Relationship between Illegality and International Commercial Arbitration with a Focus on China - Research Proposal Example

? Your Full The Study of the Relationship between Illegality and International Commercial Arbitration with a Focus on China: Research Proposal Name of your Lecturer 19th February, 2012 1.0 Introduction Arbitration is a specially established mechanism for the final and binding determination of disputes concerning a contractual or or other relationship by independent arbitrators in accordance with procedures, structures and substantive legal or non-legal standards chosen directly in indirectly by the parties (Lew at al 2003). The purpose of Arbitration is to obtain a final and binding ruling in a given case (Schafer et al 2005). This means that Arbitration involves the situation where two people agree to either consciously or unconsciously to use Arbitration as a method of resolving disputes that would crop up between them in a legal relationship. In other words, Arbitration involves a form of consensus that allows two parties to present their cases to an Arbitration Tribunal as and when the need comes up. Thus, it can be inferred that Arbitration is generally a situation of choice rather than an obligation. This means that Arbitration is a voluntary option rather than a compulsory one. In comparison to the default position, disagreements between parties in a legal relationship are often referred to the court and handled by the legal jurisdiction of the area in question. However, an Arbitration clause effectively excludes the courts from the resolution of conflicts in the legal relationship (Schaefer et al 2005). In this context, the ruling of an Arbitration tribunal is of the same value as the courts of the land (Lew et al 2003). Arbitration is a popular means of settling disputes in international business (Buhring-Uhle, 2006). Arbitration is often a preferred way of resolving disputes in the international context because of the lack of a definite unified legal jurisdiction for parties with different origins (Park, 2006). This therefore means that Arbitration is used as a system of best practices in a situation where there is no clearcut legal method to solve disputes across borders. Chinese businesses rely heavily on Arbitration around the world. This is attributed to the global expansion drive of the Chinese government which is done through various trading agglomerations in different parts of the world (Tao, 2008). China also maintains a thriving system of Arbitration which runs parallel with the legal system and supports the huge global trading structures in China today (Association of International Arbitration, 2009). 1.1 Legal Scope of Arbitration Arbitration is often viewed as an alternative dispute resolution system (Fox 2009). This is because decisions by Arbitration tribunals are immune from court interference. Fox however identifies that the courts interact with the decisions of Arbitrators in a very complex manner around the world (2009). He states four main situations in which the court could intervene with Arbitration around the globe: 1. A breach of a ruling of the court of Arbitration could be referred to a traditional court for redress. 2. The court could be called in to compel the other side of the case to engage in arbitration if they refuse to do so. 3. The court could force the losing party to abide by the ruling of the court of Arbitration. 4. The traditional courts can pronounce injunctions and other statutes that will become binding in Arbitration cases. The first three pointers indicate that Arbitration systems around the world form a component of the larger justice system. This means that Arbitration systems are fairly independent of the traditional courts and have a unique system that forms a part of the broader legal context. This implies that the Arbitration system is an essential part of the legal system that parties elect to utilise instead of civil or criminal courts. Thus, the Arbitration courts are independent and of an equal standing as some other courts and legal authorities. However, the fourth point indicates that the Arbitration courts are limited by the statutes, rules and legal conventions of the nation at hand. This implies that the Arbitration court is required to remain compliant with the rules of the criminal justice system. This means that the Arbitration courts have to abide by all other conventions and operate within the same context and framework of the legal system. 1.2 Legal Issue with the Jurisdiction of Arbitration Tribunals. If the power and jurisdiction of courts of Arbitration are created through the substance of a legal relationship, then it means that Arbitration can be potentially abused. This could happen when two parties get involved in a situation that comes with inherent elements of illegality like corruption and bribery. In other words, if two people come together to create a contract that has potential criminal elements, they might opt to avoid the legal consequences by choosing arbitration instead of the courts. This could provide some form of 'justice' in a case where one or both parties are involved in some criminal actions. Thus, there is a chance that the Arbitration system could become a tool for the promotion of illegality. It could be used as a vehicle to avoid legal implications and consequences of an act that can be punishable under the law. This is a dangerous situation that can despise Arbitration in the global context. It can cause Arbitration to be used as a tool to exploit the inconsistencies in international law. 1.3 Hypothetical Case Aggressive Limited, is an international company with its headquarters in kone of the five permanent members of the UN Security Council1. It has the reputation for bidding for contracts in nations where the legal and democratic structures are weak. In its international operations, Aggressive Limited has been continuously involved in acts that can be considered illegal in its home country, However, no one has come up with a case against them under any Money Laundering or Bribery Laws. Last year, Aggressive Limited decided to bid for a 100 million contract in a developing country called Gundal. Gundal is a nation that is emerging from a highly corrupt military administration that stayed in power for over 20 years. It is now a multi-party democracy and is ruled by a party dominated by members of the military junta who ruled the country for the past two decades with horrible human rights records. The ruling party who won a dubious election and formed a 'democratic' government which maintains most of the institutions handed down from the old military regime. In the bid, Aggressive Limited was approached by Mr. Corrupt who is a relative of the President of Gundal and a key figure in the ruling party of Gundal. Mr. Corrupt claimed he had a direct authority over Dr. Kickbacks who is the Chief of Staff in the Office of the President of Gundal. Dr. Kickbacks has the absolute power over the authorisation of contracts because the President of Gundal had very little formal education. Mr. Corrupt offers to support Aggressive Limited to get the contract for a 'fee' of 5 million which will obviously be used to finance the ruling party. In Gundal and its neighbouring countries, the practice of bribery of public officials and payment of 'kickbacks' is illegal. At least there are laws against these practices. However, most of these laws exist only in the legal statutes and are not observed. Aggressive Limited agreed to Mr. Corrupt's offer. The agreement is sealed by a contract which contains an Arbitration clause. Eventually, Aggressive Limited is granted the contract and Mr. Corrupt demands his 5 million. Aggressive Limited refuses to grant the funds to Mr. Corrupt because it would be difficult to accounted for it and could have legal implications for Aggressive Limited in its home country. Mr. Corrupt then begins an Arbitration case against Aggressive Limited to recover his 'fees'. His argument is that he rendered a service to Aggressive Limited by way of lobbying for the contract to be granted to them. Aggressive Limited also insists that the contract is illegal and unenforceable. What happens in this case? Does the court of Arbitration have the right to adjudicate in this apparently illegal matter? This issue is quite serious because the matter is one that must be given prompt attention by the law enforcement authorities in Gundal and in the khome country of Aggressive Limited. This implies that the court of Arbitration would need to stand aside and allow the matter to be handled as a criminal case in a traditional court. However, the parties opted for Arbitration willingly. This means that the contract itself could be considered like any other legal relationship which merits to be respected under the legal convention of privity of contract. This is because the parties have a legal relationship and this relationship can be legally guarded under the Arbitration courts until a third party raises a case against any of the parties. In the hypothetical case above it can be observed that until anyone comes over and claims that the contract is illegal, the Arbitration court might be obliged to honour the inherent rights of the parties to natural justice. 1.4 Research Questions Born (para 3) identifies that there are major issues with the Arbitration system if two main things occur: 1. Allegations of bribery and corruption exists but these apparent allegations are not conclusively proven. 2. Where the facts suggest that there are briberies in the contract that is being presented for Arbitration If one party or a third party makes allegations about the involvement of bribery and corruption in a given case that is presented for Arbitration, there might be some questions about whether the case can be handled by the Arbitrators or not. As illustrated, in the hypothetical case, it might not be right for the Arbitrators to take up the case if there are disputes relating to bribery. In such a case, it might be necessary for the case to be presented for criminal investigation rather than hear the allegations of one party against the other. Secondly, if the facts show that there were clear-cut corruption and bribery activities, it might be quite problematic for the court of Arbitration to go ahead and handle it. So in such a situation, there might be a limitation placed upon the Arbitration system. This research therefore attempts to address some important components of this conflict in relation to arbitration in the dominant elements of international law. There are some cogent questions that prompts this study: 1. What are the actual legal limitations of the criminal justice system in relation to corruption and the use of Arbitration to seek the rights of a party in a seemingly illegal matter. 2. What is the exact position of legal statutes China that determine the legal limits of the use of Arbitration in cases where there is some inherent elements of corruption. 3. What are the comparative and relative positions used by other jurisdictions to examine cases with inherent bribery and corruption traces in terms of Arbitration? What does jurisdictions like USA, UK, Hong Kong and other nations say about the use of Arbitration to adjudicate cases involving elements of of corruption and bribery. 4. The implication of the relationship between criminality and Arbitration for Chinese businesses around the world. 1.5 Aims & Objectives The Aim of this research is to identify the key elements of the Chinese and global legal systems that determines the balance between corruption and the use of Arbitration. There are three main objectives of the research. They include: 1. The critical examination of the scope and limitations of the use of Arbitration in cases that come with inherent elements of bribery and corruption. 2. An evaluation of the role of legal statutes in China (particularly the Chinese Arbitration Act 1994) determining the ability of the courts of Arbitration to adjudicate in cases that have inherent elements of corruption and bribery. 3. A comparative analysis of the systems and structures used by the legal systems of USA, UK, Hong Kong and the European Union to determine the balance between the use of Arbitration and the presence of bribery and corruption in a legal relationship. 4. An analysis of the implication of the conflict for Chinese businesses in their overseas transactions and the use of Arbitration. 1.6 Background In 1963, Judge Lagergren stated emphatically that corruption is an international evil and contradicts good morals and destroys good international public policy common to nations (Lagergren 293). In this vein he stated that parties involved in corruption have forfeited their rights to demand any form of justice in law (Lagergren 294). This shows a clear and defined position of the law in situations where corruption is detected or identified in a case. Parties involved in corruption do not have the right to use Arbitration in any way or form. However, the position of Judge Lagergren was established almost fifty years ago. In our modern times, there are some new situations and pointers that makes it quite difficult to use this principle as a hard and fast rule. The first pointer is that the world has evolved into a place where the fundamental human rights of individuals and other parties are important. This means that everyone has the right to a fair civil resolution system according to the elements of a previous contract that was signed. This means that there is a strong case for the Arbitration to be used as a tool for mediation in matters involving a case where there are traces of corruption that have not been conclusively defined as illegal. Secondly, the principles of separability and competence-competence provides the basis for cases with elements of corruption and bribery to be given fair hearings in courts of judicature (Barcelo 1116). These two concepts relate to the decision making strengths of courts of Arbitration. Separability is popularly used in the United States to ensure that cases are given the necessary attention they need in courts of Arbitration (Barcelo 1116). Under the principle of separability, courts view the clause for arbitration independently and differently from the facts that are involved in the case. This means that in spite of the legal setbacks and issues, the clause remains an important thing that can bring the case to a court of Arbitration for examination under the relevant facts of the agreement. The principle of competence-competence is popularly used in Europe to determine the scope and appropriateness of a court of Arbitration to handle a case that has some inherent anomalies (Barcelo 1116). Under the concept of competence-competence, a court might opt out of a given case after objectively examining the elements of the case and then define whether it will want to handle the case or not. A third view is that an illegality affects the substance of a certain clauses of the case but not the Arbitration Clause (Sheppard & Delaney 2). This means that the use of arbitration can be still valid even if some elements of illegalities are defined in a given case. Martin identifies that in the Westinghouse case, the judge ruled that (31): “The court may decide without prejudice to admissibility or merits of the plea or please that arbitration shall proceed if it is prima facie satisfied that an arbitration agreement under the rules may exist” This therefore means that the ability or choice of a judge of a court of Arbitration to hear a case is based on a careful analysis of the case by members of the court. They will therefore have to decide whether they merit to take up the case or not. 1.7 Research Design The research to be conducted in this thesis will attempt to examine the actual elements and implications of various forms of activities that are related to the actual extent and scope of these systems and structures in International Law and Chinese Law. The research will seek to use a blend of secondary sources and primary sources, mainly interviews to acquire information about the realities on the ground. It will draw into sources in jurisprudence and practice of Arbitrators and other academics to identify the boundaries of the interaction between legality and the use of Arbitration. The research will be conducted in three phases in line with the three main objectives of the research. Each phase will have distinct activities that will be geared towards the study of the realities on the ground in relation to the conflict between the variables of the research. 1.7.1 Data Collection & Analyses Data collection will generally be conducted through interviews and secondary sources in all the three phases. Phase 1 Data Collection & Analyses This will involve the examination of relevant literature on legal practice and the examination of case files to define the scope and elements that define the boundaries in the conflict between corruption and arbitration. The secondary sources to be used will include legal cases, textbooks and law reports about cases kinternational law and the Chinese legal system. This will be followed by an interview with a legal authority, like an Arbitrator or a Lecturer in the field of Arbitration. The questions will include issues identified in the initial research into secondary sources. Phase 2 Data Collection & Analyses This will involve an examination of the position of laws and their implications for the conflict under study. It will include a critical examination of components of Anti-Money Laundering Laws, Bribery Laws, and Organized Crimes and Terrorist Laws. How these laws affect the role of Arbitration will be identified by outlining some questions and throwing them to some credible authorities in the field of Arbitration practice. Phase 3 Data Collection & Analyses This will include the study of relevant legal instruments and legal practice trends in Arbitration in relation to cases with inherent elements of corruption and bribery in USA, UK, Hong Kong and the European Union. It will outline the various trends and how the components interact in all these jurisdictions. Issues and conflicts will be outlined and clarification will be sought through an interview with an Arbitration practitioner or academic who has exposure in international practice. Phase 4 Data Collection & Analyses This will be an interview with one Chinese business person who has used Arbitration. A second interview will be conducted with a Chinese Arbitrator. These two interviewees will be asked about the implications of the inherent elements of illegality in contracts and the the potential for the misuse of Arbitration in the future. 1.7.2 Concluding Remarks The research will attempt to identify the relationship between illegality and the use of Arbitration. It will examine limitations for the use of Arbitration in illegal issues in cases in the International Legal context and in the Chinese Legal system. The findings will be compared with specific legal systems and the implications for Chinese businesses in the global context. The research will be a blend of primary and secondary sources. The main primary source will be the interview of authorities in practice, academia and/or business who are connected to Arbitration in the relevant jurisdictions. The data collected will be generalised based on the dominant findings that will be made after collating all the results. There will be theorizations for each of the four phases. This will become the basis of the research and will lead to the formation of views that will define the popular trends. Also, exceptions will be noted in each of the three cases. 1.8 Chapter Outline The fundamental components of this proposal will form the first chapter of the actual research. It will give the overview of the whole project at hand. The other chapters will be as follows: Chapter 2: Literature Review: This will include all the components of the literature review for the four phases of the entire research. It will include central points and ideas that were collated during the critical evaluation of Secondary Sources. Chapter 3: Data Collection Methodology: This will give a more detailed explanation of how data is to be collected. It will come with four Appendices that will outline the questions to be asked in the interviews. These questions will be based on the elements of the Literature Review conducted in Chapter 2. Chapter 4: Results and Analyses: This will include the Results and findings of the interviews. They will be presented through the support of aids and other illustrative systems. They will mainly include the summary of the responses given by the interviewees. Chapter 5: Discussions: This chapter will focus on an analytical review of the findings of each of the three phases in relation to the results and analyses. The Discussions will include the matching up of secondary sources and extra follow up activities with the results and findings of the Research. Chapter 6: Conclusion: This portion will be based on the final theorization of the findings and the examination of the limitations of these findings. 1.9 Bibliography The following books will be used for the actual research. They entail the core readings for the collation of ideas that will be used to complete the project Ambler Tim, Xi Chao, & Witzel Morgen (2008) Doing Business in China London: Taylor & Francis Group Hu Li (2010) Introduction to Commercial Arbitration in China. Website. Available online at: http://www.softic.or.jp/symposium/open_materials/11th/en/LiHu.pdf International Business Publication (2007) China Business Law Handbook New York: International Business Publication. Lo Io Vai & Tian Xiaowen (2008) Law and Investment in China London: Routledge McConnaughay Philip & Thomas Ginsburg (2006) International Commercial Arbitration in Asia Juris Publishing Inc OECD (2005) Governance in China Organisation for Economic Development Van De Berg A. J. (2005) New Horizons in International Commercial Arbitration and Beyond. International Council for Commercial Arbitration. Wacks Raymond (1999) The New Legal Order in Hong Kong Hong Kong University Press. References Association of International Arbitration. Chinese Arbitration: A Selection of Pitfalls. Maklu Press. 2008. Print. Barcelo John. Who Decides the Arbitrators' Jurisdiction? Separability & Competence-Competence in Transnational Perspective. 2003. Print. Born Gary, O'Connell Kirsten & Allen Natalie. Bribery & An Arbitrator's Act's Task. 2011. Web. Buhring-Uhle Christian. Arbitration and Mediation in International Business. Kluwer Law Press. 2006. Print. Fox William. International Commercial Agreements. Kluwer Law International. 2009. Print. Lagergren Gunnar. Arbitration International. 1994. Print. Lew Julian, Mistelis Loukas, Kroll Stefan. Comparative International Commercial Arbitration. Kluwer Law International. 2003. Print. Martin Timothy. “International Arbitration & Corruption: An Evolving Standard” International Energy & Minerals Arbitration Vol 2002. 2002. Journal. Park William. Arbitration of International Business Disputes. Oxford University Press. 2006. Print. Schaefer Erik, Verbist Herman & Imhoos Christoph. ICC Arbitration in Practice. Amsterdam: Kluwer Law International. 2005. Print. Sheppard Audley & Delaney Joachim. Corruption & International Arbitration. 2011. Web. Tao Jingzhou. Arbitration Law and Practice in China. Wolters Kluwer. 2008. Print. Read More