Introduction
Arbitration is a model of alternative dispute resolution (ADR), which is officially authorized for practice, in pursuing the resolution of disputes, from a less formal approach. The model offers such resolution outside the legal coverage of a court, where the parties to the contract under dispute, refer the case to one or more arbitrators or arbitrator tribunals, whose decision regarding the conflict will become binding upon them (Redfern & Jennifer 48).
In the case of an arbitration case, a nonbiased third party (the arbitrator) reviews the evidence related to the dispute case and arrives at a decision, which they present to the conflicting parties, which becomes legally binding upon them, thus enforceable. Besides arbitration, alternative models of alternative dispute resolution (ADR) include mediation, which is another form of settlement negotiation enforced by a non-biased third party, though this resolution model is not binding (Buhring-Uhle & Gabriele 24; Schreuer 137).
Discussion
Arbitration can either be mandatory or voluntary, where voluntary arbitration comes in, in case it is defined so by a statute or from a contractual agreement, which is voluntarily agreed upon. In this case, the parties mutually agree to present all existing or future contractual disagreements to arbitration, without precisely knowing when and the types of disputes they are likely to face.
However, voluntary arbitration, as explained above, can either be binding or not, where non-binding arbitration is comparable to the ADR model of mediation, in the aspect that the decision made by the arbitrator cannot be imposed on the parties. Further, there is a principal distinction, in as much as a mediator may try to aid the parties to the dispute, in arriving at a common agreement.
The arbitrator in a non-binding dispute resolution keeps away from any involvement, by not engaging in any settlement attempts, and will only offer a declaration of liability and responsibilities among the parties. The arbitrator further, may offer an indication or direction on the number of damages to be offered. The decision by the impartial adjudicator is usually agreed upon or directed by legislation, as binding and final (Tibor, John, & Arthur 174; Buhring-Uhle & Gabriele 24).
According to the “practical guide for drafting international arbitration clauses,” arbitration processes should be consensual between the parties in question, and such parties to the international contract may influence how the arbitral guidelines are conducted. The first phase where the parties to the arbitration agreement may take control of the arbitration process is during the drawing of the arbitration clause to guide them.
At the time of fashioning the clause, the parties hold substantial and considerably unlimited freedom to contribute to the engineering of the structure of the desired arbitration approach. In the area of treaty requirements, the convention on the institution and execution of overseas arbitral guidelines (New York conference) as well as the Inter-American conference on global commercial arbitration (Panama conference), direct that the arbitration declaration should be expressed in written form, where the writing may be part of the contractual document or a separate arbitral declaration (United Nations 3-5; United Nations 4-5).
In this light, the arbitration clause has met these requirements, as it is in writing, as a part of the contractual document. The second condition is that the written arbitration declaration must be signed by the parties or expressed through the exchange of communication, through models like telegrams or letters. As per this second condition, the clause has been signed against, by the parties to the contract, thus has met the standard.
This aspect was completed after the Dubai-based company entered into the contractual agreement with the Yemen-based company, in the capital construction contract. From agreeing to the contractual provisions, the assumption is that the Dubai-based company consented to all the provisions of the contract, including the arbitration clause (DIFC Arb Law. Part 3, Chap 2, sec 12, c. 1).
As per the provisions of (DIFC Arb Law. Part 3, Chap 1, sec 9) on waiver of the rights to object arbitration clauses, any contracting party who is aware that any of the provisions of arbitration law or other requirements are not met or complied with, yet proceeds with the process of the arbitration without stating express objection, is bound by such clauses.
To avoid the assumed compliance, they should state their objection to any noncompliance to the provisions to be checked, without delay, or within the time limit expressed thereof. In the case that they do not express such disagreement, they are assumed to have waived any such rights or noncompliance with the provisions offered through the arbitration clauses. From this waiver of the rights clause, it is evident that the Dubai-based company waived any rights to object to the clauses of the arbitration agreement before signing it.
This is expressly the case, as the act of going through the clauses and signing to them showed a degree of consensual agreement on their part, thus compliance to the provisions expressed through the clause. However, the company may pursue a revision of the provisions contained in the arbitration clause, which must involve the other party to the contract, as they must arrive at an agreement regarding the revisions to be affected (Yves & Garth 89).
As per the provisions of DIFC on the appointment of arbitration agents, the parties are free to decide the number of arbitrators to be engaged in the process, as long as it is an odd number. As per section 18, clause 1 and 2, the arbitration declaration goes against the conditions to be met, before a decision is reached on whether a third party should be taken in as an arbitration agent or not (DIFC Arb Law. Part 3, Chap 3, sec 16, c. 1).
The arbitration agreement presented to the company is flawed in this area, as it states declaratively that, “both parties agree that, at least, one arbitrator should be DR Karim Akram.” As per the DIFC-LCIA Mediation rules, article 5.4, a sole arbitrator is appointed, in case that the contracting parties arrive at an agreement in writing or otherwise, defining the number of arbitrators to be engaged in case they need arbitration.
In this case, the clause implies that the preferred arbitrator is the only one to preside over disputes, in case the parties do not arrive at an agreement. As a result, the dispute resolution may not be carried out in a transparent, unbiased manner, as the preferred arbitrator may be affiliated to one of the parties. Further, the LCIA court, from a consideration of all the circumstances surrounding the dispute, may declare that the case should be resolved by a three-member tribunal, to preside over the resolution (Lew, Loukas, & Stefan 134).
The declaration of a single arbitrator is grossly questionable, as to whether the preferred party, may be viewed as one not having ties or bias towards any of the contracting parties. This is especially the case, as the single arbitrator may have been proposed by one of the parties to the contract and not the different parties (Arb Act, 1996, C 1(a) & 24(1), a).
This is the case, as an arbitrator should disclose any information and circumstances likely to cause justifiable doubts as to his impartiality or independence (LCIA Art. 5.2; UNCITRAL art. 10, 1). As a result, on the basis of such considerations, it is clear that the preferred party may not have declared full information to both parties, regarding their neutrality, which may render them unfit for the position.
Based on such grounds, according to (DIFC Arb Law. Part 3, Chap 3, sec 16, clause 2), the arbitration agreement may be challenged, requiring changes to be implemented, exempting any preferred party as an arbitration agent, as they may hold biases or receive considerable influence from one of the parties at a time of crisis or in anticipation of one, which may render injustice to the other party (Dugan, Don, & Noah134).
As per DIFC Arbitration provisions, section 29, clause 1, the arbitration clause should also reflect the language to be used during arbitral proceedings or processes. In cases where there is a disagreement between the parties with regards to language, the arbitral tribunal takes the mandate to determine the language to be used. As per the arbitration clause binding the two parties, it is clear that during the contractual agreement, there is no language named as the one to be used during an arbitration resolution.
As a result, the clause may need revision, to accommodate such a consideration, which is of great significance towards the arbitration of any conflict that may face the partners in the future. However, the said change cannot be affected by the CEO, the company or the contract manager, but through an expressly consensual agreement between the contracting parties (Craig, William, & Jan 65).
The change should be effected in written form, amongst the two parties, and the failure to do so may render the change invalid, as such an agreement should be subject to reference and revision. Further, in case the two contracting parties will not arrive at a consensual agreement regarding the language, the arbitration party will choose the language, at the time of need for arbitration.
The clause on the language to be used at resolution is extremely important, as the contracting parties are from different nations, thus likely to be users of different languages. Considering the current case, where multiple language usage may be necessary, the arbitrating agents may order for documentary evidence for the case, which is to act as translated support for the issues under discussion, in the different languages agreed upon by the two parties or declared by the arbitration agents (DIFC Arb Law. Part 3, Chap 3, sec 29, clause1, 2).
The number of arbitrators to appear at the arbitration proceedings should also be incorporated into the arbitration clause, as this may form an area of further dispute, in case the number is not decided, for instance, where the different parties will prefer to have a different number of arbitrating agents. The arbitration clause incorporated into the contractual agreement of the two parties falls short of some of the conditions to be met, before the clause can be enforceable.
According to the (Carbonneau 76), there are four basic necessities before the clause can be enforced, including that the clause should be in writing, that it should be limited to existing or anticipated disputes; that it should define the legal relationship existing between the contracting parties, and that the subject matter in question is one that can be subjected to arbitration (arbitrability). For example, in the coverage of matters related to the contract, all issues are arbitrable, except those that fall under matters of public interest or public order, as per the AAA Commercial Arbitration Rules, art. 47(c).
Further, arbitration is a private matter, which may present potential public consequences, which explains why certain matters of dispute resolution may be reserved to the national courts (Boskey 123). As a result, the arbitration clause should be revised, to ensure that the coverage of disputes is limited to those that do not present potential public consequences (Buhring-Uhle & Gabriele 24; Carbonneau 76).
With reference to the UAE civil code, which is a defining guide in legal practice at Dubai, arbitration is not permissible for matters that can be resolved through reconciliation between the contracting parties. Therefore, this should be incorporated into the coverage of the arbitration clause (UAE Civil Code in its Article 203, 4).
From the current arbitration clause, the definition meets the standard requirement that it should be expressed in writing, as it is incorporated into the contractual document. Second is the wide coverage of the operational clause, regarding existing or anticipated disputes as it declares that, “any dispute of whatever nature arising out of, or in any way relating to the agreement or to its construction or fulfillments.” From the definition of the clause, the coverage of the existing or anticipated disputes it is too wide, thus will need revision.
The wide nature of the definition implies that the issues of dispute covered under the definition, may include tort-based claims, conspiracy, or breach of contract, which are beyond the boundaries of the contractual agreement. Based on such understanding, the wording of the arbitration claim should be revised to reflect the scope of the arbitration case in a specific manner. This is the case, as it may raise questions on the issues that can be submitted to the arbitration claim and those that cannot (UNCITRAL art. 17; Buhring-Uhle & Gabriele 24).
The other area of flaw that may be identified with the arbitration clause in question is that it covers a wide range of conflicts, thus grossly vague and incapable of offering guidelines on dispute resolution. A more effective revision of the clause would state, “any dispute arising from or associated to this contractual agreement, including questions on its existence, termination or validity, shall be submitted and consequently solved by arbitration, as per UNCITRAL rules, which are deemed as incorporated by reference into the arbitration clause.”
From this clause, it is clear that the coverage of the disputes that can be resolved through arbitration is clearly defined, as opposed to the definition expressed through the original arbitration clause, which is binding on the Dubai and the Yemen-based company (DIFC-LCIA Art. 16.2). Further, the clause should incorporate a duration consideration, where it defines the time period within which the dispute should be considered, as one that should be taken to arbitration.
For example, the clause can include a definition that the two parties should be offered a duration of 14 days, during which they can arrive at a resolution through the aid of a single arbitrator. In the case they are not able to arrive at a resolution, the issue of dispute may then be pushed to a higher level of arbitration, to involve more arbitrators (Boskey 123; Blackaby, David, & Alessandro 45; Buhring-Uhle & Gabriele 24).
Conclusion
Arbitration is a model of alternative dispute resolution (ADR), which is carried out at the agreement of the two contracting parties, outside the court, through the facilitation of a neutral third party called the arbitrator or mediator. There are two types of arbitrations, enforceable and non-enforceable. Arbitration is often used for commercial business deals as well as in consumer and employment related disputes.
Under non-binding resolution, the arbitrator is not allowed to influence the decisions of the parties attempting to resolve the dispute. Under binding arbitration, the arbitrator is allowed to influence the decisions of the parties towards dispute resolution. Arbitration as a mode of dispute resolution, should be consensual between the conflicting parties, and should be expressed and noted in written form, if only it is to be considered enforceable.
The clause may be a binding document on its own, or a part of the contractual agreement. In the case of the arbitration clause binding the Dubai and the Yemen-based contracting parties, in a capital construction contract, it is faulty in a number of ways, though the two parties consented to the provisions, after signing against the agreement document.
As per the provisions of DIFC part 3, chap 1, section 9, the Dubai-based company waved its rights in contesting the provisions of the arbitration clause, though it can engage the other party for a review of the clause. The move to edit the clause must involve the second party, as the clause is legally binding, thus cannot be altered without express consent from the two parties.
The areas that may need revision in the current clause include the choice of arbitrators, as the mode of selection must exhibit total transparency and non-bias from the parties selected as mediators. The declaration of a single arbitrator through the clause should also be revised, as it implies that in the case that the two parties are not in agreement regarding the choice of arbitrators, the one in the clause will take charge.
However, that may be improper, as it is likely that the single arbitrator who is pre-chosen may be affiliated to one of the parties, thus offering biased mediation. The arbitration clause should also reflect the language to be used during an arbitration exercise, the desired number of arbitrators to facilitate conflict resolution, as well as extend its boundaries to only the areas that don’t engage public interest. The coverage of the arbitration clause should also be revised, to reflect a clear distinction of the conflicts it covers, as on open one may imply covering parts it does not.
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