Reasons Why Courts Intervene - Research Paper Example

International commercial arbitration “is a means by which disputes arising out of international trade and commerce are resolved pursuant to the parties voluntary agreement, through a process other than a court of competent jurisdiction.” 1Arbitration is a legal system that exists in its own bubble, so to speak. It does not operate solely on the basis of contract, nor on courts relinquishing jurisdiction, but, rather, has a life of its own, an existence outside the traditional legal system.2 Moreover, by choosing arbitration, the parties have agreed that they want to settle their matter in way that is alternative to the courts, and, by agreeing to an arbitration clause, the parties have explicitly rejected the courts jurisdiction. This can occur for any number of reasons, including the unacceptability, unsuitability and the inappropriateness of the court. Whatever the reason, arbitration clauses make clear the parties intent, and this intent is to not litigate their dispute. 3 The arbitral tribunal has the responsibility in disposing of all matters that are subject to dispute.4 Therefore, court intervention in these matters is potentially problematic, and can even be said to be contrary to the parties intentions. Yet, courts routinely get involved in matters that are set to be resolved by arbitration. Although there are some advantages to court intervention, there are significant disadvantages as well. For one, court intervention introduces the complications that arbitration is designed to avoid – it makes arbitration expensive, lengthy, and less efficient. Arbitration challenges “result in parallel proceedings, create potentially lengthy appeals, and require parties to retain local counsel at the seat of arbitration.”5 Moreover, according to at least one commentator, court intervention is usually only seen when emotions are high,6 which means that court intervention would tend to have even more of a deleterious affect on arbitration proceedings. I. Reasons why courts intervene There are a variety of reasons why courts get involved, and the forms of court involved are also varied. At base, courts cannot be completely excluded from the arbitration process because they are required to enforce arbitration agreements and awards, and need to police and support the arbitration process with international standards.7 The power that the courts have in the arbitration process may be categorised as powers of assistance, powers of intervention, powers of supervision or control, and powers of recognition and enforcement.8 The courts become involved in different stages of the arbitration process, according to the UNCITRAL Model Law and the New York Convention. The first stage is prior to establishing a tribunal. The court may get involved if one party challenges the validity of the arbitration agreement; one party institutes court proceedings that are designed to avoid the arbitration process;9 and one party needs urgent protection that cannot wait for the arbitration tribunal to commence. The second is at the commencement of arbitration, and this is generally limited to assisting in appointing a tribunal and handling challenges to the tribunal. The third is during the arbitration process, and this is where courts make procedural orders that cannot be ordered by the arbitrator, or make orders for protection and evidence-taking. The fourth is during the enforcement stage, and this is where courts intervene if a party challenges the award or an appeal is lodged; and where the successful party seeks recognition and enforcement of the award.10 International rules, as set forth by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “New York Convention”) specifies, according to Lew (2007), that court involvement in arbitrated disputes is limited to enforcement and recognition and, according to Lew, any other powers used by the courts in these disputes is illegitimate, under the New York rules.11 On the other hand, UNCITRAL Model Law takes a different tact. UNICITRAL is the short name for the United Nations Commission on International Trade Law, and it was formed in 1966 as a way to harmonize and unify international trade law.12 Countries who adopt these model laws make their country more hospitable to arbitration, as these laws replace their domestic laws, thus enabling parties to an arbitration dispute to have a more predictable and uniform procedure to follow than if they would be following the countrys domestic procedures.13 UNICITRAL provides that courts may intervene if it is provided for in that law, and there are three general areas where court involvement is acceptable under the UNCITRAL Model Law: to assist in appointing the tribunal - ensuring proper appointment of a tribunal where there is a failure of the appointment mechanism, the arbitrators independence or impartiality are challenged, or the arbitrator is incapable of performing his or her duties; to review issues of fundamental jurisdiction; and when parties challenge the award.14 As for courts assistance, one of these powers is the power to challenge and disqualify arbitrators.15 There are a number of reasons for court intervention in challenging and disqualifying arbitrators. One is capacity. For instance, in France, arbitrators must be a “natural person who is fully entitled to exercise his civil rights;”in Switzerland, objections may be raised to arbitrators who have been deprived of the exercise of civil rights or who has been sentenced to a deprivation of liberty for a crime of delict damaging his reputation;16 in the United States, a sitting judge cannot be an arbitrator. The second reason for disqualification is special qualifications. For example, if the dispute involves maritime issues, the parties may agree to an arbitrator with a background in admiralty law.17 If the appointed arbitrator does not have such a background, this would be a ground for challenge. The third is nationality. The parties may agree to nationality, and, if they do not, restrictions on the nationality of the arbitrator may be imposed by statute.18 The fourth is independence.19 The arbitrator must be independent of the parties. This is a universal requirement. The fifth is misconduct.20 One example is where an arbitrator unreasonably delays rendering an award, fails to act, treats one of the parties unequally, or does not provide both parties full opportunity to present his case.21 Furthermore, other events may make it necessary for court intervention to oversee the appointment of the arbitrator. For instance, the arbitrator may die before the proceedings finish. He may become incapable of acting for some reason, maybe health related.22 Other reasons why courts may use their assistance powers would be to enforce arbitration agreements, if one of the parties is challenging the arbitration agreement itself; and by staying court actions when one party brings the court action, in disregard of the arbitration agreement.23 Generally, courts will enforce arbitration agreements, unless they are against public policy. For instance, in the United States, arbitration is compulsory where there is a valid agreement, subject only to public policy concerns.24 The Canadian case of Boart Sweden AB v. NYA Stromes AB25 states that “the very strong public policy of the jurisdiction is that where parties have agreed by contract that they will have the arbitrators decide their claims, instead of resorting to the Court, the parties should be held to their contract.”26 Courts may also intervene in the award enforcement and recognition stage, particularly where there is a challenge to an award. “Recognition and enforcement of arbitral awards is probably the most important aspect of arbitration.”27 With both UNCITRAL and New York Convention, the bases for challenging an award are limited to when issues do not come within the scope of the arbitration agreement, or there has been procedural irregularity in the conduct of arbitration. Examples of this are “the invalidity of the arbitration agreement, lack of notice of the arbitration, that the subject matter of the award is not a difference contemplated by the arbitration agreement, or that the the composition of the tribunal of the procedure followed was contrary to that agreed by the parties.”28 Moreover, courts may get involved “when the principles of natural justice have been infringed or when the ultimate conclusion was one which no reasonable tribunal could have reached.”29 In the United States, judicial review is routine and is established by the Federal Arbitration Act (FAA), which is designed to protect parties from abuse.30 One of these bases for setting aside awards in the United States include manifest disregard of the law.31 Another of the bases is when the arbitrator made an error in interpreting substantive law.32 Moreover, according to the International Arbitration Act 1974, grounds for non-recognition or enforcement of an arbitration award or agreement are that one of the parties had an incapacity at the time that the agreement was made; the agreement is not valid in the country in which it was made, or under the law upon which the agreement was made; the party was not given notice of the arbitration proceedings or the appointment of the arbitrator, therefore was not able to present her case in the proceedings; the award “deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration, or contains a decision of a matter beyond the scope of the submission to arbitration”; the way that the arbitral authority or arbitral procedure was composed was not as the parties agreed or was not in accordance with the law of the arbitration country; or that the award had not yet become binding to the parties or has been suspended or set aside by a court of the country where the award was made. Other provisions include that a court may refuse to enforce a foreign award if the subject matter of the award is not capable of settlement by arbitration under the law of the State or Territory in which the court sits; to enforce the award would violate public policy, which would include an award that was made in response to fraud or corruption, or that “breach of the rules of natural justice occurred in connection with the making of the award.”33 However, the case of Resort Condominiums International Inc. V. Bolwell and Another [1995] 1 Qd R 406,34 states that a court has discretion to refuse to enforce and recognise an arbitral award, even if that award was not specifically in violation of the grounds set forth in section 8 of the IAA, while acknowledging that the general rule that a foreign arbitration agreement is valid if it does not violate one of these tenets. As a result of this, courts in Australia may use their discretion to negate or refuse to enforce an award even if the agreement does not violate the specific circumstances set forth in the IAA35 . Other countries have their own laws and rules with regards to enforcement. There might even be an inherent bias against awards that were rendered in certain countries. For this reason, countries such as France and the United States have adopted specific grounds under which their awards may be set aside.36 For instance, in France, the grounds to set aside an arbitral award are as follows: 1) there was no valid arbitration agreement, or the agreement was expired or void; 2) there were irregularities in the composition of the arbitral tribunal; 3) the arbitrator decided “in a manner incompatible with the mission conferred upon him;” 4) due process was not respected; and 5) recognition is contrary to public policy.37 Similarly, the United States adopted the standards that arbitration awards are to be enforced unless 1) the award was procured by corruption, fraud, or undue means; 2) where there was evidence of partiality or corruption in the arbitrators; 3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing or in refusing to hear evidence; and 4) where the arbitrators exceeded their powers.38 II. Reasons why courts should not intervene While the courts have a number of reasons why it may intervene in arbitration proceedings, there are a number of reasons why it should refrain and keep its intervention to a minimum. One is that countries who are seen as too interventionist may dissuade parties from coming to that country for arbitration.39Since arbitration is a boon for communities, as arbitration popularity has led to arbitral institutes spring up around the world, it affects local concerns as well as countries.40 Countries want to promote themselves as a desirable venue for these disputes, and being too willing to intervene undermines this. This is a problem in Australia, as there is apparently an international perception that Australias courts are more interfering than other courts, such as Hong Kong, Singapore, Switzerland and France.41 According to John Rundell (2009), this perception stems in part from the case of Esso v. Ploughman (1995) 183 CLR 10, in which “the High Court of Australia intervened and the confidentiality of the parties was not preserved by the Courts.”42 Another reason for courts to keep intervention to a minimum is that there is pressure for countries to conform with international standards, and harmonisation and unification of international laws and procedures regarding international arbitration is important.43 In other words, if a country is interventionist, that country is going against the international grain and defeats the goal of harmonising the procedures of international arbitration. A third reason for limiting court intervention is that it violates party autonomy. According to the first UNICITRAL Secretariat “probably the most important principle on which the ML [Model Law] should be based is the freedom of the parties...to tailor the rule of the game to their specific needs.”44 Party autonomy is not just a principle that is important in arbitration law, but forms the basis for the foundation of contract laws, international trade and investment. This is in evidence in different aspects of the UNICITRAL. For instance, it puts minimal requirements on the content and form of arbitration agreement, leaving a broad discretion for parties to define their own substantive and procedural rules that govern their arbitration proceedings. According to Biukovic (1999), this is indicative that the UNICITRAL sees consensus of the parties as the cornerstone of arbitration and the agreement to arbitrate as an expression of the principle of freedom of contract.45 Moreover, according to the UNICITRAL, the parties have the ability to decide how many arbitrators will be on the tribunal, and are free to determine the procedure of appointment and challenging the appointment. Only when the parties fail to agree will the UNICITRAL rules be applicable, which would necessitate court intervention.46 Conclusion Parties agree to arbitration for one major reason – they do not want to go to court. Litigation is expensive, time-consuming, a huge hassle, arbitrary and capricious. Courts have different rules and procedures, which lends an unpredictable air to the proceedings. Particularly in the realm of international commercial disputes, having cases end up in court is a particular disadvantage to the party who is not a citizen of the country in which the case would be tried. Unfortunately, litigation and the judiciary is difficult for members of a domestic bar to maneuver, let alone somebody from a foreign country. Therefore, it is incumbent that individuals have the right to sign an arbitration agreement and know that court intervention would be minimal if not non-existent. This is the essence of party autonomy and freedom of contract. Parties sign arbitration agreements, and these agreements are bargained-for and represent the desire of the parties. In particular, the desire of the parties is to not be subjected to a foreign court, or any court, for that matter. Arguably, judicial intervention infringes on this autonomy and freedom to contract, because it gives the parties exactly what they did not want. On the other hand, some court intervention is necessary. Although there is some view that arbitration proceedings exist in a “bubble,” and occupy a universe and world of its own, that, unfortunately, is not true. Parties to a dispute often have their emotions running high, and this causes conflict, right from the beginning. Therefore, one party who wants to “stick it” to the other party may decide to try to disqualify an arbitrator for capricious reasons, or might even try to take the case to court without the other partys consent. Or, the arbitrator himself might have an issue. Maybe the arbitrator has an interest in one of the parties, or maybe the arbitrator is unqualified to hear the dispute before him. Perhaps the arbitrator is unqualified according to the rules that have been set up by country who is overseeing the arbitration. There could be any number of reasons why the court needs to intervene before the proceedings gear up, to clear up these disputes and disqualify arbitrators, or not disqualify them, as the case may be. Courts also need to be on hand to order the parties to arbitration if one party tries to sneak the case into the judicial system. In that case, courts need to stay the proceedings that have begun so that the parties can arbitrate, therefore effecting the agreement that they made. In this way, courts actually help the autonomy of the parties, as the court makes sure that the agreement that was made is enforced. And, court intervention is also necessary to police the proceedings, and make sure that the arbitration rules are followed by the arbitrator and the parties. Included in this is the capacity to decide jurisdictional issues, as well as decide if the matter is capable of being settled by arbitration. This is a legitimate, innocuous use of the courts power and does not really infringe upon a partys autonomy to arbitrate. More problematic are other reasons why a court intervenes. For instance, with the issue of enforcement, there is a problem. On the one hand, there are instances where a court should not enforce an award – one of the parties did not get notice of the proceeding; one of the parties had an incapacity of some sort; there was some kind of inconsistency in the proceedings that was not contemplated by the parties involved. These are straightforward reasons not to enforce an award, that are well-defined and predictable. Because they are well-defined and predictable – it is obvious when one party did not get notice to the proceedings, just as it is obvious if one party is incapacitated, and the inconsistency in the proceedings should also be obvious – these grounds for non-enforcement are less intrusive to a partys autonomy than other grounds might be. The problem is when a court is allowed to not enforce a proceeding because of some vague standard – such as “manifest disregard for the law,” “breach of natural justice,” or because it is against public policy. And, Australia has a particular concern in this area, as at least one case has stated that Australia courts may set aside an arbitration award as it sees fit, even if there are no violations that would come under the model rules. The problem with these vague standards is that parties can use them against other parties to drag the proceedings where they are not supposed to go – to court. When there is a vague standard in place, or, in the case of Australia, there is basically no standard in place, then there is an opening for one of the parties to ask for judicial intervention. For it is up to the judiciary to decide if there is some “manifest disregard for the law,” or some “breach of natural justice,” or some other reason to not enforce the award. And this is a problem because of the fact that this subjects the enforcement to the award to each countrys system of courts. Some countries have state courts, local courts, federal courts, and supreme courts. Each of these courts have their own rules, and the individual judges in these courts are autonomous and free to interpret these terms as they see fit. This necessarily leads to a decrease in party autonomy. When two parties sign an arbitration agreement, the thought is that dispute proceedings will be orderly and not subject to the whims of a judiciary. However, when different countries have different standards with regards to enforcing arbitration awards, it introduces the element of disorder and chaos that is exactly opposite of what a party bargained for in signing the arbitration agreement. Therefore, it directly goes against the partys autonomous right to bargain for favorable terms. Moreover, when countries are known to interventionist – that is, a certain country is known for having their judiciary intervene in arbitration agreements more than other countries – it lessens the attractiveness of that country as far as arbitration matters go. However, this is not an affront to party autonomy – each party has the right to decide with whom they contract, and which country will arbitrate the dispute. This is actually a boon to autonomy, because the parties can look at different countries, research the countries, and decide if that particular country is one that is advantageous to the proceedings. Therefore, the only entity who is disadvantaged by this is the country itself. The bottom line is that courts should take a laissez faire attitude towards arbitration. They should get involved in the appointment of arbitrators, and they must get involved to resolve jurisdictional issues and issues about whether or not a certain dispute is capable of being arbitrated. They should even get involved in the enforcement realm, when there is some kind of manifest injustice – one party did not get notice of the proceedings, or one party was incapacitated. However, court intervention in this area should be kept to a bare minimum. At the time of enforcement, the parties have already gone through the expense and time in arbitrating their dispute. They have already autonomously decided that arbitration is proper, and they have presumably already autonomously decided on the choice of an arbitrator. The courts have already decided that the matter can be arbitrated, and that there is proper jurisdiction. In other words, the parties have gone through a lot of trouble to get their award, and it is problematic when a court can arbitrarily void it for some vague reason. And this is definitely an affront to party autonomy, as it subjects at least one of the parties to a judiciary under which they feel uncomfortable, as it is a foreign country to them. They must either hire local counsel, and communicate with that counsel long-distance (which, admittedly, is easy to do with e-mails and such), or hire counsel from their country and pay the enormous expense for travel for that person. Not to mention the burden of finding somebody in their own country who is licensed to practice in the foreign country. Then they might have to travel themselves – to depositions, to court, etc. This is precisely the scenario that they no doubt were trying to avoid when they signed the arbitration agreement. Therefore, subjecting the party to this scenario is a direct affront to the partys autonomy, and court intervention in the enforcement process must be kept to a minimum and must be predictable and not capricious. It must also be used only in cases where the enforcing party was a part of a situation where they should have known better. For instance, in the case of incapacity, the other party should have known that the person is incapacitated in some way. In cases where one of the parties did not get notice of the proceedings, this is something that the other party should also know and be responsible for. In this case, non-enforcement of the decree is not only mandatory, but is really not an affront to the other party, because the other party was, in essence, the reason why the award was not capable of being enforced. That said, countries such as France the United States have gone a long way in ensuring that there is some consistency to the process of enforcing their awards. By delineating limited circumstances where courts can set these awards aside, it gives the parties to these arbitration seats some comfort in knowing these circumstances, thus reinforcing that partys autonomy in the process. If that party does not like the terms of the particular country, then that party does not have to agree to arbitration in that country. He is autonomous to decide this, and has prior knowledge of the countrys standards before signing this agreement, which further enhances his autonomy. This is how all countries should approach the topic of enforcement, and fill in the gaps that are left by international standards. Bibiliography Biukovic, L. 1999, “Court Intervention in Arbitral Proceedings in Countries Adopting the UNICITRAL Model Law on International Commercial Arbitration: An Impact of Legal Culture on Reception,” Doctor of Philosophy Thesis, pp. 1-395. Available at: https://circle.ubc.ca/handle/2429/11378 Boart Sweden AB v. NYA Stromes AB(1988) B.L.R. 295 (Ont. H.C.) Daniel, A. 2010, “The Role of Domestic Court in International Commercial Arbitration,” pp. 1-30. Available at: www.ssrn.com/abstract=1674760 Farnsworth, E.A. 1972, “UNICITRAL – Why? What? How? When?” The American Journal of Comparative Law, vol. 20, no. 2, pp. 314-322. Kallel, S. 1992, “The Tunisian Draft Law on International Arbitration,” Arab Law Quarterly, vol. 7, no. 3, pp. 175-196. Kerr, M. 1985, “Arbitration and the Courts: The UNICITRAL Model Law,” International and Comparative Law Quarterly, vol. 34, no. 1, pp. 1-24. Koh, S. & Hager, J. 2010, “Ordering Costs to Temper the Americanization of International Commercial Arbitration,” Bloomberg Law Reports, pp. 1-4. Available at: http://www.perkinscoie.com/files/upload/COMM_10_08_OrderingCostsArticle.pdf Lew, J.D. 2007, “Does National Court Involvement Undermine the International Arbitration Process?” American University International Law Review, vol. 24, pp. 489-537. Manjiao, C. 2009, “Time To Make a Change? A Comparative Study of Chinese Arbitration Law and the 2006 UNICITRAL Model Law and the Forecast of Chinese Arbitration Law Reform,” Asian International Arbitration Journal, vol. 5, no. 2, pp. 1-10. 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Available at: http://www.metrocorpcounsel.com/current.php? artType=view&artMonth=October&artYear=2010&EntryNo=9967 Tupman, W.M. 1989, “Challenge and Disqualification of Arbitrators in International Commercial Arbitration,” International and Comparative Law Quarterly, vol. 38, no. 1, pp. 25-52. U.N. Commission on International Trade Law (UNCITRAL). Westerbeke v. Daihatsu Motor Co. Ltd., 304 F.3d 57 (2003). Wilko v. Swan, 346 US 427 (1953). Read More