Arbitration as Method of Settling Disputes - Essay Example

Proposed Amendment to Art 18B of the Australian International Arbitration Act Name Course Date Introduction Arbitration is fast becoming a most preferred method of settling disputes, especially among international business entities. This is because arbitration offers distinct advantages to the parties that cannot be granted or are not present in judicial proceedings where disputes of international character are concerned.1 One of its salient features is the power to choose and determine for themselves the rules, the parameters and the jurisdiction with which their disputes can be settled. The power to choose implies with it the power to select the best person or tribunal that can settle differences with speed, judiciousness and equality without the legal bias that are sometimes present with certain judicial jurisdictions. In short, arbitration grants the parties the ability to choose only what they believed to be a procedures, processes, jurisdictions and forums they can trust to settle their differences with expertise and confidentiality. In addition, arbitration offers the advantages of “simplicity, low cost, confidentiality and rapid resolution.”2 Despite the advantages of arbitration, however, there are also marked difficulties. One of such difficulties is the willingness of arbitration tribunals to issue orders of interim reliefs as well as enforce such reliefs. Realising the importance of interim reliefs in any proceeding that involves the settlement of international disputes through arbitration, the UNCITRAL amended the Model Law in 2006 to incorporate, amongst others, the power of arbitration tribunals to issue interim reliefs, even if application for such is ex parte in nature. The Australian legislature, however, took a step backward in its efforts to update, modernise and make Australian international arbitration rules competitive by hedging on the interim relief aspect exempting ex parte applications for interim reliefs from its adoption of the UNCITRAL Model Law. Overview of the Australian International Arbitration Act Australian legislative power is divided amongst three entities: the federal government; the 6 states, and; the two territories. Laws on arbitration are thus either originated from either any of these entities, but international arbitration rules are passed by the federal legislature whilst domestic arbitration is governed by laws passed by the six states and the two territories. International arbitration is thus governed by the International Arbitration Act (IAA hereafter) 1974 whilst domestic arbitration by the various Commercial Arbitration Act (CAA hereafter), passed by the states and the two territories. The CAAs are more or less the same, but are quite different from their international counterpart although there have been moves to harmonise them with the international arbitration rules.3 The IAA was first passed in 1974, but was later amended in 2006. The original law was passed in compliance by Australia of its obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards or the New York Convention, in short, which entered into force in 1959.4 The IAA is the law that governs all international arbitrations where the parties have chosen Australia as the place where arbitration is to take place in case of contractual disagreements. Under Australian jurisdiction, arbitration is international in character if the places of business of the parties are in different countries. Nonetheless, even if the place of business is common to the parties, the arbitration is still considered international if any of the following elements are present: the place where arbitration is conducted is in a country other than the country of origin of the parties; a significant part of the obligations under the agreement is to be performed in another country; the subject matter of the dispute is more closely connected to another country than the place of business of the parties; there is an express agreement by the parties that the subject matter of the arbitration involves more than one country. Arbitral tribunals are also given leeway to conduct the arbitration in the manner they see fit unless the parties have previously agreed as to the procedural rules that should be used in the arbitration. However, the IAA has specified certain rules that are to be considered mandatory and therefore must be followed in the conduct of the arbitration and cannot be done away with. Examples of such mandatory procedural rules are giving the parties opportunities to present their respective cases, treating both parties with equality and sufficient notice before any hearing is to be conducted.5 To make Australian arbitration more competitive and updated, an amendment to the IAA (Cth) was made in 2010. The most fundamental aspect of the amendment was the adoption of the United Nations Commission on International Trade Law (UNCITRAL hereafter) Model Law on International Commercial Arbitration (Model Law hereafter) 2006 amendment, the fifth country to do so after Peru, Mauritius, New Zealand and Slovenia.6 This adoption of the Model Law into the Australian international arbitration system is illustrated by s. 21 of the law, which states “If the Model Law applies to an arbitration, the law of a State or Territory relating to arbitration does not apply to that arbitration.”7 The aforestated provision highlights the supremacy of the Model Law under Australian jurisdiction as well as clarified the ambiguities brought about by the old law that implied opting out of the Model Law, but not the IAA, which ran counter to the various provisions giving the parties leeway to choose procedures in the conduct of the arbitration.8 Proposed Amendment to Art 18 of the IAA Although the 2010 amendment of the IAA (Cth) stressed the supremacy of the Model Law in Australian arbitration, there are some provisions of the latter that were not included in the adoption. The most prominent of these provisions is Article 17B. The provision states: Article 17 B. Applications for preliminary orders and conditions for granting preliminary orders (1) Unless otherwise agreed by the parties, a party may, without notice to any other party, make a request for an interim measure together with an application for a preliminary order directing a party not to frustrate the purpose of the interim measure requested. (2) The arbitral tribunal may grant a preliminary order provided it considers that prior disclosure of the request for the interim measure to the party against whom it is directed risks frustrating the purpose of the measure. (3) The conditions defi ned under article 17A apply to any preliminary order, provided that the harm to be assessed under article 17A(1)(a), is the harm likely to result from the order being granted or not.9 On the other hand, the IAA (Cth) 1974, as amended, specifically denies the adoption of this particular provision of the law. Hence, s 18B on preliminary orders of the law states: Despite Article 17B of the Model Law: (a) no party to an arbitration agreement may make an application for a preliminary order directing another party not to frustrate the purpose of an interim measure requested; and (b) no arbitral tribunal may grant such a preliminary order. This paper proposes that the following amendment is incorporated into the present IAA adopting the Article 17B. Thus, s. 18B of said law should read as: Despite Article 17B of the Model Law: (a) no party to an arbitration agreement may make an application for a preliminary order directing another party not to frustrate the purpose of an interim measure requested, unless the parties specifically agreed otherwise before the dispute; and (b) no arbitral tribunal may grant such a preliminary order, except as provided in the above exception. Rationale to the Proposed Amendment 1. Interim Measures: Definition and Importance An interim measure is defined as a provisional relief granted to a party while is a dispute is still starting or ongoing and before it is finally settled by a judicial body or tribunal. The main objective of an interim order is to maintain the status quo or restore it to prevent irreversible injury to the party making the interim order application.10 Also called provisional measures, preliminary injunctions or emergency reliefs, this type of measure can prevent injustice in the long run and are therefore, important before final award is decided by the arbitrators. Interim measures are broadly classified as those whose objectives are to avoid or lessen losses or damages and those that aimed at making arbitral awards easier. Some specific interim measures are preservation of evidence, injunctions, attachment orders, security for costs or for payment, and provisional payment.11 Interim measures are important in the settlement of any dispute because settlement at the end may be rendered useless and futile without such interim measures. If the settlement of the dispute, for example, will eventually call for the award of damages or the return of a specific property to one party, such an award at the end, if the party succeeds in the claim, will be of no value and the whole arbitration process a waste of time if such property has already been disposed or alienated by the other party or removed from the jurisdiction of the tribunal.12 Moreover, such measures have the added effect of persuading parties to behave in a way that is conducive to the success of the proceeding before the arbitrators, preserving their rights, and keeping the peace between them.13 The usual procedure for obtaining such a relief is to make an application to the arbitration tribunal, which is conditioned on urgency and the risk of irreparable harm. If such an order is granted, it is usually binding only on the parties to the dispute and is modifiable or subject to review by the same tribunal that issued the order.14 Despite the significance of interim orders, the difficulty of its issuance by an international arbitration tribunal lies in the historical background of the measure. Interim reliefs, such as injunctions and attachments are often equated with judicial courts and this is rooted in public policy issues. Arbitration, however, has become predominant in recent times especially where international business disputes are concerned and giving the power to issue interim orders to arbitration tribunals is a reinforcement of the authority and legitimacy of such bodies. Various jurisdictions have, therefore moved, to modernise their arbitration rules by either explicitly granting such power to arbitration tribunals or endowing such power to parties to opt to give arbitration tribunals the power to issue such orders.15 Realising the importance of such measures, the UNCITRAL moved to foster harmonisation in the treatment of interim measures in international arbitration by various jurisdictions. Thus, in 2006, UNCITRAL amended its Model Law to integrate s. 17 on interim orders precisely clarifying and extending the scope of the powers of arbitration tribunals to issue interim orders. 16 2. The Australian Case As can be seen from previous discussion, the Australian amendment to the IAA (Cth) has adopted the 2006 Model Law of the UNCITRAL making it the exclusive model for Australian international arbitration, but has specifically excluded Article 17B from the adoption. Said provision is in essence an objection to the ex parte use of interim reliefs in international arbitration. An ex parte application for provisional relief is a common judicial procedural application. In denying this power to Australian international arbitration tribunals, the legislature seems to be withholding its complete trust in the capabilities and authority of arbitration tribunals. This, in effect, not only hinders Australian international arbitration from being one and in harmony with the UNCITRAL Model Law and contradicts its intention to be in complete harmony with said model, but also provides a barrier to the complete modernisation and competitiveness of Australian international arbitration system. As previously discussed, interim reliefs are very important. They are necessary tools in judicial proceedings and they are as important too, in arbitration proceedings. An ex parte interim relief, like any other interim reliefs, is not only necessary because of the aforesaid reasons, but because it is more speedy and prevents the other party from taking moves that would render a non-ex parte application for interim relief useless because of the opportunity it gives the other party to dispose or remove property in issue from the jurisdiction of the tribunal. The UNCITRAL Working Secretariat justified the inclusion of the provisions on ex parte on the Model Law with the following reason: Such measures may be appropriate where an element of surprise is necessary, i.e., where it is possible that the affected party may try to preempt the measure by taking action to make the measure moot or unenforceable. For example, when an interim order is requested to prevent a party from removing assets from the jurisdiction, the party might remove the assets out of the jurisdiction between the time it learns of the request and the time the measure is issued.17 Arbitration, whether international or domestic, is underpinned by the party autonomy rule and following this tradition and rationale parties should be able to determine for themselves whether an ex parte application should be allowed or not. This principle is anchored on the belief that parties know best as to what, who and where they should do and go in the settlement of their conflicts and disputes. Although parties cannot strictly decide the law to govern them during dispute settlement, they nevertheless, have the freedom to choose which legal jurisdiction should govern such proceeding. The party autonomy rule gives the party a sense of control and thus, is considered a pillar of arbitration.18 Thus, it is only right that legislature confers to the parties the right whether an ex parte application for interim relief to the arbitration tribunal should be allowed in the settlement of their dispute. In this sense, the parties cannot later on defy the order or refuse compliance of any interim order because they will be barred by the general principle of estoppel. International arbitration has evolved into a significant cog in the administration of justice in commerce and trade, especially in the international front. The role of international arbitration tribunals in stabilising and furthering international commerce, trade and industry cannot be gainsaid and therefore, should find support from all countries. Relative to this, international arbitration is underpinned by autonomy that is separate and distinct from national laws.19 Legislatures should craft laws that strengthen and validate this character to assist in the legitimisation process of international arbitration and arbitration tribunals. Conclusion Parties who seek arbitration instead of resorting to judicial court actions are deemed to find arbitration a more advantageous process than the latter. Among these perceived processes are neutrality, privacy, speed and enforcement.20 Party autonomy in choosing the venue and jurisdiction for the settlement of disputes should be maximised rather than limited and this means that they should be able to choose whether to allow an arbitration tribunal to issue ex-parte interim orders or not. There is no need for a party to seek court intervention when they have already decided that arbitration is more beneficial to them than resorting to court actions. Unless, such an order constitute a violation of public policy or any of the country’s mandatory rule exceptions, an ex parte issuance of interim orders should not be begrudged from the parties or from the arbitration tribunal. If the Australian legislature can grant arbitration tribunals the power to issue interim orders, there is no reason why it cannot extend that grant to ex parte interim orders, whose nature and characteristics are judicially admitted to be part and parcel in the proper administration of justice. Bibliography Atlihan, Ozen, The Main Principles Governing Interim Measures In The Pre-Arbitral Proceedings – Specifically, The ICC Emergency Arbitrator Rules (Annales XLIII, N. 60, 203-262, 2011). Bucy, D R, How to Best Protect Party Rights: The Future of Interim Relief in International Commercial Arbitration Under the Amended UNCITRAL Model Law (American University Law Review, vol. 25(3), 2010). Chatterjee, C. The Reality of The Party Autonomy Rule In International Arbitration (Journal of International Arbitration 20(6), 539-560, 2003). Croft, C, Fairlie, D and Govey, I, The New Framework for International Commercial Arbitration in Australia (http://www.acica.org.au/downloads/conference- 2009/new_framework_for_international_commercial_arbitration.pdf) 2-3 Ferguson, S, Interim Measures of Protection in International Commercial Arbitration: Problems, Proposed Solutions, and Anticipated Results (Currents International Trade L.J., 2003[12]) International Arbitration Act (Cth) 1974. Julian Lew, Does National Court Involvement Undermine The International Arbitration Process? (American University International Law Review, vol. 24(3), 2009. Sherwin S and Rennie D, Interim Relief Under International Arbitration Rules And Guidelines: A Comparative Analysis (The American review of International Arbitration), vol. 20(3), 2009). Whitaker J, Lockheart C and Oii, J. ‘Australia’ in The International Arbitration Review 3rd edn. by Carter J (ed) (Law Business Research Ltd: 35- 46) Wood P, Greenham P, Rosenberg R and Ellison M, Arbitration in Australia, UNCITRAL Model Law on International Commercial Arbitration (Model Law) US Department of State, U.S. position paper to UNCITRAL re ex parte interim measures in arbitration (http://www.state.gov/s/l/2004/78113.htm, 2003) Read More