International Commercial Arbitration - Arbitration Clause - Essay Example

International commercial arbitration xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The case of Australia xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Institution xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date of Submission Q1. Why an arbitration clause must be part of a contractual document and why in this case litigation is not possible. A contractual document can be defined as an agreement between two or even more parties and that legally binds the agreed terms between these parties. In most cases, contracts are made in such a way that they contain valid legal agreement terms thus rendering them as being enforceable by law or binding arbitration. In cases of arbitration, it is important that each contractual document contains an arbitration clause that sets out the agreed terms and conditions between the agreeing parties. This clause is important in such a way that it allows a party to seek legal action if the other party breaches the contract. Through this, then the party is able to acquire compensation for the damages caused by the contract breach. Through an arbitration clause, the party is able to seek legal action through the submission of an arbitration claim that is in accordance with each of the set out procedures within the agreement. the clause sets out clear terms and agreement that each of the concerned parties is required to read, understand and accent to for it to be regarded as applicable for solving any disputes that may arise during their various transactions. Some of the components of an arbitration clause include; the place the arbitration is to take place for example the state, selection process of the arbitrator as well as the various rules, regulations and terms that will guide the arbitration process and the actions of each party (Hans 1959, p. 24). An arbitration clause is therefore important in setting out the contractual terms and agreement which will be used by the arbitration courts to resolve existing disputes between the parties involved in the agreement. By agreeing to the clause, both parties are said to be in harmony with the setout terms and conditions and therefore in agreement that should any of them breach the contract, then they should pay up for all damages caused on the other party as a result. It is through the clause that the arbitration court is able to come up with a legal and fair decision. By agreeing and signing to the clause, concerned parties agree to arbitrate any disputes that might arise in future. An arbitration clause is seen as a contractual document that is regarded as an agreement on compliance to arbitration. The clause states that any occurring dispute between the concerned parties is resolved through arbitration and not through litigation. Litigation involves settlement of disputes through a court of law. An arbitration clause therefore prevents parties from putting their disputes in a court of law or as a law suit. Independent arbiters are instead allowed to settle the existing disputes. If the contractual document does not contain an agreement allowing for arbitration to take place in case of any disputes, then the parties cannot submit their arguments to arbitration. This means that without an arbitration clause, and then litigation is possible (Barnet 2003, p.56). Q2. Why the Australian Granites Limited case is now bad law. The Australian Granites Limited case vs Eisenwerk Hensel Bayreuth Dipl-Ing GmbH (2001) 1 QdR 461 (Eisenwerk) was ruled by the Supreme Court of Queensland court of Appeal. In the ruling for this case, the court was found to exclude the UNCITRAL Model Law through its selection of the UNCITRAL Arbitration Rules of 1976. The Model Law has been defined as an arbitration law established by UNCITRAL as a way of harmonizing the national laws of arbitration. This decision is one that has been strongly opposed by many arbitration practitioners in Australia as well as by some state courts who regarded the decision as being wrong. The key are in this case was the decision made in regards to the 1974 Act. Through the use of the 1976 UNCITRAL Arbitration Rules the parties involved excluded the Model Law thus rendering the decision made as being one made based on a bad law. The exclusion of the model law by the court in the use of the arbitrations rules can be regarded as being completely unwarranted for. The ruling by the court was in accordance with the section 21 of the International Arbitration law which allowed for the parties to extract the model law. So wrong and bad was the Supreme Court’s decision that the arbitration practitioners in Australia made amendments to section 21 of the 1974 International Arbitration Act as a way of overruling this decision (Buhring-Uhle and Kirchhof 2006, p.43). An amendment to the International Arbitration Act was made in the on the 17th of June, 2010 by the Australian Federal Senate as a way of enhancing efficiency of Australian proceedings and in turn transform Australia into an international venue where arbitrations are undertaken. By implementing these reforms, Australian states hope to conform arbitration rules to INCITRAL Model Law. One major change is in the section 21 that has been amended to read “The Model Law covers the field”. Amendments to this section ensure the inclusion of the Model Law in the making of decisions by arbitrators and courts. It strongly contrasts with the decision made by Queensland Supreme court of appeal in the case of Australian Granites Limited. Amendments have also been made to the Domestic Arbitration Laws with an aim of creating harmony between the Model Law and the Commercial Arbitration Act in regards to the International Arbitration Act. With more and more countries, states and territories adopting the use of the model law in a, its effectiveness as well as efficiency has continued to be evident in various cases. The adoption of this law for international arbitrations has continually changed from what once used to be a rare practice to a practice that has now become universally common. Perceptions on how UNCITRAL Arbitration Rules and others work together in relation to the Model Law have also continued to change (Gary 2010, p.34). With amendments being made to the arbitration rules, gaps have previously been identified through decisions made based on this laws and corrective measures put in place to fill these gaps that have rendered this rule/ law as being bad. The case of the Australian Granite Limited is one through which such gaps were identified and the law used to make a final decision were regarded as being completely wrong. The importance of including the Model Law in the application of international Arbitration Rules is one that has currently being realized by many arbitration practitioners not just in Australia but in other states and parts of the world as well. Q3. Mr. Smith, in Australian had a contract with Mr. Schmidt in Germany. Mr. Schmidt complained about the suitability of the goods and started proceedings under the ICC rules in Singapore. Mr. Smith objected to the competence of the tribunal on the grounds that there is a non-existent contract as he never signed the document. This is the only defense Mr. Smith puts forward in relation to the competence of the tribunal. Mr. Smith does not object Mr. Schmidt’s action of proceeding under ICC rules in Singapore because he understands that under ICC rules, arbitration only occurs between two parties who are in a legally valid contract. He will surely win the case since there is no any existing contract between the two. This is in recognition that Arbitration is basically a contract between two people based on their consent. If Mr. Smith did not sign any contract, it is an indication that did not agree with the contract or the terms and conditions as provided by Mr. Schmidt. Referring the Model Law, an arbitral tribunal can only decide on a case if there is a contractual agreement between two parties. The fact that there is no signed contract between the two renders any tribunal being formed in Singapore incompetent to deal with the case. Mr. Smith cannot be forced to arbitrate his claims unless he willingly decides to do so through a signed contract. Even if the two had agreed on arbitration and provided arbitration clauses, the fact that there is no signed document between the two as evidence of an existing and valid contract. The tribunal cannot act in favor of Mr. Schmidt since this would lead to the tribunal being considered as incompetent or inefficient. A party cannot in any way be forced to arbitration if it did not agree to it. In this case Mr. Smith can argue that there is no any valid arbitration agreement between him and Mr. Schmidt. The arbitration clause is therefore unenforceable since it is invalid. The jurisdiction of a tribunal cannot be based on good faith and efficiency only as evidence is required to support any claim. Mr. Schmidt was obligated to mitigate any losses and therefore Mr. Smith will not be required to pay for any damages. He had the responsibility of ensuring that Mr. Smith signed the contract so as to ensure that he would take responsibility if the goods were of standard. Mr. Smith can argue that the quality of goods was not specified since there was no valid contract existing between the two. Mr. Smith is not obligated to follow the standards of goods in Germany. It was unreasonable that the CLAIMANT (Mr. Schmidt) relied on the judgment of Mr. Smith as to whether the goods are fit for his purpose. This is in accordance with UNCITRAL Secretariat 35 para. 7 (Karyn 1997, p.93). Mr. Schmidt cannot hold arbitrators, the court, ICC, ICC National Committees and ICC employees liable to any party due to his act of omission with regard to arbitration. This is in reference to Article 34 of the ICC Rules (Schäfer et al 2005, p.47). He omitted the step of having Mr. Smith sign a contract before commencing business with him. Arbitration awards can only be only enforced when they exist in writing. The arbitration does not have any base to support the actions taken by the CLAIMANT. It is on these grounds that Mr. Smith is likely to win the case. Q4. Explain how an arbitral award can be enforced in Australia and under which law. Also explain under which condition an award can be challenged. The enforcement of an arbitration award in Australia can be done through the application of different regimes. A claim for breach of contract is investigated and evidence gathered to enhance the process of enforcing it. According to the international Arbitration Act section 8(2), an award may be enforced in a given territory or state as though that award was made n that territory and in accordance with the law of that particular land. However, the award should not contradict the law of the land where it is to be enforced. This was applied in enforcing a Chinese arbitration award in Australia. The Commercial Arbitration Act also supports the enforcement of arbitration awards in Australia. According to section 33, an arbitration agreement may be enforced by leave of the court in a similar manner as an order or judgment of the court to the same effect, and if so, the judgment may be made with regard to the terms provided in the award (Lew et al 2002, p.249). A major consideration in the enforcement of an arbitration award in Australia is the controversy or agreement of an arbitral awards with Australian public policy. This is with regard to Model Law (UNCITRAL Model Law on International Commercial Arbitration 1985) and New Yolk Convention (New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958). Where the award is contrary to public policy, it is not enforced. This process involved a keen investigation of relevancy while giving a narrow approach to exception of public policy (Lew et al 2002, p.254). However, a consideration of public policy may condone or cause injustice. It is for this reason that Australian Judiciary system may have to shift from the current state of taking a narrow approach on public policy to its exception. This will be necessary to ensure that the judiciary system retains its integrity and that people have faith in the arbitration system bearing in mind that trade between Australia and other countries is on the increase. In Australia, an arbitration award can be challenged if the either of the parties was not in a position to present its case in the proceedings, the notice on the appointment of the tribunal was not properly given, the award is contradicts the public policy of Australia, settlement of the Arbitration cannot be effectively done in Australia, the deals of that particular award are outside the signed agreement between the parties, the agreement was not validated legally and if one of the parties involved was driven to sign the arbitration agreement due to some circumstances that existed during the signing of the agreement and was thus in some kind of incapacity. An award can also be challenged in case of serious irregularity in the operation of the tribunal selected to conduct the arbitration. To do this, one must have enough evidence that actually the process was fraud. This is a very rare case as the Tribunal operates within the given rule and has to maintain confidentiality and integrity in the process. According to Article 15 (2) of the ICC Rules, the enforcement of an award may be challenged on the basis of lack of independence on the part of the arbitrator (Hörnle 2009, p. 56). An arbitrator ought to be independent of the parties involved in arbitration. This is seen as a hindrance o the tribunal acting fairly and impartially. Article 34(2)(b)(ii) of the model law states that an award is considered to in conflict with Australian public policy if the process of making the award was affected or induced by corruption or fraud or the process did not by any means follow natural justice rules. If an award passes this test, then it can be enforced in accordance with the law of the land. Bibliography Barnett, E, 2003, Contracts. New York: Aspen Publishers. Buhring-Uhle, C, and Lars Kirchhof, G, 2006, Arbitration and Mediation in International Business, Australia: Macmillan Publishers. Gary, B 2010, International Commercial Arbitration, Australia: Harper Collins publishers. Hans, W, 1959, Pacta Sunt Servanda. The American Journal of International Law, 53 (4): 76- 85. Hörnle, J, 2009, Cross-border internet dispute resolution. Cambridge: Cambridge University Press. Karyn, W, 1997, 'Equity in International Arbitration: How Fair is 'Fair'? A Study of Lex Mercatoria and Amiable Composition' (1994) 12 Boston University International Law Journal 227. Lew, J, Mistelis, L and Loukas Mistelis,S, 2002 ‘Keeping the Unruly Horse in Control or Public Policy as a Bar to Enforcement of (Foreign) Arbitral Awards’ (2000) 2 International Law Forum Du Droit International 248, 248. Schäfer, E, Verbist, H, & Imhoos, 2005, C, ICC arbitration in practice, The Hague: Kuwet Law International. Read More