We intend to familiarise the community with the core issues on arbitration in a series of article to enlighten and educate our community on the need to use the facility of arbitration even in the domestic context to resolve their disputes and diferences. One can hardly imagine the benefits in parties referring some contentious and complex land transactions in this jurisdiction to land dispute resolution where an impartial expert can analyse their matters and dispassionately and objectively advise them within the framework of an amicable resolution, saving them time and money [cost]Litigation as we always tell our clients is time consuming, money consuming, morbidly unpredictable and above all, it has the potential to damage irreparably previous nurtured business relationships. In light of the foregoing, this article will focus on three different dispiute scenarios; negotiation, mediation and arbitration although greater emphasis will be on arbitration. Through this article, we intend to assist our readers to develop a better and understanding and deeper appreciation of the utility of arbitration, negotiation and mediation and the similarities and differences of the above within the context of alternative dispute resolution mechanisms that are available to parties.
Law firms and corporate legal departments and even the government in their day to day operation will no doubt be faced with highly complex matters or issues that need resolution outside the framework of conventional litigation which as previously adumbrated is money-consuming and time-consuming and often damages stratetic business and investment relationships. A timely resolution of issues is always in the best interest of all parties. The government and other stakeholders have realised this and this has led the Bahamas to enact the new Arbitration Act. We commend the visionary governemnt of the Bahamas for taking the right step in the right direction and at the right time. We are deeply excited that international commercial arbitration has made its progressive entry into the Bahamas for good and that the business and investment communities and their advisers will make good use of this opportunity of alternative dispute resolution mechanism which now has legislative/statutory support in the Bahamas.
Recently we were privileged to part of a seminar on arbitration in Grand Bahama organised by the forward-looking and vibrant International Federation of Women Lawyers [FIDA], Grand Bahama Chapter and to our great felight, the interest demonstrated in the seminar convinced us beyond any iota of doubt that this beautiful Island is on the verge of competing with major arbitration centres in the world like London, Dubai, Singapore, Switzerland etc. It is time that the skills and knowledge in this lucrative area of private dispute adjudication be nurtured and developed in the Bahamas as we will soon become a leading destination for internationa commercial arbitration in the entire western hemisphere stretching from Canda and the U S in the north to New Patagonia in the south [present day Chile].
The skills and expertise rewquired for a successful practice in this area of ADR are to be mastered and enhanced through intensive seminars and workshops and above all it is imperative for practioners and stakeholders in the Bahamas to gain a mastery of the new statutory framework for arbitration in the jurisdiction ie the Bahamas Arbitration Act 2009. Space will not allow us to delve extensively into arbtrartion in this column but we will examine two core areas that a crucial for a successful arbitration. The issues are consent or agreement and the need for an effective arbitration clause. An arbitration agreement is a piece of private procedural arrangement under which parties agree to resolve theeir dispute via private mode as opposed to using the state institution like courts. The agreement not only commits the parties to resolve their private dispute by using alternative means but it also "ousts" the jurisdiction which national courts would otherwise have had.
An arbitration agreement can also be defined as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. In this regard, arbitration arbitration may therefore be defined as a process by which parties consensually submit a dispute to a nonp-governmental decision maker, chosen by or for them, to render a binding resolution of that dispute in accordance adjudicatory procedures affording the parties an opportunity [see Bom, International Commercial Arbitration, p29
International business has always favoured private dispute resolution outside domestic courts. In todays era arbitration is central to all major business and investments arrangements both as between individuals and on the transactional level. Almost 90 percent of major international commercial contracts contain an arbitration clause and woe betide one as a lawyer or arbitrator if those clauses are "slovenly" drafted or poorly worded in which case the objective of the clause will fail and it will be too late to do anything. Not to overemphasis the demerits of litigation and its unpredictable and stressful nature, many progressive minded business organisations are increasingly mking use of alternative dispute resolution [ADR] mechanism to solve their problems and settle their dispute. As a consequence of this welcome develpoment, every major oil and gas company, major international law firm and legal departments of major companies has a dispute resolution group as they are increasingly discovering the overwhelmng benefits and costs saving effects of pro-active dispute management, especially in light of the high potential for private dispute resolution to preserve valuable and strategic business relationships which, as everyone will agree- is often usually undermined by litigation.
The privacy and confidenciality inherent in these processes [ADR] no doubt remains among the major reasons why investors and businessmen resort to them in this era of globalization. As a dispute settlement mechanism in international commerce, arbitration is a sui juris institution [autonomous], free from the constraints and not subject to the jurisdiction of any national court. In fact, it is the parties who establish the arbitration and who are the source of the jurisdiction and authority of the arbitrators. The parties can, by their mutual agreement, sack the arbitrators, very the terms of their authority and fix the procedure and issues for their decision. We refer to this as party autonomy and national law and the courts have no authority over the arbitration.
In order for the Bahamas to realise the noble objective of becoming a top leading place of choice for international commercial arbitration in the western hemisphere given our strategic advantages, sun, sands,sea, beaches warm weather [geography], tax haven and our unique proximity to the biggest economy in the world- the U S, it is imperative for our practioners to get an understanding of both the law and practice of private dispute resolution. The judiciary should also promote arbitration and avoid undue and arbitrary intervention in any arbitral proceeding in the Bahamas. In some instaces, the courts should actually suggest to parties to seek the resolution of their disputes through alternative dispute resolution mechanism even in domestic contexts. Thus, we would continue to educate our people on the law and practice of the three archetypes of private dispute resolution, ie Business negotiation, Business Mediation and International Arbitration.
The starting point of any discussion on arbitration is that there must be consent or agreement of the parties. Without consent or agreement of the parties, there can be no arbitration whatever. This is critical to the entire arbitration proceeding or process. See Part two of the new Arbitration Act of the Bahamas 2009.
Immediately following the need for consent or agreement of the parties as a condition precedent to any arbitration proceeding, is the mportant issue of ensuring that a proper, valid and effective arbitration clause is drafted which is effective to exclude the right of appeal under the arbitration Act to the Bahamain court on a question of law arising out of an arbitral award. Note that if your arbitration clause contains conflicting wording, vagueness, ambiguity or sufferr from lack of clarity, then it means that you have unwittingly exposed your client to that unwanted eventuality he originally set out to avoid! It is in this regard that we strongly urge that in drafting arbitration clause, that there has to be clear and unambiguous wording in the arbitration clause if they want to prevent the possibility of an appeal on a question of law. It is here that a high degree of caution is urged on arbitrators and practioners because in some instances, wordings like "final, conclusive and binding" do not always exclude the possibility of appeal on a point of law. The August 2009 decision of the English High Court in Shell Egypt West Manzala GmbH and Another v Dana Gas Egypt Ltd [2009] EWHC 2097, confirms that it is absolutely essential that parties agreeing to arbitrate in London [and we will add Nassau] for that matter under the UNCITRAL Arbitration Rules "should include clear and unambiguous wording in their arbitration clause" if they want to prevent the possibility of an appeal on a question of law.
Note that in this case that the parties agreement that the award would be "final, conclusive and binding on the parties" was found insufficient to exclude the right of appeal. Remember that the arbitration clause must include where the arbitration proceeding should take place. If the arbitration clauses do not provide any indication as to the place of arbitration, the practitioner will find himself in a perplexing situation as it may be difficult for the parties at that stage to agree ie at the point when dispute may have arisen.The arbitration clause must also contain the following-[ithe extent of of the subject-matter to be submitted to arbitration, [ii] the number of arbitrators, [iii] the method of selection, [iv] whether the parties will be using arbitration institution or ad hoc/private arbitrators, [iv] arbitration rules to govern the arbitration proceeding, [v] the procedure to be followed, [vi] the language to be used and whether there will be a need for an interpreter/translator, [vii] authority of arbitrators, [pvii] forms of award and whether documents only will be used or in addition to oral witness etc
However, it is not impossible to find some clauses reserving this vital issue of venue to the tribunal but there has to be some clue or indication as to the place of arbitration. Suffice it to say that parties should also in some instances of ad hoc arbitration, agree that the dispute should be decided by a three-member tribunal and that two arbitrators be nominated from both parties and both should jointly nominate a chairman. There can be no gain saying the fact that arbitration agreement is the source of procedural powers of arbitrators and arbitration agreement properly drafted effectively operates as a bar to dispute settlement before domestic courts because arbitration agreement is normally viewed as source of procedural powers of arbitration of arbitrators and arbitration agreement is not only viewed as a bar to dispute settlement before domestic courts but also as anti-suit injunction in aid of arbitration.
it is commonly experienced in international commercial practice that little, if any, attention is paid to the drafting of the dispute resolution clause. Negligent drafting of arbitration clause is at the root of most common problems in international commercial arbitration. Parties should be made aware of the contractual and procedural nature of arbitration clause and of the different wording during the contract negotiation. In most cases, the effect of a loose drafting approach are not felt at the drafting stage. Parties are hardly aware of this as well as they are more interested in commercial aspects of the deal [like price, goods, payment terms, delivery, date etc.
Invariably, the dispute resolution clause, together with the choice of law clause, is to to be found right at the end of the often lengthy contract documentation ie the dispute resolution clause are in essence to be found at the very end of the standard term forms of contract used by law firms and practitioners [a formal contract document signed between the parties]. But this is not a rigid construct as parties are free to structure it the way they want as the critical thing is for such a clause to encapsulate all the essential requirements for a valid arbitration clause/agreement.
It is trite that the parties do not usually read all general contract conditions attached to a party's letter or fax, let alone review the dispute resolution clause located at the end of these conditions or the final clause of a lengthy contract document. They want to conclude the deal instead of anticipating future disputes scenarios. They just hope for the best but inevitably disputes arise over non-performance or improper or substandard performance and only then their perspectives change and they recognise that certain important aspect may not have been taken into account in the drafting of their contract/arbitration clause or they may not have contained some salient point. Unfortunately, it might have become late for all those involded for, invariably, it is at this time, when arbitral tribunals and or domestic courts decide that the parties have drafted a "pathological" arbitration clause which does not operate in practice and that the parties in international trade have to pay for their negligence at the drafting stage.
In a worst-case scenario, neither a domestic court nor an arbitral tribunal will decide the parties' dispute, because the court considers the arbitration clause to be valid and refers the dispute to arbitration, while the arbitral tribunal regards the arbitration clause as invalid and refers the dispute to the domestic courts. This is one of the perplexing dilemmas we mentioned previously commonly faced in arbitration as one of the inevitable consequences of ill-drafted arbitration clauses/agreements. In a case like the foregoing, the parties are confronted with a denial of justice, instead of an efficient and interest-oriented mechanism of dispute resiolution. We can see how the parties'/their advisers' negligence at the negotiation stage can affect the arbitration.
Thus, the parties in international commercial contract negotiations should always pay close attention to the careful drafting of the dispute negotiation clause. The time and money invested at the drafting stage must be considered and justified as well as an investment in the future, when a dispute arises between the parties. Also, the parties, awarenesss of a well-drated clause in their contract serves as an important means of conflict avoidance in that it provides a strong incentive for both parties to enter into direct negotiations before their dispute before the competent court or arbitral tribunal. At the same time, parties to international business transactions are often driven by a desire to preserve to preserve their business relationships and hence prefer the settlementfriendly of arbitration proceedings.
Advantages of arbitration are legion ranging from the neutrality of the dispute resolution forum, privacy and confidentiality of the proceeding, dispensing with rigid tabulated legalism and excessive procedural technicalities associated with litigation to the use of people with expertise of the arbitrators, flexibility of proceedings and finality of award etc. We need not mention the fact that arbitration enjoys worldwide recognition and enforcement of the award under the New York Convention of 1958 to which the Bahamas has now acceded [as a member]. This means that arbitral awards obtained in the Bahamas and in other state members of the 1958 Convention are recognised and enforceale in the Bahamas and vice versa.
The contractual character of arbitration underscores the indispensability of consent or agreement of the parties involved as demonstrably evidenced in the arbitration clause/agreement. Putting it in anither way, one can say that the contractual character of arbitration underlines the requirement of an arbitration agreement or consent. The reference to an agreement of the parties reflects the contractual or consensual nature of arbitration and this must be fully grasped by parties and practitioners as well. Leaving aside special scenario such as arbitration under investment protection tresaties or free trade agreement, every arbitration requires an agreement by the parties. Indeed, contract is the jurisdictional gateway to arbitration [see the author's book titled "Clement Chigbo, The Laws and Regulations of Business and Investments in the Bahamas", Trafford Publishing, British Columbia [2005; see also Carbonneau, Cases and Materials in the Law and Practice of Arbitration, 17
Arbitration, 17].
This is summed up by an American court in the following words;...
"Arbitration is fundamentally a creature of contract, characterised by consent. As a matter of contract law, no party sahould be forced to arbitrate its claim unless that party has agreed to do so. In essence nobody may be deprived of the state court system except by his will".
Similarly the English commercial court has explained the contractual character of arbitration as follows....
"An arbitration clause in a commercial contract....is an agreement inside an agreement. The parties make their commercial bargain in exchange of promises in relation to the subject-matter of their transaction but in addition agree on a private tribunal to resolve any issues that may arise between them.". See Union of India v McDonald Douglas Cor [1993] 2 Lloyd"s L. Rep 48, 50.
Note further the necessity of dealing with sufficient certainty the issue of forum selection clause in an arbitration agreement under which the parties agree in advance on a forum acceptable to both parties.
The parties agreement make adjudication and dispute settlement a private matter. The forum selection clause is a vital part of the agreement Note that such an arbitration agreement may be in the form of a separate agreement [separate arbitration agreement] or, as in some cases, in the form of a clause or two clauses contained in the parties standard forms in contract [ie arbitration clause in a formal contract document].
As international arbitration has become the natrural judgess of international business, it is of paramount importance that practitioners familiarise themselves with the modus operandi of two critical issues in arbitration which we submit are, the consent/agreement requirement and the imperative for an effective and a well drafted arbitration clause. Once these core issues are properly taken care, any other defect may be easily rectifiable and at the end clients and parties will be satisfied.
Clement Chigbo [esq], solicitor of England and Wales practises and teaches law in the UK. He is also a registered associate with the law firm of C F Butler and Associates, Nassau, Bahamas. Mr Chigbo is also an arbitrator and currently a doctoral candidate at the University of Aberdeen, UK. comments and criticism to his articles are welcome. He may be contacted at lawscholar2006@yahoo.com
- Austin DWI - New York DWI