At its very basic, International Commercial Arbitration is the legal process of resolving disputed matters through arbitrators rather than through the courts; this mostly relate to transnational parties in business or any such like dealings. At the commencement of the business agreement, an arbitration clause is included in the contract and this is legally binding on the contracting parties. Owing to the fcat that arbitration cases are non-judicial, it makes it manageable to parties in business especially so in view of the fcat that international commercial disputes continue to surge.The reasons for this preference are straightforward; first, there could be lack of trust in the legal system of a foreigh country secondly, legal battles involving transnational issue could be time consuming, expensive and complexin nature.
Another important consideration that these outfits make is that a foreign courst verdict is unenforceable in most cases and arbitral awards attract internationa recognition in most cases. A case in point lay in the fact that more than 140 countries have ratified the provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. There are however some key featuers of arbitration: doctrine of separanility where the contract and the rbitration agreement are considered as disconnect. The other one is the expectation that there could be disputes where more parties are involved especially due to privity of contracta and thirdly is the extent of confidentiality of the agreement, however, this differes from onr country and the other.
Privity of Contract:conduct of related arbitrations.
The issue of privity of contract has been a matter of controversy in different quarters; as a result, it has always been revisited even by the courts pof law. Historically, Privity of Contract stipuleted two majof provisions; first was that a third party may not have obligations imposed by the terms of a contract and secondly that a third paryty may not benefit from the terms of the guiding contract. This stipulates that being merely mentioned in the contract is not enough, athird party can therefore not maintain an action even if failure to fulfil contractual obligations-of any of the parties-causes loss to the third party.
Privity of Contratct results to unnecessary disputes both concerrning the conduct of related arbitrations ands secondly, in the recorgnition of orders and awards. A contract is an agreement between two or more parties and in most cases done in writing, the terms of any contract usually has a clause or clauses with legal obligations on both parties. The remedy when a contract is breached could be damages or monetary compensatuon, to ensure equity to the agrieved party, arbitration could impose specific performance or an injuction. The aforementioned compensation awards the agrieved party the benefit of the bargain, the privity rule restricts the parties to acotract to the offeror and the offeree and any other party specificall mentioned in the contract as being aparty.
Trident General Insurance Co Ltd v McNiece Bros Ltd (HPH 286-294)
A case in point which h is related to the conduct of rewlated parties is presented in the case of Trident General Insurance Co Ltd Vs McNiece Bros Ltd. This was about workers compenation insurqnce whwre Blue Circle Company that woned a contsruction site had undertaken an insurance policy that covered noth its workers; those of other contractors as well as the entire team of sub-contrractors. One of the employtees of McNiece got injured and owing to the fcat that Mc Niece was the principal contractor, he was legally bound to cover the expenses. McNiece therefore sought compensation from the insurance company Trident and it declined to pay arguing that the actual contract was between Trident and Blue Circle Company.
This is a perfect example of the inconvenience placed by the privity rule and the conduct of the parties to a contract. It would be right to argue that the insurance company was right when it declined to pay because McNiece Bros Ltd was not a party to the contract. On the other hand, McNiece needed to be paid due to the fcat that it reacted appropriately and its inconvenmiencing to decline to pay them. The arbitrations verdict was that the insurance company must pay McNiece-there are specific exceprions to the privity rule and the above is only in relation to insurance contracts. The Australian Law Reform Commission had to intervene in this case and this led to the inclusion of insurance contracts in the Insurance Contracts Act 1984 (Cth) s 48.
The unnecesary disputes can also be proven in cases where the privity rule is rigid to thisrd parties even when the third party is under atrust agreement. For instance if a paryty A makes a promise to another B that he will pay another party C, then it is still proper to argue that B is aparty of the trust and generally if any party holds a promise in trust for another then the beneficiary can be allowed to enforce. In our case therefore, X being the beneficiary can enforce an action if A fails to pay. However, this proposition is still under scritiny and arbitration still limits the right of a third party to enforce exept under exceprions like in insurance contracts.
Privity of Contract: the recognition and enforcement of Orders and Awards
Recorgnition of a foreign judgement is used to refer to a case whwere a court or arbitration-in our case-of a conntry accepets the judgement made by a foreign conntry or jurisdiction,In this case, the arbitration makes a ruling that is substancially the same wothout considering the original lawsuit. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards having come into force in June 1959 wanted courts to recorgnize arbitration awards made in other states as well as effect private agreements the right to arbitrate. This New Yor Convention is foten considered to have formed the foundation of the International Arbitration.
The issue of recorghnition of orders and awards can accurately be said to have led to unnecesary disputes in international commercial arbitration. Some factors explain the assertion; identofication of the parties to which the award is binding; this becomes difficult to enforce especially in this era where mergers, acquisitions, renranding and such like things are the oprder of the day. This brings forth the need for a legal explanation as to identifyiong parties and in addition, their relationships with the original parties. This in itself poses an imminent danger that disputes could mushroom if agreements do not consider such dynamucs.
The tribunals decision; in this regatrd, the tribunals decision ought to be directiove in the sense of being specific, being capable of perfomance by the party to whom its directted and lastly the award has to be definate. The direction given should not be conditional except in cases where an element of conditionality was necessary and was agreed upon by the patrties. Overall, there should not be conditions that make the award difficult to enforce. A statement of the legal and factula basis should be provided; these are facts applicable to the award and which in most jurisdictions are not appealable. Awards are required to be in writing and ratified by all the arbitrators under Section 52 of the 1996 Act; reasons for the awards also need to be stipulated.
Against this background therefore, it is clear that the issue of awards-recorgnition and enforcement-could lead to disputes in cases where there are irregularities that could rightfully amount to substantial injustice, then the arbitrators findings of fcat could be contested. It is also critical to create a distinction between a finding of fact and a point of law; matters of foreign law are also viewed as those of fact as opposed to matters of law. This is according to English law.
In International Standard Electric Corp. (“ISEC”) v. Bridas Sociedad Anonima Petrolera Industrial y Commercial.
In this case an award was granted in favour of Bridas. ISEC on the other hand contested the awards and sought to repeal ints recorgnition in a U.S court. Bridas sought to enforce the award under the New Yor Convention arguing that the US court lacked enough jurisdictions to repeal the awards. ISEC however maintained that the award was enforceable both by the Mexican court-where the actual proceedinsg took place- and the US whose laws were applied in agreeing on the terms of the contract and could be vacated by both courts under the New York Convention. The US court made a verdict that said that Bridas was correct in arguing that the US courts whose laws were apllied in pursuant of the contract did not have authority to vacate the award.
Some of the laws under which a party to a contract can refuse to aclknowledge an arbitral awards are; where the parties to a contract, under the law applicable to them or the law under which the parties have subjected their agreement to is not valid or failing any indication under the law of the conutry in which the award was made. This premise for repealing an award is not successful most of the time.
There are two exceptions to the privity rule, first it’s in the Bill of lading-which applies to contracts related to transportation of goods and is enforceable against the carrier, secondly is in Bills of Exchange for instnace where when an issue results from a cheque written, then third parties can maintain an action. In trhe recorgnition and enforcement of orders and awards, the exceprtions are; for instance in cases where the foreign court did not have personal jurisdiction over the defendant. Other cases are where there was fraud in obtaining the judgement, where also the arbitration seeks to enforce taxation and revenue laws of a foreign conutry and where the defendant was not in receipt of the notice of proceedings in ample time to allow the party to defend.
Brech & Brewer Ltd (B&B) by delivering the crude oil in time-in the People’s Republic of China-honoured part of their agreement by delivering in time. On the other hand B & B breached the part of the contract because ZZ had ordered for 500,000 barrels of Texas Heavy Crude Oil and not Texas Light Crude Oil. On this grpound, ZZ is in the right footing to arnitrate citing breach of contract. B & B has no legal grounds to apply for an injunction, since the company is in breach and secondly, the arbitration agreement clause stipulates that in case of any disputes, then the Londons arbitration shall be consulted. There isexclusive jurusdiction.
B & B has aright to apply for the consolidation of arbitration on the following grounds; there are different parties but the same contract, the same party but on multiple layers of the same program. The other ground ususllay is when there are unrelated contracts but the relating to the same party; consolidation like in the case of B & B will be to ensure that the arbitration process is efficient. The other aspect the parties might want to consider is the fcat that the aarbitration agreement was silent on the issue of consolidation and none of the parties consented to it. Up until the First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), most courts decided on whether there should be arbitrations or not, several years later however, the Federal Arbitration Act (FAA) now giveds freedom for the agrieved party to arbitrate or consolidate if there was awritten consent to do so. on the whole,most courts still hold that unless the termms of arbitration clearly consented consolidation, a party may not obtain such action.
Smolkin Inc could maintain an action and is right in contesting the socond arbitration; first the terms of the contract stipulated that B & B should purchase and sell Texas Heavy Crude Oil but B & B went ahead to purchase and deliver Texus Light Crude Oil-this constitutes breach of contract. Smolkin Inc is not bound to pay the $ 750,000 in compenation. Smolkin Inc is therefore right in its appeal arguing that the Texas laws whose laws were applied in creating the contract had no jurisdiction to vacate the awards. The other ground of failing to acknowledge the award is where the law applicable to the parties is not valid.
ZZ’s application to admit an experts report on the crude oil: this explains the concept of getting a legal or factual basis before making adecision. Since the issue of whether or not the crude oil was heavy, then an expert’s opinion should be sought. Once the arbitrators scrutinize the documents-that must be presented in writing-then the verdict is not appelable. The only circumstance under which B & B could appeal is when there were serious irregularities that constitute injustice on its part; this is howevre not the case because the experts opinion indicates that what was supplieed was light and not heavy crude oil. The arbitrators favouring English Law is justified because in English Law, matters of foreign law are considered those of fact and not of law. This therefore creates a distinction between findings of law and not of fact.
English and law is a body of laws regulationg contracts in Wales and England. It is since undergoing reforms with its membership increasing to the European Union and other organizations also joining.Owing to the fcat that a contract is voluntary as opposed to payinmg compensation, the English law stronglymaintain that parties consent to terms that are legally binding. The nature of a contract is such that it has offer and acceptance, once a party accepts the terms of the contract; either expressly or impliedly, then he is estopped from denying that engagement. Implications could mean a party bahaving in manner likely to indicate that they have agreed to engage in the contract, in which cases, the terms are legally binding on the party. The difference between this case and the one involving B & B is that none of the parties denied their involvement in the contract.
In conclusion, with many international commercial transactions an aresultant effect of increased globalization and liberalization in the marketplce, organizations can not avoid disputes. The causes of disputes are diverse; ranging from commercial and legal expectations, different cultures and their ways of doing things, geografical situations among other things. More often than not, genuine disputes could result into changing the terms of the contract, could lead to legal implications from the contract terms and infringe the rights and the obligations of the contract parties in some cases. In certain instances, parties to acontract might agree to the contract terms even when performance is not possible or sue to over-expectations. Failure to honor finacial obligations and breach of contract terms are the most common resaons for arbitration.
Performance of any contract must be precise and followed to the letter and parties must comply with the terms; failure to do so constitutes breach. However, where the contract is silent on such issues, then ordinary principles of compensation will be sought but remedies may also be granted. Ordinarily, one of the most common usually is depositing 10% of the contract sum; this amount usually is retained in case the agrieving party fails to perform. Considering all forms of remedies, the aggrieved party should not unjustly enrich himself.
Grace Park & Alice Hill, International Arbitration, in 2A Modern Legal Systems Cyclopedia 2A.110.1-2A.110.70 (Kenneth Robert Redden & Linda L. Schlueter eds., Buffalo, NY: William S. Hein & Co., 1989- ) (includes Acts and Rules as appendices).
James H. Carter, International Commercial Arbitration, in The International Lawyer’s Deskbook 295-302 (Lucinda A. Low, Patrick M. Norton, & Daniel M. Drory eds., Washington, D.C.: Section of International Law and Practice, American Bar Association, 1996).
Pieter Sanders, “Arbitration”, in International Encyclopedia of Comparative Law (Tübingen: J.C.B. Mohr (Paul Siebeck); Dordrecht: Martinus Nijhoff Publishers, 1996) (volume 16: Civil Procedure; Chapter 12). 250p.
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