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Arbitration - Some Frequently Asked Questions: February 2006
Arbitration - Some Frequently Asked Questions: February 2006
February 2006
What is arbitration?
If parties agree arbitration they agree to take their civil disputes out of the
court process to be determined by an arbitration tribunal (normally one or
three arbitrators) rather than the courts.
Why arbitration?
Because it is a contractual process about which the parties are able to agree
important aspects, for example, the number of arbitrators, the process for
appointing the arbitration tribunal (“the tribunal”) and the location (“the
seat”) of the arbitration. Many international agreements specify arbitration as
the contractual dispute resolution procedure as neither party wants to litigate
in the other’s home jurisdiction.
The major arbitration institutions (people are most familiar with the ICC, LCIA
and AAA) have their own sets of rules which provide a framework for the
arbitration and an administration to assist with the process, e.g. the
arbitration is commenced when a request for arbitration is lodged with the
institution. The institution will also assist with problems, e.g. a challenge that
an arbitrator is not independent. The institutions can also act as an
appointing authority where an arbitrator or arbitrators need to be appointed
by a third party.
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What are arbitration rules?
Most institutions will have rules. There are also rules which are not
institutional, and parties sometimes provide for institutional (e.g. LCIA)
arbitration with, say, UNCITRAL Rules (a widely used set of non-
institutional rules).
Yes. The rules differ slightly. The ICC’s charging structure is different, as it
is based on the value of the claim rather than an hourly fee rate, and the
ICC also has a supervisory court which vets awards to ensure that all
issues have been dealt with (rather than to oversee any decision on the
merits).
Information about the institutions, their rules and standard clauses can be
found on their websites. For example, www.iccwbo.org, www.lcia-
arbitration.com and www.adr.org.
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Arbitration Clauses
“All disputes arising out of or in connection with the present contract shall
be finally settled under the Rules of Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in
accordance with the said Rules.”
Parties can agree to have existing disputes settled by arbitration and a similar
clause could be used in these circumstances.
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What if it is argued that the contract containing the arbitration clause
is void?
Choice of Arbitrators
It is usual to agree one or three arbitrators. The parties can agree the
arbitrator and, where there is provision for three arbitrators, it is often
provided that each party nominates one, with the third to be appointed by
an agreed method. As the parties often cannot agree, a contract should
provide a means for appointing the tribunal (“an appointing authority”). This
is often one of the arbitration institutions, but can be a professional body or
other agreed third party.
Not unless the agreement requires this (e.g. “an arbitrator who has worked
in the energy industry”). However, he must be independent/impartial. In a
three man tribunal, all arbitrators should be independent and impartial,
irrespective of how they were appointed.
Yes. The tribunal is not only the adjudicator but also controls the process.
Where the parties cannot agree procedural directions or one party is
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uncooperative, it rests on the tribunal to set the timetable, to give directions
for determination of the dispute and to ensure that the arbitration proceeds
efficiently.
Most provisions do not do so. Depending upon the required qualification, this
can delay or frustrate the appointment of a suitable tribunal, if no
independent person with the required qualification is readily available or is
prepared to accept the appointment.
Seat
There are a number of established arbitration seats. This is partly for historical
reasons and because of perceived neutrality, convenience of location, etc, but
the principal reason is that the local courts are supportive of arbitration and
are not considered to interfere in the process. The language of the local
courts can be relevant if there is a concern that the local court may become
involved, for what ever reason.
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Do all the hearings take place in the seat?
No. Once the seat is chosen it is treated as the place of arbitration even if
hearings are, for convenience, held elsewhere.
No. Most contracts specify the governing law. If a contract does not do so,
then it is determined by the tribunal by reference to such matters as the place
of performance of the contract.
No, save that parties sometimes choose local arbitrators for convenience. Very
rarely do countries require local arbitrators to be involved in matters. So, for
example, an English law arbitration could take place in Geneva pursuant to
the Rules of the ICC (based in Paris) with three arbitrators from Asian
countries.
Procedure
Sometimes, because the underlying principles are similar. However, this is not
necessary and often not desirable. An advantage of arbitration is its flexibility,
allowing the procedures for any particular arbitration, which are determined
by the parties and/or the tribunal, to be tailored to the dispute. Accordingly,
they often differ greatly from court procedures.
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Where an ad hoc clause is unclear, the court can be asked to establish
whether arbitration has been agreed and/or to appoint an arbitrator and/or
to establish, for example, that the arbitration should proceed in London. One
of the advantages of institutional arbitration is that the rules of the institution
can assist where difficulties are encountered.
It should be. Because the process is contractual, agreement can be made for
the service of the relevant notice or proceedings by post or fax. Where the
agreement provides for institutional arbitration, the rules will set out the
process for commencement of the arbitration.
The substantive law is the law the parties choose to govern the contract or
which the arbitrators determine to be the appropriate law, if the contract is
silent. Procedural law is determined by the place of the arbitration.
Accordingly, if the place or seat of the arbitration is London then the
procedural law will be England and, more specifically, the Arbitration Act
1996, which covers such matters as the right to challenge, or appeal,
decisions of the tribunal.
Most contracts will specify a law governing the parties’ obligations (as
opposed to a procedural law, which follows from the place of arbitration).
However, unlike court proceedings, arbitration proceedings can – subject to
the procedural law and the choice of the parties – proceed pursuant to rules
of law or equity – UNIDROIT or ex aequo et bono, for example. However, this
is unusual.
This depends on the procedural law. Most countries have very limited, if any,
right of appeal and institutional rules tend to exclude this.
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How wide is disclosure?
This depends on the arbitrators, who are often influenced by the choice of
seat, the nationality of the parties etc. Disclosure can be very restrictive.
Yes. This can be factored into the agreement. Some rules (for example the
LCIA Rules) provide for expedited formation of the tribunal. If this is likely to
be required it may be preferable not to specify the number of arbitrators or
not to provide for party appointed arbitrators – the institution can then
appoint the tribunal quickly, even where one of the parties is uncooperative.
Some bodies have specific schemes for small scale consumer disputes. Many
international commercial arbitrations are not high value. There is no special
procedure – it is for the tribunal and the parties to approach them
appropriately.
The tribunal is generally able to grant the relief that a court can grant, going
beyond damages to injunctive and declaratory relief, for example.
Yes. The jurisdiction of the tribunal derives from the agreement between the
parties.
If it works well, yes, although one needs to pay for the arbitrator, the hearing
room etc. However, there is no guarantee of this and arbitrations can be long
and expensive. Much depends on the tribunal, which must manage the
process efficiently and take a firm line with recalcitrant parties.
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Confidentiality
Is arbitration confidential?
Arbitration is private. Its confidentiality has recently been called into question
in some jurisdictions and if confidentiality is important, there should be
specific agreement to that effect. However, enforcing confidentiality
provisions can prove difficult.
Treaty Arbitrations
There has been increasing reference lately to BITs and ICSID. What are
these?
BITs are Bilateral Investment Treaties, most of which provide that a party from
one country investing into the other can take the other state to arbitration if
it suffers loss because of unfair treatment. There has been a great increase in
the number of BITs over the last 10-15 years and some high profile
investment arbitrations. BITs sometimes provide that any arbitration should
take place pursuant to the Rules of the International Centre for the
Settlement of Investment Disputes (“ICSID”), an organisation of the World
Bank in Washington. Agreements between states and third parties often also
provide for ICSID arbitrations.
The websites of ICSID, UNCTAD and UNCITRAL contain lists of BITs (although
they are not up to date). See www.icsid.org, www.unctad.org and
www.uncitral.org. The Foreign and Commonwealth Office can provide
information in relation to the UK’s treaty obligations.
Enforcement
Over 130 countries have signed and ratified the 1958 New York Convention
on the Recognition and Enforcement of Arbitration Agreements (“the New
York Convention”). This provides that signatory countries should uphold
arbitration agreements, and that arbitration awards should, save in limited
circumstances, be enforced as if judgments of the Contracting State courts.
Enforcement of an arbitration award internationally should, therefore, in most
cases, be more straightforward than enforcement of a judgment; there is no
similar convention in place providing for the enforcement of judgments
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(although the Brussels Regulation is of similar effect in relation to the
enforcement of the judgments of EU courts in other EU states).
Costs
Most arbitration rules, and the procedural laws in the principal places of
arbitration, provide that the tribunal should have discretion to award costs –
in relation to the parties’ legal costs, the tribunal’s costs and the
administrative costs.
If you have any questions on the subjects set out above, please
contact
Simon Morgan
Tel: +44 (0)20 7825 4209
Email: simon.morgan@simmons-simmons.com
David Sandy
Tel: +44 (0)20 7825 4363
Email: david.sandy@simmons-simmons.com