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Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.[1] Other forms of ADR include mediation[2] (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. It is more helpful, however, simply to classify arbitration as a form of binding dispute resolution, equivalent to litigation in the courts, and entirely distinct from the other forms of dispute resolution, such as negotiation, mediation, or determinations by experts, which are usually non-binding. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals their right to access the courts.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Contents

History

It is not known exactly when formal non-judicial arbitration first began but it can be said with some certainty that arbitration, as a way of resolving disputes predates formal courts. Records from ancient Egypt attest to its use especially with high priests and their interaction with the public. Arbitration was popular both in ancient Greece and in Rome.[3]

Under English law, the first law on arbitration was the Arbitration Act 1697,[4] but when it was passed arbitration was already common. The first recorded judicial decision relating to arbitration was in England in 1610.[5] The noted Elizabethan English legal scholar Sir Edward Coke refers to an earlier decision dating from the reign of Edward IV (which ended in 1483). Early arbitrations at common law suffered from the fatal weakness that either party to the dispute could withdraw the arbitrator's mandate right up until the delivery of the award if things appeared to be going against them (this was rectified in the 1697 Act).

The Jay Treaty of 1794 between Britain and the United States sent unresolved issues regarding debts and boundaries to arbitration, which took 7 years and proved successful.

In the first part of the twentieth century, many countries (France and the United States being good examples) began to pass laws sanctioning and even promoting the use of private adjudication as an alternative to what was perceived to be inefficient court systems.

The growth of international trade however, brought greater sophistication to a process that had previously been largely ad hoc in relation to disputes between merchants resolved under the auspices of the lex mercatoria. As trade grew, so did the practice of arbitration, eventually leading to the creation of a variant now known as international arbitration, as a means for resolving disputes under international commercial contracts.

Today, arbitration also occurs online, in what is commonly referred to as Online Dispute Resolution, or ODR. Typically, ODR proceedings occur following the filing of a claim online, with the proceedings taking place over the internet, and judgment rendered on the basis of documentation presented.

Nature

Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding. Arbitration is not the same as:

- Most current Supreme court case concerning arbitration: http://www.abanet.org/publiced/preview/briefs/pdfs/09-10/08-1198_RespondentAmCuPublicCitizen.pdf

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Advantages and disadvantages

Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:

  • when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
  • arbitration is often faster than litigation in court
  • arbitration can be cheaper and more flexible for businesses
  • arbitral proceedings and an arbitral award are generally non-public, and can be made confidential
  • because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
  • in most legal systems, there are very limited avenues for appeal of an arbitral award

However, some of the disadvantages of arbitration can be that:

  • arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees sometimes do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
  • if the arbitration is mandatory and binding, the parties waive their rights to access the courts and have a judge or jury decide the case
  • in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
  • in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
  • if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
  • there are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned
  • although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays
  • in some legal systems, arbitral awards have fewer enforcement remedies than judgments; although in the United States, arbitration awards are enforced in the same manner as court judgments and have the same effect
  • arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore
  • rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard the law.
  • discovery may be more limited in arbitration
  • the potential to generate billings by attorneys may be less than pursuing the dispute through trial
  • unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award
  • although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.

Arbitrability

By their nature, the subject matter of some disputes is not capable of arbitration. In general, two groups of legal procedures cannot be subjected to arbitration:

  • Procedures which necessarily lead to a determination which the parties to the dispute may not enter into an agreement upon:[8] Some court procedures lead to judgments which bind all members of the general public, or public authorities in their capacity as such, or third parties, or which are being conducted in the public interest. For example, until the 1980s, antitrust matters were not arbitrable in the United States.[9] Matters relating to crimes, status and family law are generally not considered to be arbitrable, as the power of the parties to enter into an agreement upon these matters is at least restricted. However, most other disputes that involve private rights between two parties can be resolved using arbitration. In some disputes, parts of claims may be arbitrable and other parts not. For example, in a dispute over patent infringement, a determination of whether a patent has been infringed could be adjudicated upon by an arbitration tribunal, but the validity of a patent could not: As patents are subject to a system of public registration, an arbitral panel would have no power to order the relevant body to rectify any patent registration based upon its determination.
  • Some legal orders exclude or restrict the possibility of arbitration for reasons of the protection of weaker members of the public, e.g. consumers. Examples: German law excludes disputes over the rental of living space from any form of arbitration[10], while arbitration agreements with consumers are only considered valid if they are signed by either party,[11] and if the signed document does not bear any other content than the arbitration agreement.[12]

Arbitration agreement

See also: Arbitration clause

In theory, arbitration is a consensual process; a party cannot be forced to arbitrate a dispute unless he agrees to do so. In practice, however, many fine-print arbitration agreements are inserted in situations in which consumers and employees have no bargaining power. Moreover, arbitration clauses are frequently placed within sealed users' manuals within products, within lengthy click-through agreements on websites, and in other contexts in which meaningful consent is not realistic. Such agreements are generally divided into two types:

  • agreements which provide that, if a dispute should arise, it will be resolved by arbitration. These will generally be normal contracts, but they contain an arbitration clause
  • agreements which are signed after a dispute has arisen, agreeing that the dispute should be resolved by arbitration (sometimes called a "submission agreement")

The former is the far more prevalent type of arbitration agreement. Sometimes, legal significance attaches to the type of arbitration agreement. For example, in certain Commonwealth countries, it is possible to provide that each party should bear their own costs in a conventional arbitration clause, but not in a submission agreement.

In keeping with the informality of the arbitration process, the law is generally keen to uphold the validity of arbitration clauses even when they lack the normal formal language associated with legal contracts. Clauses which have been upheld include:

  • "arbitration in London - English law to apply"[13]
  • "suitable arbitration clause"[14]
  • "arbitration, if any, by ICC Rules in London"[15]

The courts have also upheld clauses which specify resolution of disputes other than in accordance with a specific legal system. These include provision indicating:

  • that the arbitrators "must not necessarily judge according to the strict law but as a general rule ought chiefly to consider the principles of practical business"[16]
  • "internationally accepted principles of law governing contractual relations"[17]

Agreements to refer disputes to arbitration generally have a special status in the eyes of the law. For example, in disputes on a contract, a common defence is to plead the contract is void and thus any claim based upon it fails. It follows that if a party successfully claims that a contract is void, then each clause contained within the contract, including the arbitration clause, would be void. However, in most countries, the courts have accepted that:

  1. a contract can only be declared void by a court or other tribunal; and
  2. if the contract (valid or otherwise) contains an arbitration clause, then the proper forum to determine whether the contract is void or not, is the arbitration tribunal.[18]

Arguably, either position is potentially unfair; if a person is made to sign a contract under duress, and the contract contains an arbitration clause highly favourable to the other party, the dispute may still referred to that arbitration tribunal. Conversely a court may be persuaded that the arbitration agreement itself is void having been signed under duress. However, most courts will be reluctant to interfere with the general rule which does allow for commercial expediency; any other solution (where one first had to go to court to decide whether one had to go to arbitration) would be self defeating.

Applicable laws

Arbitration is subject to different laws. These may be summarized as follows:

  • The law governing the arbitration agreement
  • The law governing the arbitral tribunal and its proceedings (lex arbitri - procedural law)
  • The law governing the substance of the dispute
  • The law governing recognition and enforcement of the award

Severability and law governing the arbitration agreement

The arbitration agreement which is part of the main contract (often referred to as "container contract") is governed by the law which governs the main contract. An important feature of arbitration, however, is severability - the fact that arbitration agreement lives a life of its own and is autonomous of the main agreement. Invoking the invalidity of the main agreement may not necessarily bring with it the invalidity of the arbitration clause. Another feature closely tied to this is "competence-competence" - the ability of the arbitration tribunal to decide on its own jurisdiction. Therefore a party who is trying to avoid arbitration at an early stage by claiming that the main contract is invalid will face the arbitration agreement separate from the main one and the arbitrators deciding on their own competence.

In American law, this was recognized by the Prima Paint Corp. v. Flood & Conklin Mfg. Co. decision of the U.S. Supreme Court.

Seat of the arbitration

Most legal systems recognise the concept of a "seat" of the arbitration, which is a geographical and legal jurisdiction to which the arbitration is tied. The seat will normally determine the procedural rules (lex arbitri) which the arbitration follows, and the courts which exercise jurisdiction over the seat will have a supervisory role over the conduct of the arbitration.

Parties to the arbitration are free to choose the seat of arbitration and often do so in practice. If they do not, the arbitral tribunal will do it for them. Whereas it is possible to detach procedural law from the seat of arbitration (e.g. seat in Switzerland, English procedural law) this creates confusion as it subjects the arbitration to two controlling and possibly conflicting laws. The procedural law of arbitration, normally determined by the seat, ought to be distinguished from the procedure that the arbitration panel will follow. The latter refers to daily operation of the arbitration and is normally determined either by the institution in question (if arbitration is institutional, e.g. ICC Rules) or by reference to a ready-made procedure (such as the UNCITRAL Rules).

The seat of arbitration might not be the same as the place where proceedings are actually happening. Thus, for instance, an ICC arbitration may have its seat in London (and therefore be governed by the English lex arbitri and ICC procedural rules) and most sessions may take place outside the UK.

Law applicable to procedure

The essential matters of procedure -- such as any disagreement over the appointment or replacement of arbitrators, the jurisdiction of the tribunal itself, or the validity of an arbitration award -- are determined by the procedural law of the seat of the arbitration, and may be decided by recourse to courts. The parties normally influence this through their choice of the seat of arbitration or directly through choice of procedural law.

All other matters of procedure are generally determined by the arbitral tribunal itself (depending on national law and respect for due process) and the preferences of the arbitrators, the parties, and their counsel. The arbitrators' power to determine procedural matters normally includes:

  • mode of submitting (and challenging) evidence
  • time and place of any hearings
  • language and translations
  • disclosure of documents and other evidence
  • use of pleadings and/or interrogatories
  • the appointment of experts and assessors

Law applicable to substance

Parties in a commercial dispute will often choose the law applicable to the substance of their dispute. In fact, they are more likely to choose substantive than procedural law as this will have direct impact on the outcome of their dispute. This choice is usually expressed in the arbitration clause itself or at least in part of the contract where the clause is located.

If the parties do not choose the applicable law, the arbitral tribunal will. This is normally interpreted as the ability of the tribunal to choose the choice-of-law rules which will, in turn, point to the applicable law. The arbitrators are not strictly speaking bound by public policy order or mandatory rules of third states but will normally observe them as that increases the chance of the award being recognized.

The tribunal may decide ex aequo et bono only if the parties have expressly authorized them to do so.

Law applicable to recognition and enforcement

The law that applies to issues of recognition will always be the law of the state where this recognition is sought. In a large number of states this will be governed by 1958 New York Convention which harmonizes the recognition and enforcement of foreign arbitral awards.

Sources of law

States regulate arbitration through a variety of laws. The main body of law applicable to arbitration is normally contained either in the national Private International Law Act (as is the case in Switzerland) or in a separate law on arbitration (as is the case in England). In addition to this, a number of national procedural laws may also contain provisions relating to arbitration.

By far the most important international instrument on arbitration law is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Some other relevant international instruments are:

  • The Geneva Protocol of 1923
  • The Geneva Convention of 1927
  • The European Convention of 1961
  • The Washington Convention of 1965 (governing settlement of international investment disputes)
  • The UNCITRAL Model Law (providing a model for a national law of arbitration)
  • The UNCITRAL Arbitration Rules (providing a set of rules for an ad hoc arbitration)

Arbitral tribunal

The term arbitral tribunal is used to denote the arbitrator or arbitrators sitting to determine the dispute. The composition of the arbitral tribunal can vary enormously, with either a sole arbitrator sitting, two or more arbitrators, with or without a chairman or umpire, and various other combinations.

In most jurisdictions, an arbitrator enjoys immunity from liability for anything done or omitted whilst acting as arbitrator unless the arbitrator acts in bad faith.

Arbitrations are usually divided into two types:

  • ad hoc arbitrations and administered arbitrations.

In ad hoc arbitrations, the arbitral tribunals are appointed by the parties or by an appointing authority chosen by the parties. After the tribunal has been formed, the appointing authority will normally have no other role and the arbitation will be managed by the tribunal.

In administered arbitration, the arbitration will be administered by a professional arbitration institution providing arbitration services, such as the LCIA in London or the ICC in Paris. Normally the arbitration institution also will be the appointing authority.

Arbitration institutions tend to have their own rules and procedures, and may be more formal. They also tend to be more expensive, and, for procedural reasons, slower.[19]

Duties of the tribunal

The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between the two.

However, in almost all countries the tribunal owes several non-derogable duties. These will normally be:

  • to act fairly and impartially between the parties, and to allow each party a reasonable opportunity to put their case and to deal with the case of their opponent (sometimes shortened to: complying with the rules of "natural justice"); and
  • to adopt procedures suitable to the circumstances of the particular case, so as to provide a fair means for resolution of the dispute.[20]

Arbitral awards

Although arbitration awards are characteristically an award of damages against a party, in many jurisdictions tribunals have a range of remedies that can form a part of the award. These may include:

  1. payment of a sum of money (conventional damages)
  2. the making of a "declaration" as to any matter to be determined in the proceedings
  3. in some jurisdictions, the tribunal may have the same power as a court to:
    1. order a party to do or refrain from doing something ("injunctive relief")
    2. to order specific performance of a contract
    3. to order the rectification, setting aside or cancellation of a deed or other document.
  4. In other jurisdictions, however, unless the parties have expressly granted the arbitrators the right to decide such matters, the tribunal's powers may be limited to deciding whether a party is entitled to damages. It may not have the legal authority to order injunctive relief, issue a declaration, or rectify a contract, such powers being reserved to the exclusive jurisdiction of the courts.

Enforcement of arbitration awards

One of the reasons that arbitration is so popular in international trade as a means of dispute resolution, is that it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court.

Under the New York Convention 1958, an award issued a contracting state can generally be freely enforced in any other contracting state, only subject to certain, limited defences.

Only foreign arbitration awards can be subject to recognition and enforcement pursuant to the New York Convention. An arbitral decision is foreign where the award was made in a state other than the state of recognition or where foreign procedural law was used.[21]

Virtually every significant commercial country in the world is a party to the Convention, but relatively few countries have a comprehensive network for cross-border enforcement of judgments of the court.

The other characteristic of cross-border enforcement of arbitration awards that makes them appealing to commercial parties is that they are not limited to awards of damages. Whereas in most countries only monetary judgments are enforceable in the cross-border context, no such restrictions are imposed on arbitration awards and so it is theoretically possible (although unusual in practice) to obtain an injunction or an order for specific performance in an arbitration proceeding which could then be enforced in another New York Convention contracting state.

The New York Convention is not actually the only treaty dealing with cross-border enforcement of arbitration awards. The earlier Geneva Convention on the Execution of Foreign Arbitral Awards 1927 [1] remains in force, but the success of the New York Convention means that the Geneva Convention is rarely utilised in practise.

Arbitration with sovereign governments

Certain international conventions exist in relation to the enforcement of awards against states.

  • The Washington Convention 1965 relates to settlement of investment disputes between states and citizens of other countries. The Convention created the International Centre for Settlement of Investment Disputes (or ICSID). Compared to other arbitration institutions, relatively few awards have been rendered under ICSID.[22]
  • The Algiers Declaration of 1981 established the Iran-US Claims Tribunal to adjudicate claims of American corporations and individuals in relation to expropriated property during the Islamic revolution in Iran in 1979. The tribunal has not been a notable success, and has even been held by an English court to be void under its own governing law.[23]

Challenge

Generally speaking, by their nature, arbitration proceedings tend not to be subject to appeal, in the ordinary sense of the word.

However, in most countries, the court maintains a supervisory role to set aside awards in extreme cases, such as fraud or in the case of some serious legal irregularity on the part of the tribunal.

Only domestic arbitral awards (i.e. those where the seat of arbitration is located in the same state as the court seised) are subject to set aside procedure.

In American arbitration law there exists a small but significant body of case law which deals with the power of the courts to intervene where the decision of an arbitrator is in fundamental disaccord with the applicable principles of law or the contract.[24]

Unfortunately there is little agreement amongst the different American judgments and textbooks as to whether such a separate doctrine exists at all, or the circumstances in which it would apply. There does not appear to be any recorded judicial decision in which it has been applied. However, conceptually, to the extent it exists, the doctrine would be an important derogation from the general principle that awards are not subject to review by the courts.

Costs

In many legal systems - both common law and civil law - it is normal practice for the courts to award legal costs against a losing party, with the winner becoming entitled to recover an approximation of what it spent in pursuing its claim (or in defense of a claim). The United States is a notable exception to this rule, as except for certain extreme cases, a prevailing party in a US legal proceeding does not become entitled to recoup its legal fees from the losing party.

Like the courts, arbitral tribunals generally have the same power to award costs in relation to the determination of the dispute. In international arbitration as well as domestic arbitrations conducted in countries where courts may award costs against a losing party, the arbitral tribunal will also determine the portion of the arbitrators' fees that the losing party is required to bear.

Nomenclature

As methods of dispute resolution, arbitration procedure can be varied to suit the needs of the parties. Certain specific "types" of arbitration procedure have developed, particularly in North America.

  • Judicial Arbitration is, usually, not arbitration at all, but merely a court process which refers to itself as arbitration, such as small claims arbitration before the County Courts in the United Kingdom.[6]
  • High-Low Arbitration, or Bracketed Arbitration, is an arbitration wherein the parties to the dispute agree in advance the limits within which the arbitral tribunal must render its award. It is only generally useful where liability is not in dispute, and the only issue between the party is the amount of compensation. If the award is lower than the agreed minimum, then the defendant only need pay the lower limit; if the award is higher than the agreed maximum, the claimant will receive the upper limit. If the award falls within the agreed range, then the parties are bound by the actual award amount. Practice varies as to whether the figures may or may not be revealed to the tribunal, or whether the tribunal is even advised of the parties' agreement.
  • Non-Binding Arbitration is a process which is conducted as if it were a conventional arbitration, except that the award issued by the tribunal is not binding on the parties, and they retain their rights to bring a claim before the courts or other arbitration tribunal; the award is in the form of an independent assessment of the merits of the case, designated to facilitate an out-of-court settlement.
  • Pendulum Arbitration refers to a determination in industrial disputes where an arbitrator has to resolve a claim between a trade union and management by making a determination of which of the two sides has the more reasonable position. The arbitrator must choose only between the two options, and cannot split the difference or select an alternative position. It was initiated in Chile in 1979 and has proved to be a very effective mechanism.
  • Night Baseball Arbitration is a variation of baseball arbitration where the figures are not revealed to the arbitration tribunal. The arbitrator will determinate the quantum of the claim in the usual way, and the parties agree to accept and be bound by the figure which is closest to the tribunal's award.

Bibliography

  • Christian Buhring-Uhle and Gabriele Lars Kirchhof. Arbitration and Mediation in International Business, 2nd Edition (2006)
  • R David. Arbitration in international trade (1985)
  • Yves Dezalay and Bryant G. Garth. Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order, (1998)
  • The Permanent Court of Arbitration. International Alternative Dispute Resolution: Past, Present and Future, (2000)
  • Julian Lew, Loukas Mistelis, Stefan Kroell, Comparative International Commercial Arbitration, (2003
  • http://www.pwc.com/arbitrationstudy
  • A Redfern and M Hunter, Law and Practice of International Commercial Arbitration 4th Edition (2004)
  • Tibor Varady, John J. Barcelo, and Arthur Taylor Von Mehren. International Commercial Arbitration 3rd Edition (2006)

See also

Footnotes

  1. ^ Sullivan, arthur; Steven M. Sheffrin (2003). [http://www.pearsonschool.com/index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 Economics: Principles in action]. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 324. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm? locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.  
  2. ^ Information World Mediation WikiMediation
  3. ^ HOLO Books
  4. ^ 9 & 10 Will. III c.15
  5. ^ Vynior's Case (1610) 8 Co Rep 80
  6. ^ a b In the United Kingdom, small claims in the County court are dealt with by a procedure called "small claims arbitration", although the proceedings are held in front of a district judge, paid for by the state. In Russia, the courts dealing with commercial disputes is referred to as the Supreme Court of Arbitration of the Russian Federation, although it is not an arbitral tribunal in the true sense of the word.
  7. ^ Although all attempts to determine disputes outside of the courts are "alternative dispute resolution" in the literal sense, ADR in the technical legal sense, is the process whereby an attempt is made to reach a common middle ground through an independent mediator as a basis for a binding settlement. In direct contrast, arbitration is an adversarial process to determine a winner and a loser in relation to the rights and wrongs of a dispute.
  8. ^ Cf. e.g. Section 1030 subsection 1 of the German Zivilprozessordnung.
  9. ^ Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985)
  10. ^ Section 1030 subsection 2 Zivilprozessordnung
  11. ^ To be correct: A certain form, as defined by statute, of an electronic signature using a chip card and a PIN code is also sufficient
  12. ^ Section 1031 subesction 5 of the Zivilprozessordnung. The restriction does not apply to notarized agreements, as it is presumed that the notary public will have well informed the consumer about the content and its implications.
  13. ^ Swiss Bank Corporation v Novrissiysk Shipping [1995] 1 Lloyd's Rep 202
  14. ^ Hobbs Padgett & Co v J C Kirkland (1969) 113 SJ 832
  15. ^ Mangistaumunaigaz Oil Production v United Kingdom World Trade [1995] 1 Lloyd's Rep 617
  16. ^ Norske Atlas Insurance Co v London General Insurance Co (1927) 28 Lloyds List Rep 104
  17. ^ Deutsche Schachtbau v R'As al-Khaimah National Oil Co [1990] 1 AC 295
  18. ^ For example, under English law see Heyman v Darwins Ltd. [1942] AC 356
  19. ^ For example, all arbitral awards issued by the ICC have to be reviewed internally before being handed down, which helps certainty and improves the quality of awards, but leads to delay and expense.
  20. ^ For example, in England these are codified in section 33 of the Arbitration Act 1996
  21. ^ Article 1 of the 1958 New York Convention
  22. ^ Tupman, "Case Studies in the Jurisdiction of the International Centre for Settlement of Investment Disputes" (1986) 35 ICLQ 813
  23. ^ Dallal v Bank Mellat [1986] 1 QB 441
  24. ^ The expression appears in the majority judgment in the U.S. Supreme Court decision in Wilko v Swan 346 US 427 (1953)

External links


1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

ARBITRATION (Lat. arbitrari, to examine or judge), a term derived from the nomenclature of Roman law, and applied to an arrangement for taking, and abiding by, the judgment of a selected person in some disputed matter, instead of carrying it to the established courts of justice. In disputes between states, arbitration has long played an important part (see [[International arbitration). The present article is restricted to arbitration under municipal law; but a separate article is also devoted to the use of arbitration in labour disputes (see Arbitration And Conciliation).

Roman Law. - Arrangements for avoiding the delay and expense of litigation, and referring a dispute to friends or neutral persons, are a natural practice, of which traces may be found in any state of society; but it is from Roman Law that we derive arbitration as a system which has found its way into the practice of European nations in general, and has even evaded the dislike of the English common lawyers to the civil law. The praetor, who had the arrangement of all trials or private suits and the formal appointment of judges for them, referred the great majority of such cases for decision to a judge who was styled usually judex but sometimes arbiter. The phrase judex arbiterve frequently occurs. The judex and the arbiter had the same functions, and apparently the only express basis for the distinction between the two words is that there might be several arbitri but never more than one judex in a cause. The term arbiter seems, however, to have been sometimes used when the referee had a certain degree of latitude, and was entitled to give weight to equitable considerations (Roby, Inst. Rom. Law, i. 318; Hunter, Roman Law (1897), p. 48; and see Cicero pro Rosc. Com. 4, ss. 10-13; Gaius, Inst. iv. s. 163). Apart from this system of compulsory reference by the praetor, Roman law recognized a voluntary reference (compromissum) to an arbiter or arbitrator by the parties themselves. The arbitrator ex compromisso sumptus had no coercive jurisdiction, and in order to make his award effective, the agreement of reference was confirmed by a stipulation and usually provided a penalty (poena, petunia compromissa) in case of disobedience. The sum agreed on by way of penalty might be either specific or unliquidated, e.g. " whatever the matter may be worth" (Dig. iv., tit. 8, s. 28). The arbitrator ex compromisso sumptus, like the judicial arbiter, was expected to take account of equitable considerations in coming to a decision. If three arbitrators were appointed, a majority could decide; in case of two being appointed and not agreeing, the praetor would compel them to. choose a third (Roby, ubi sup., i. 320, 321; Dig. iv., tit. 8, s. 17). As in English law, it was necessary that the award should cover all the points submitted (Dig. iv., tit. 8, s. 21).

Law of England

The law of England as to arbitration is now practically summed up in the Arbitration Act of 1889. This statute is an express code as to proceedings in all arbitration,. but "criminal proceedings by the crown" cannot be referred under it (ss. 13, 14). The statute subdivides its subject-matter into two headings. I. References by consent out of court; II. References under order of court.

(1) Here the first matter to be dealt with is the submission. A submission is defined as a written agreement (it need not be signed by both parties) to submit present or future differences to arbitration, whether a particular arbitrator is named in it or not. The capacity of a person to agree of to arbitration, or to act as arbitrator, depends on the general law of contract. A submission by an infant is not void, but is voidable at his option (see Infant). A counsel has a general authority to deal with the conduct of an action, which includes authority to refer it to arbitration, but he has no authority to refer an action against the wishes of his client, or on terms different from those which his client has sanctioned; and if he does so, the reference may be set aside, although the limit put by the client on his counsel's authority is not made known to the other side when the reference is agreed upon (Neale v. Gordon Lennox, 1902, A.C. 465). The committee of a lunatic, with the sanction of the judge in lunacy, may refer disputes to arbitration. As an arbitrator is chosen by the parties themselves the question of his eligibility is of comparatively minor importance; and where an arbitrator has been chosen by both parties, the courts are reluctant to set the appointment aside. This question has arisen chiefly in contracts for works, which frequently contain a provision that the engineer shall be the arbitrator, in any dispute between the contractor and his own employer. The practical result is to make the engineer judge in his own cause. But the courts will not in such cases prevent the engineer from acting, where the contractor was aware of the facts when he signed the contract, and there is no reason to believe that the engineer will be unfair (Ives and Barker v. Willans, 1894, 2 Ch. 478). Even the fact that he has expressed an opinion on matters in dispute will not of itself disqualify him (Halliday v. Hamilton's Trustees, 1903, 5 Fraser, Soo). So, too, where a barrister was appointed arbitrator, the court refused to stop the arbitration on the mere ground that he was the client of a firm of solicitors, the conduct of one of whom was in question (Bright v. River Plate Construction Co., 1900, 2 Ch. 835).

Under the law prior to the act of 1889 (a) an agreement to refer disputes generally, without naming the arbitrators, was always irrevocable, and an action lay for the breach of it, although the court could not compel either of the parties to proceed under it; (b) an agreement to refer to a particular arbitrator was revocable, and if one of the parties revoked that particular arbitrator's authority he could not be compelled to submit to it; (c) when, however, the parties had got their tribunal fixed, and were proceeding to carry out the agreement to refer, the act 9 and io Will. III. c. 15 provided that the submission might be made a rule of court, a provision which gave the court power to assist the parties in the trial of the case, and to enforce the award of the arbitrators; (d) the statute 3 and 4 Will. IV. c. 42 (s. 39) put an end to the power to revoke the authority of a particular arbitrator after the reference to him had been made a rule of court; and - a liability which existed also under the act of 9 and io Will. III. c. 15 - any person revoking the appointment of an arbitrator after the submission had been made a rule of court might be attached. The Arbitration Act 1889 provides that a submission, unless a contrary intention is expressed in it, is irrevocable except by leave of the court or a judge, and is to have the same effect in all respects as if it had been made an order of court. The object of this enactment was to save the expense of making a submission a rule of court by treating it as having been so made, and it leaves the law in this position, that while the authority of an arbitrator, once appointed, is irrevocable, there is no power - any more than there was under the old law - to compel an unwilling party to proceed to a reference, except in cases specially provided for by sections 5 and 6 of the act of 1889. The former of these sections deals with the power of the court, the latter with the power of the parties to a reference, to appoint an arbitrator in certain circumstances. Section 5 provides that where a reference is to be to a single arbitrator, and all the parties do not concur in appointing one, or an appointed arbitrator refuses to act or becomes incapable of acting, or where the parties or two arbitrators fail, when necessary, to appoint an umpire or third arbitrator, or such umpire or arbitrator when appointed refuses to act, or becomes incapable of acting, and the default is not rectified after seven clear days' notice, the court may supply the vacancy. Under section 6, where a reference is to two arbitrators, one to be appointed by each party, and either the appointed arbitrator refuses to act, or becomes incapable of acting, and the party appointing him fails, after seven clear days' notice, to supply the vacancy, or such party fails, after similar notice, to make an original appointment, a binding appointment (subject to the power of the court to set it aside) may be made by the other party to the reference. The court may compel parties to carry out an arbitration, not only in the above cases by directly appointing an arbitrator, &c., or by allowing one appointed by a party to proceed alone with the reference, but also indirectly by staying any proceedings before the legal tribunals to determine matters which come within the scope of the arbitration. Where the agreement to refer stipulates that the submission of a dispute to arbitration shall be a condition precedent to the right to bring an action in regard to it, an action does not lie until the arbitration has been held and an award made, and it is usual in such cases not to apply for a stay of proceedings, but to plead the agreement as a bar to the action (Viney v. Bignold, 1887, 20 Q.B.D. 172). The court will refuse to stay proceedings where the subject-matter of the litigation falls outside the scope of the reference, or there is some serious objection to the fitness of the arbitrator, or some other good reason of the kind exists.

An arbitrator is not liable to be sued for want of skill or for negligence in conducting the arbitration (Pappa v. Rose, 1872, L.R. 7 C.P. 525). When a building contract provides that a certificate of the architect, showing the final balance due to the contractor, shall be conclusive evidence of the works having been duly completed, the architect occupies the position of an arbitrator, and enjoys the same immunity from liability for negligence in the discharge of his functions (Chambers v. Goldthorpe, 1901, 1 Q.B. 624). An arbitrator cannot be compelled to act unless he is a party to the submission.

An arbitrator (and the following observations apply mutatis mutandis to an umpire after he has entered on his duties) has power to administer oaths to, or take the affirmations of, the parties and their witnesses; and any person who wilfully and corruptly gives false evidence before him may be prosecuted and punished for perjury (Arbitration Act 1889, sched. i. and s. 22). At any stage in the reference he may, and shall if he be required by the court, state in the form of a special case for the opinion of the court any question of law arising in the arbitration. The arbitrator may also state his award in whole or in part as a special case (ib. s. 19), and may correct in an award any clerical mistake or error arising from an accidental slip or omission. The costs of the reference and the award - which, under sched. i. of the act, must be in writing, unless the submission otherwise provides - are in the arbitrator's discretion, and he has a lien on the award and the submission for his fees, for which - if there is an express or implied promise to pay them - he can also sue (Crampton v. Ridley, 1887, 20 Q.B.D. 48). An arbitrator or umpire ought not, however, to state his award in such a way as to deprive the parties of their right to challenge the amount charged by him for his services; and accordingly where an umpire fixed for his award a lump sum as costs, including therein his own and the arbitrators' fees, the award was remitted back to him to state how much he allotted to himself and how much to the arbitrators (in Re Gilbert v. Wright, 1904, 20 Times L.R. 164). But in the absence of evidence to show that the fees charged by arbitrators or umpire are extortionate, or unfair and unreasonable, the courts will not interfere with them (Llandrindod Wells Water Co. v. Hawksley, 1904, 20 Times L.R. 241).

If there is no express provision on the point in the submission, an award under the Arbitration Act 1889 must be made within three months after the arbitrator has entered on the reference, or been called upon to act by notice in writing from any party to the submission. The time may, however, be extended by the arbitrator or by the court. An umpire is required to make his award within one month after the original or extended time appointed for making the award of the arbitrators has expired, or any later day to which he may enlarge it. The court may by order remit an award to the arbitrators or umpire for reconsideration, in which case the reconsidered award must be made within three months after the date of the order.

An award must be infra vires: it must dispose of all the points referred; and it must be final, except as regards certain matters of valuation, &c. (see in Re Stringer and Riley Brothers, 1901, 1 K.B. 105). An award may, however, be set aside where the arbitrator has misconducted himself (an arbitrator may also be removed by the court on the ground of misconduct), or where it is ultra vires, or lacks any of the other requisites - above mentioned - of a valid award, or where the arbitrator has been wilfully deceived by one of the parties, or some such state of things exists. An award may, by leave of the court, be enforced in the same manner as a judgment or decree to the same effect. Under the Revenue Act 1906, s. 9, a uniform duty of ten shillings is payable on awards in England or Ireland, and on decreets arbitral in Scotland.

Provisions for the arbitration of special classes of disputes are contained in many acts of parliament, e.g. the Local Government Acts 1888, 1894, the Agricultural Holdings (England) Acts 1883 to 1906, the Small Holdings and Allotments Act 1907, the Light Railways Act 1896, the Housing of the Working Classes Act 1890, the Workmen's Compensation Act 1906, &c.

The Conciliation Act 1896 provides machinery for the prevention and settlement of trade disputes, and in 1892 a chamber of arbitration for business disputes was established by the joint action of the corporation of the city of London and the London chamber of commerce. At the time when the London chamber of arbitration was established, there was considerable dissatisfaction among the mercantile community with the delays that occurred in the disposal of commercial cases before the ordinary tribunals. But the special provision made by the judges in 1895 for the prompt trial of commercial causes to a large extent destroyed the raison d'ctre of the chamber of arbitration, and it did not attain any great measure of success.

salaried officers of court. The remuneration of special referees is determined by the court or judge. An entire action may be referred, if all parties consent, or if it involves any prolonged examination of documents, or scientific or local examination, or consists wholly or partly of matters of account.

Scots Law. - The Arbitration (Scotland) Act 1894, unlike the English Arbitration Act 1889, did not codify the previously existing law, and it becomes necessary, therefore, to deal with that law in some detail. It differs in important particulars from the law of England. Although (as in England apart from the Arbitration Act 1889) there is nothing to prevent, a verbal reference, submissions are generally not merely written but are effected by deed. The deed of submission first defines the terms of the reference, the name or names of the arbiters or arbitrators, and the "oversman" or umpire, whose decision in the event of the arbiters differing in opinion is to be final. Formerly, where no oversman was named in the submission, and no power given to the arbiters to name one, the proceedings were abortive if the arbiters disagreed, unless the parties consented to a nomination. But under the Arbitration (Scotland) Act 1894, s. 4, where arbiters differ in opinion, they, or, if they fail to agree on the point, the court, on the application of either party, may nominate an oversman whose decision is to be final. The deed of submission next gives to the arbiters the necessary powers for disposing of the matters referred (e.g. powers to summon witnesses, to administer oaths and to award expenses), and specifies the time within which the "decreet arbitral" is to be pronounced. If this date is left blank, practice has limited the arbiter's power of deciding to a year and a day, unless, having express or clearly implied power in the submission, he exercises this power, or the parties expressly or tacitly agree to its prorogation. The deed of submission then goes on to provide that the parties bind themselves, under a stipulated penalty to abide by the decreet arbitral, that, in the event of the death of either of them, the submission shall continue in force against their heirs and representatives, and that they consent to the registration, for preservation and execution, both of the deed itself and of the decreet arbitral. The power to enforce the award depends on this last provision. Under the common law of Scotland, a submission of future disputes or differences to an arbiter, or arbiters, unnamed, was ineffectual except where the agreement to refer did not contemplate the decision of proper disputes between the parties but the adjustment of some condition, or the liquidation of some obligation, contained in the contract of which the agreement to submit formed a part. And by the Arbitration (Scotland) Act 1894, s. 1, an agreement to refer to arbitration is not invalid by reason of the reference being to a person not named, or to be named by another, or to a person merely described as the holder for the time being of any office or appointment. An arbiter who has accepted office may be compelled by an action in court of session to proceed with his duty unless he has sufficient cause, such as ill-health or supervening interest, for renouncing. The court may name a sole arbiter, where provision is made for one only and the parties cannot agree (Arbitration [Scotland] Act 1894, s. 2); and may name an arbiter where a party having the right or duty to nominate one of two arbiters will not exercise it (ib. s. 3). Scots law as to the requisites of a valid award is practically identical with the law of England. The grounds of reduction of a decreet arbitral are "corruption," "bribery," "false hold" (Scots Act of Regulations 1695, s. 25). An attempt was made to include, under the expression "constructive corruption," among these statutory grounds of reduction, irregular conduct on the part of an arbitrator, with no suggestion of any corrupt motive. But it was definitely overruled by the House of Lords (Adams v. Great North of Scotland Railway Co., 1891, A.C. 31). The statutory definition of the grounds of reduction was intended, however, merely to put an end to the practice which had previously obtained of reviewing awards on their merits, and it does not prevent the courts from setting aside an award where the arbitrator has exceeded his jurisdiction, or disregarded any one of the expressed conditions of the submission, or been guilty of misconduct. A private arbiter cannot demand remuneration except in virtue of contract, or by implication from the nature of the work done, or if the reference is in pursuance of some statutory enactment (e.g. the Lands Clauses [Scotland] Act 1845, s. 32).

Judicial References have been long known to the law of Scotland. When an action is in court the parties may at any stage withdraw it from judicial determination, and refer it to arbitration. This is done by minute of reference to which the court interpones its authority. When the award is issued it becomes the judgment of the court. The court has no power to compel parties to enter into a reference of this kind, and it is doubtful whether counsel can bind their clients in such a matter. A judicial reference falls like the other by the elapse of a year; and the court cannot review the award on the ground of miscarriage. By the Court of Session Act 1850, s. 50, a provision is introduced whereby parties to an action in the supreme court may refer judicially any issue for trial to one, three, five or seven persons, who shall sit as a jury, and decide by a majority.

Law of Ireland

The Common Law Procedure Act (Ireland) 1856, which is incorporated by s. 60 of the Supreme Court of Judicature Act (Ireland) 1877, and thereby made applicable to all divisions of the High Court of Justice, provides, on the lines of the English Common Law Procedure Act 1854, for the conduct of arbitrations and the enforcement of awards. Irish statute law, like that of England and Scotland, contains numerous provisions for arbitration under special enactments.

Indian and Colonial Law. - The provisions of the English Arbitration Act 1889 have in substance been adopted by the Indian Legislature (see Act ix. of 1899), and by many of the colonies (see, e.g., Act No. 13 of 1895, Western Australia; No. 24 of 1898, Natal; c. 20 of 1899, Bahamas; No. io of 1895, Gibraltar; No. 29 of 1898, Cape of Good Hope: s. 7 of this last statute excludes from submission to arbitration criminal cases, so far as prosecution and punishment are concerned, and, without the special leave of the court, matters relating to status, matrimonial causes, and matters affecting minors or other perons under legal disability; Trinidad and Tobago, No. 35 of 1898).

==United States== The common law and statute law of the United States as to arbitration bear a general resemblance to the law of England.

All controversies of a civil nature, and any question of personal injury on which a suit for damages will lie, although it may also he indictable, may be referred to arbitration; but crimes, and perhaps actions on penal statutes by ntary common informers may not. The submission may be missions; effected sometimes by parol, sometimes by written instrument, sometimes by deed or deed poll. - Capacity to refer depends on the general law of contractual capacity. The law of England as to the capacity to act as an arbitrator and as to objections to an arbitrator on the ground of interest has been closely followed by the American courts. The same observation applies as to the requisites of an award, the mode of its enforcement and the grounds on which it will be set aside. The arbitrator has a lien on the award for his fees; and - a point of difference from the English law - he may sue for them without an express promise to pay (cf. Goodall v. Cooley, 1854, 29 New Hamp. 48). At common law, a submission is generally revocable at any time before award; and it is also, in the absence of stipulation to the contrary, revoked by the death of one of the parties. Provision has been made in Pennsylvania for compulsory arbitration by an act of the 16th of June 1836 (see Pepper and Lewis, Pennsylvania Digest, tit. " arbitration"). The rules of court also of many of the states of the United States provide for reference through the intervention of the court at any stage in the progress of a litigation. References Such submissions are usually declared irrevocable by byte of the rules providing for them.

In addition to voluntary submissions and references by rules of court there are in America, as in the United Kingdom, various statutes which provide for arbitration in particular o cases. Most of these statutes are founded on the 9 and arb'tr3 ry 10 Will. III., c. 15, and 3 and 4 Will. IV. C. 42, S. 49, tons. " by which it is allowed to refer a matter in dispute (not then in court) to arbitrators, and agree that the submission be made a rule of court. This agreement, being proved on the oath of one of the witnesses thereto, is enforced as if it had been made at first a rule of court" (Bouvier, Law Did. s.v. "Arbitration") .

Ample provision is made in America for the arbitration of labour disputes.

Law of France. - Voluntary arbitration has always been recognized in France. In cases of mercantile partnerships, arbitration was formerly compulsory; but in 1856 (law of the 17th of July 1856) jurisdiction in disputes between parties was conferred on the Tribunals of Commerce (as to which see Code de Commerce, arts.

(2) The court or a judge may refer any question arising in any cause or matter to an official or special referee, whose References report may be enforced like a judgment or order to under the same effect. This power may be exercised whether order of the parties desire it or not. The official referees are court. 615 et seq.), and arbitration at the present time is purely voluntary. The subject is very fully dealt with in the Code de Procedure Civile (arts. 1003-1028). The submission to arbitration (compromis) must, on pain of nullity, be acted upon within three months from its date (art. 1007). The submission terminates (i.) by the death, refusal, resignation or inability to act of one of the arbitrators; (ii.) by the expiration of the period agreed upon, or of three months if no time had been fixed; (iii.) by the disagreement of two arbitrators, unless power be reserved to them to appoint an umpire (art. 1012). An arbitrator cannot resign if he has once commenced to act, and can only be relieved on some ground arising subsequently to the submission (art. 1014). Each party to the arbitration is required to produce his evidence at least fifteen days before the expiration of the period fixed by the submission (art. 1016). If the arbitrators, differing in opinion, cannot agree upon an umpire (tiers arbitre), the president of the Tribunal of Commerce will appoint one, on the application of either party (art. 1017.). The umpire is required to give his decision within one month of his acceptance of the appointment; before making his award, he must confer with the previous arbitrators who disagreed (art. Io18). Arbitrators and umpire must proceed according to the ordinary rules of law, unless they are specially empowered by the submission to proceed as amiables compositeurs (art. 1019). The award is rendered executory by an order of the president of the Civil Tribunal of First Instance (art. 1020). Awards cannot be set up against third parties (art. 1022), or attacked by way of opposition. An appeal against an award lies to the Civil Tribunal of First Instance, or to the court of appeal, according as the subject-matter, in the absence of arbitration, would have been within the jurisdiction of the justice of the peace, or of the Civil Tribunal of First Instance (art. 1023). In the manufacturing towns of France, there are also boards of umpires (Conseils de Prud'hommes) to deal with trade disputes between masters and workmen belonging to certain specified trades.

Other Foreign Laws. - The provisions of French law as to arbitration are in force in Belgium (Code de Proc. Civ., arts. 1003 et seq.); and a convention (8th of July 1899) between France and Belgium regulates, inter alia, the mutual enforcement of awards. The law of France has also been reproduced in substance in the Netherlands (Code of Civil Procedure, arts. 620 et seq.). The German Imperial Code of Procedure did not create any system of abritration in civil cases. But this omission was supplied in Prussia by a law of the 29th of March 1879, which provided for the appointment, in each commune, of an arbitrator (Schiedsmann) before whom conciliation proceedings in contentious matters might be conducted. The procedure was gratuitous and voluntary; and the functions of the arbitrator were not judicial; he merely recorded the arrangement arrived at, or the refusal of conciliation. This law was followed in Brunswick by a law of the 2nd of July 1896, and in Baden by a law of the 16th of April 1886. In Luxemburg, compulsory arbitration in matters affecting commercial partnerships was abolished in 1879 (law of the 16th of April 1879). A system of conciliation, similar to the Prussian, exists in Italy (laws of the 16th of June 1892, and the 26th of December 1892) and in some of the Swiss cantons (law of the 29th of April 1883). Spain (Code of Civil Proc., arts. 1003-1028; Civil Code, arts. 1820-1821) and Sweden and Norway (law of the 28th of October 1887) have followed the French law. In Portugal, provision has been made for the creation in important industrial centres, on the application of the administrative corporations, of boards of conciliation (decrees of the 14th of August 1889, and the 18th of May 1893).

Authorities. - Russell, Arbitration (London, 1906); Annual Practice (London, yearly); Redman, Arbitration (London, 1897) Crewe, Arbitration Act of 1889 (London, 1898); Pollock, On Arbitrators (London, 1906). As to Scots law: Bell, On Arbitration (2nd ed., Edinburgh, 1877); Erskine, Principles (20th ed., Edinburgh, 1903). As to American law: Morse, Law of Arbitration (Boston, 1872). As to foreign law generally: the texts of the laws cited, and the Annuaire de legislation etrangere. (A. W. R.)


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