of the Eisenwerk decision was the central issue in this case before the Supreme Court of Queensland's Court of Appeal (which was argued before the amendments to the 1974 Act were made but handed down afterwards).In this case, the parties had selected the UNCITRAL Arbitration Rules 1976 and the court was asked to consider whether the Eisenwerk principle meant that the selection of those rules meant the parties had agreed to exclude the UNCITRAL Model Law… Indeed, the whole thing is complex and requires rigorous approach to judicial matters arising (Andrew Robertson (Partner), and Piper Alderman). Australian Granites limited case is at present considered a bad law. Mr. Smith vs. Mr. Schmidt Why does Mr. Smith not object to the fact that Mr. Schmidt commences actions in Singapore under the ICC rules? In this case, Mr. Smith doesn’t object the proceedings commencement in Singapore as according to UNCITRAL rules, the place of arbitration article 18 explains that, “The arbitral tribunal has a legal jurisdiction to meet at any place that it finds best for its proceedings. This is in inclusion of its hearings. It further states that if the party doesn’t previously agree on the “place of arbitration, it shall be determined by the arbitral tribunal having regard to the circumstances of the case and the award shall be deemed to have been made at the place of arbitration”. So in this case, Mr. doesn’t object as he seems to agree on the place of arbitration as long as its meet at an appropriate place. Explain whether Mr. Smith will be successful. Mr. Smith is having a contract with Mr. Schmidt in Germany. Mr Schmidt is not Comfortable with goods supplied by Mr. Smith and so he starts proceeding in Singapore under ICC rules. He has objected the competence of the tribunal on the grounds that he never signed any documents. The only defence that Mr. Smith put across is that he object the competence of the tribunal on the grounds that there is no existence contract as he never signed the document. According to UNCITRAL arbitration rules Article 21 states that ‘Mr. Smith has communicated his statement of defence within a good timeframe. According to UNCITRAL, it is provided that the respondent should always communicate his statement of his defence in writing to the claimant and to the arbitrators within a stipulated time frame which is determined by the tribunal that is affecting the arbitration procedure. Mr. smith never communicated and also he never signed any documents. It’s also in this rules that we find that the stated defence should be accompanied by all documents and other evidence relied upon by the respondent (UNCITRAL)”. Mr. Smith might succeed in his defence as it is evident that he has not signed any documents relating to his response. Explain how an arbitral award can be enforced and under which law. Also explain under which conditions an award can be challenged. An arbitration award is defined as a final judgment made by the court of law after the arbitration has taken place for a case. Arbitration award is given the name award as there are no money needs to be paid in case all the claimants’ claims fail. In this case there is no money that is needed to be paid up by either of the party involved I the arbitration. The award is of no monetary nature or value. According to seclaw, “arbitration awards are not enforceable by law (seclaw)”. In the present circumstances, the present parties must possess the confirmed award by a court of law. Its of great importance to note that the relative procedure of enforcing any award is governed by both state and the federal government. In relation to that, the awarding procedure is very simple and clear. The provisions spelt out by the awarding court are of great important as they safeguard the professional security that prevents the overriding of over-riding state law. In many countries you will find that the parties involved have been mandated to have 90 days after delivery of an award to move to vacate the award (seclaw). So this relatively makes the award procedure to be simple. In a country like Australia, the arbitral award is enforced by the “Uniform Commercial Arbitration Acts”. This is in accordance with the specified terms stipulated in each an devery state in the country. These acts are highly effective in nature and they are related to issues to do with enforcement of arbitration agreements by staying local (Australian) proceedings in favour of arbitrations in or outside the Australia to which the IAA applies.  Similarly, the recognition and enforcement of foreign arbitral awards, is “relatively dealt with either under the International Arbitration Act 1974together with the Uniform Commercial Arbitration Acts, or at common law”. It’s very important to note that a party to the arbitration agreement was applicable to him under the law and under some incapacity. There are various circumstances that can make an award to be challenged. One of the various ways that an arbitral award can be challenged is when the arbitral award enforced in the arbitration agreement was invalid. Another way that an arbitral award can be challenged is where a party was not given proper notice of the appointment of the arbitrator. Also an award can be challenged if a party was not able to be present at the arbitration proceedings. In addition to that an award can be challenged if it dealt with an issue that was not in line with the terms of the arbitration. Relatively, if the award has not yet become binding upon the parties it can be challenged. Consequently, if the matter relating to the award was not capable of resolution by arbitration the award can be challenged. In addition, according to UNCITRAL, a person willing to take part in the arbitration as an arbitrator must ensure that he /she is not partisan to any side and that he/she should disclose any circumstances that can make him/her to be partisan. This simply means that any person willing to arbitrate must be independent. The arbitration procedure is very strict. An arbitrator should not contradict any agreement between the parties that can make him/her not to be independent. There emerge many challenges if an arbitrator is if circumstances exist that gives rise to justifiable doubt as to the arbitrator's impartiality or independence. In addition, if the arbitrator does not possess the qualifications the parties have agreed upon (Section 588(2)). Although the wording of Section 588 differs slightly from Article 12 of the UNCITRAL Model Law, its meaning is still the same and an objective standard applies to both the obligation to disclose and the grounds for challenge (Ivanovici). Given that “serious irregularity affecting the tribunal, the proceedings or the award” which would result in “substantial injustice” exists, challenges can be lounged against the arbitrary award. Furthermore, the irregularity must fall within the list of categories in paragraphs (a) to (i) of section 68 (Bonnell). Work cited UNCITRAL Arbitration Rules Retrieved on 01-12-2010 from, http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf Asil Guide. American Society of International Law. Retrieved on 01-12-2010 from, http://www.asil.org/erghome.cfm Brabant, Peter, et al,. Legal Library. Arbitration in Australia: How recent Reforms Have Improved The Conduct of International Arbitration and the Enforcement of Awards. Retrieved on 01-12-2010 from, http://www.martindale.com/international-law/article_jomes_day/ Bonnell, Max. Mallesons Stephen Jaques. International Arbitration Law. Retrieved on 01-12-2010 from, http://www.mallesons.com/publications Eble, Timothy. Class Action Litigation Information. Consumer Beware: Information About Arbitration. Retrieved on 01-12-2010 from, http://www.classaction.com/arbinfo.html/ Hunter, Martin, et al,. Law and Practice of International; Commercial Arbitration. 100 Avenue Road: Sweet and Maxwell Ltd. 2004. Ivanovici, Adrian. Bestina and Associates. Australian Legal System. Retrieved on 01-12-2010 from, http://www.bostinalawyers.at/us_leg_big.htm/ Kroll, Stefan, et al,. The Hague, Netherlands: Kluwer Law International. 2003. Robertson, Andrew, & Alderman Piper. Practical Law Company. Australia, International. Retrieved on 01-12-2010 from, http://www.arbitration.practicallaw.com Small Claims Court for the Internet. Arbitration Clause. Retrieved on 01-12-2010, from http://www.net_arb.com/arbitration_clause.php/ US Legal. Hard Case Law Definitions. Retrieved on 01-12-2010 from, http://definitions.uslegal.com/h/hard-case/ Watkins, John. Ezine Articles. Litigation versus Arbitration. Retrieved on 01-12-2010, from, http://www.ezinearticles.com UNCITRAL Arbitration Rules Retrieved on 01-12-2010 from, http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf Clyde, Croft. 2010 THE NEW FRAMEWORK FOR INTERNATIONAL COMMERCIAL ARBITRATION IN AUSTRALIA. Reterived from http://www.iama.org.au/pdf/2NewFrameworkforInternationalCommercialArbitrationinAustralia.pdf Mark , Astarita, Honoring And Enforcing Arbitration Awards , from http://www.seclaw.com/arbenf.htm, Read More