Legal Advice on the Content of Arbitration Clause - Essay Example

?Section A (A Legal Advice on the Content of Arbitration Clause Arbitration aims to provide an alternative method to the traditional civil court settlement to resolve a dispute based on law, fact or both. In order to provide a binding decision for the resolution of the dispute and to ensure that the parties to the case accept the arbitral award, it is necessary that the agreement signed between the parties should be an arbitration agreement. Accordingly, an agreement is considered an arbitration agreement when it constitute an arbitration clause or has provided arbitration as the ultimate method of dispute resolution1. Arbitration does not arise automatically as a possible method for resolving the dispute unlike seeking courts assistance. In normal circumstances, arbitration arises when the parties to a contract have agreed to arbitrate. Either the parties have included arbitration in the agreement as an arbitration clause or decide to adjudicate after the dispute has arisen. In both the cases, arbitration will be available to the parties to the contract to resolve a dispute. However, there are some clauses which give rise to arbitration as an alternative dispute resolution method to the parties without the fact that they have agreed to arbitrate or not. In an international arbitration clause, the primary element is international and the secondary elements form the basis of arbitration. In international contracts, it is of utmost importance that there are provisions in the contract that determine the forum, selection of law, arbitrators, seat and place of arbitration, and etcetera. According to Born (2005)2 these provisions can assume the form of arbitration agreement or forum selection agreement (p.2). These agreements are followed by the choice-of-law clause which determines the choice of the parties for the substantive law that will be applied during adjudication (Ibid, 2005). The law stipulates that the arbitration agreement should give due reference to the mandatory clauses without which the matter will become uncertain and requires intervention by the civil courts having jurisdiction3. At the same time, there are non-mandatory clauses which are left at the discretion of the parties to decide. Therefore, the arbitration agreement that comprises of mandatory clauses are enforceable in law without further evaluation or decision making by the courts. The non-mandatory clauses can be adopted (1) by the parties to the contract per se or (2) they can follow their own terms and conditions or (3) adopt the rules of their respective association like UNCITRAL, International Chamber of Commerce and London Court of International Arbitration (LCIA). The mandatory clauses include the following checklist which is not exhaustive in nature: seat and place of the arbitration tribunal, providing the general means of fulfilling the non-mandatory clauses, ensuring separability of the arbitration agreement, post-death of party situation, time of initiation of the arbitration proceedings, number of arbitrators and details about arbitration tribunal, procedure of arbitrators’ appointment, chairman or umpire, revocation of authority, jurisdiction, consolidation, representation, general powers, powers of civil courts, preliminary point of law, awards, remedies, interest, time periods and appeal. These clauses as mentioned in the Arbitration Act 1996 cannot be overridden by the contrary agreement agreed by the parties. However, the non-mandatory clauses of the Arbitration Act 1996 are allowed to be changed by the parties with mutual consent and in the absence of such agreement, the clauses will become applicable automatically4. In practice, there are two types of arbitration clauses which are commonly used by parties, namely: (1) Informal Clause and (2) Sample Clause. The informal clause is one which does not use the formal language of the law. For instance, the clause “arbitration in London - English law to apply” is an informal arbitration clause as it does not use the standard legal language5. Nevertheless, the courts in UK have upheld these clauses as valid arbitration clauses and fully enforceable in law. Likewise, the clause “internationally accepted principles of law governing contractual relations” have also been upheld by the UK court as valid and enforceable in law6. A sample arbitration clause are provided by the international arbitration organizations for the parties to use without spending time and effort in putting up an arbitration clause. This saves time and financial investment in ensuring that the arbitration clause is fair and provides mutual obligation on both parties. For instance, the court found that the arbitration clause is unconscionable as the employee was subject to arbitration but the employer was not. The court held that the arbitration clause should be equitable to obligate both parties of the contract in equal manner7. Likewise, the court held that where the arbitration clause is found biased towards one party is “unduly oppressive and therefore void and unconscionable”8. Therefore, the international arbitration organizations like Chartered Institute of Arbitration (CIA), LCIA and ICC have provided sample clauses to avoid the happening of the event where the arbitration clause is held void and unenforceable at the time of the dispute. The LCIA has provided recommended clauses for future and existing disputes. For future disputes, it has recommended the following clause: "Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be [one/three]. The seat, or legal place, of arbitration shall be [City and/or Country]. The language to be used in the arbitral proceedings shall be [ ]. The governing law of the contract shall be the substantive law of [ ]."9 The above arbitration clause shows the agreement that both parties are willing to refer any future dispute that arises from this contract to arbitration. Thus, making it an arbitration agreement. Furthermore, it clarifies that the parties agree to follow the LCIA rules for the non-mandatory clauses as well as mandatory clauses. However, in case LCIA rules are contrary to the mandatory clauses, the mandatory clauses will supersede the LCIA rules. Here are the LCIA rules will answer all the questions of arbitral award, remedies, situation after death of a party, etc. The recommended clause also designates the seat of arbitration by the party as it is effective that the parties themselves designate the seat of arbitration. The seat of arbitration is the juridicial seat that executes the scope and applicability of the arbitration agreement10. In international agreements, the seat of arbitration where the arbitration is signed and the place of arbitration where the hearings are actually undertaken cannot be the same. Therefore, it is necessary that the seat of arbitration has been either designated by the parties to the contract in the award or by an institution authorized to do so. In the absence of designation of the seat of arbitration, it should be determined by the civil court who have the jurisdiction to consider the case even when the seat has not been designated or determined. The place of arbitration is the country whose laws will be the substantive law that will be followed to adjudicate the dispute. In the recommended clause, the parties will designate the place of arbitration and the governing law to remove the confusion which law shall be applied in case a dispute has arisen. Furthermore, the recommended clause also provides the opportunity to the parties to agree to the language that shall be used to arbitrate in international arbitration. Thus, resolving the issue of language difficulties. The arbitration clause designates the geographic platform for arbitration as well as choose the law that will be followed to resolve the dispute. The initial clause is the arbitration clause whereas, the clause that designates the forum of arbitration is called forum clause and the clause that designates the substantive law is called as choice-law clause. The agreement that comprises of an arbitration clause is known as an arbitration agreement. An arbitration agreement is considered independent and separable in nature. Therefore, if the major contract is void, the arbitration agreement will be enforceable. It is advised to Toop Gearbox Limited (TGL) to incorporate the arbitration, forum and choice-law clauses to form a valid and enforceable arbitration clause. Furthermore, include the answers to mandatory clauses in relation to arbitrators, seat, place, costs, awards, powers of courts, arbitral tribunal, expenses, interests and other details to make it a valid arbitration agreement. Alternatively, TGL can refer these detailed issues to the international arbitration organization rules to take care of the matter. Furthermore, TGL can adopt the recommended clause of LCIA, CIA or ICC to completely resolve the arbitration clause validity issue. Bibliography Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal 4th 83 (2000) Arbitration Act 1996 Bary B. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (First published 2005, Kluwer Law International 2006) 333 Bruce Harris, Rowan Planterose & Jonathan Tecks, The Arbitration Act 1996: A Commentary (First published 1996, Blackwell Publishing Ltd 2007) 507 Deutsche Schachtbau v R'As al-Khaimah National Oil Co [1990] 1 AC 295 Herbert Smith, How significant is the seat in international arbitration? (Practical Law Company, 2012). Link: Graham v. Scissor-Tail, Inc, 623 P.2d 165 (Cal. 1981) LCIA, Recommended Clauses for Future Dispute (2012). Link: Swiss Bank Corporation v Novrissiysk Shipping [1995] 1 Lloyd's Rep 202 Read More