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AGA Partners
11a, ïð. Íàóêè
03028, Êèåâ
Óêðàèíà |
òåë.: +380 (44) 206-06-75
+380 (44) 206-06-76
òåë./ôàêñ: +380 (44) 206-06-75
e-mail: office@agalawyers.org |
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Arbitration Close. Thinking two steps forward.
Aminat Sulymanova
Managing Partner
AGA Partners Law Firm
“Experience is the name people give to their mistakes.”
Oscar Wilde
Establishing of the business relations between the market participants, forming of the trade and ethics traditions is the important aspect of business formation and development in Ukraine. Globalization extends its effect and particularly the upcoming Ukraine’s entrance into the WTO which will bring expansion of international contacts, the globalization of financial markets as well as appearance of new market instruments.
The studied international practice witnesses the notably growing role of the international commercial arbitration, which is the effective legal mechanism of the dispute resolution and protection of rights in cross-border commercial disputes.
International commercial arbitration operates in a legal framework which has been in the process of internationalization since the 1960s and which is determined by international conventions, national arbitration laws and rules based on party autonomy. In the past, arbitration laws used to be the remaining strongholds of national peculiarities in this framework. International instruments such as the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (henceforth: New York Convention of 1958) and arbitration rules such as those of the International Chamber of Commerce, had long been geared towards establishing an international standard. Today, arbitration laws are harmonized through aligning with the UNCITRAL Model Law on International Commercial Arbitration.
Arbitration is a form of dispute resolution in which parties agree to submit their dispute to a person (or panel of persons) who will apply the same laws that would have been applied by regular courts. That is why it is extremely important to specify in the Contract which law should govern the relationships between parties, how and where the disputes related to the Contract should be resolved.
Unlike proceedings in national courts, arbitration procedures are controlled by the parties. If the parties agree on certain procedures, the arbitral tribunal should follow them.
Contract Clauses
Parties who initiate arbitration proceedings have usually agreed to do so by contract, before any disputes arise. Careful drafting of an arbitration clause can help to prevent inefficiency and uncertainty when the clause is invoked and arbitration is commenced. There is no need for an arbitration clause to be lengthy or complex, but there are some elements that are essential for the clause to be effective. In fact, arbitration clauses are extremely common in international contracts. A contract that contains an arbitration clause should specify the following:
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The law governing the contract. This is called a choice of law clause and is normally an independent clause separate from the arbitration clause. |
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The seat of arbitration (the venue). Not all hearings need take place at the seat, but the arbitration laws of the seat will govern the arbitration proceedings. |
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The language in which the arbitration proceedings will take place. |
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The number of arbitrators. |
In most cases, arbitration clauses specify that an arbitration institution will also perform the role of administrating the arbitration (taking note of communications by one party to the other, making sure that deadlines are met, etc.).
It is mostly expedient to include the arbitration clauses in the contract text, for it is very hard to persuade the party into sign the arbitration agreement after the dispute rise. However, even if a contract did not contain an arbitration clause, parties can agree to use arbitration after a dispute arises. Such agreements are called submission agreements and should contain the same elements as an arbitration clause. Moreover, one of the contract parties has a chance to bring a case into the international arbitration that was chosen by it. For this purpose the second party (respondent) has to agree “de facto” to the arbitration. Such consent, in particular, can be considered as the suit withdrawal that is given by the respondent.
National arbitration laws typically provide that national court proceedings concerning a dispute will be stayed if the dispute is submitted to arbitration. In particular, national courts will refuse to consider a dispute regarding a contract that contains an arbitration clause. The New York Convention is an agreement between states that provides for stay of national proceedings during arbitration, for enforcement of arbitral decisions rendered abroad, and for limits to the grounds for appealing arbitral decisions.
Avoiding the chaos.
There is another extremely important thing that should be taken into the consideration while conducting of the business activity involving few types of relations, parties and jurisdictions. It is necessary to make sure that all the closes in related contract are adjusted. Otherwise the party commences arbitration under the arbitration clause of one agreement, can find its opponent commences a parallel arbitration against him in relation to the same dispute under the arbitration clause of a separate, but related agreement.
In any commercial relationship where there is more than one agreement or more than one party (e.g. joint venture arrangements, construction projects and "string" commodities deals), the potential for duplicate proceedings exists. And it does happen.
There is only one solution in such cases. Before parties enter into multilateral or multi-contractual relations, they should provide for a dispute resolution procedure which will avoid the potential for duplicate proceedings. The following suggestions should be considered:
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Provision of only one dispute resolution procedure, binding upon all parties. This may require some form of umbrella agreement. |
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All other agreements should make reference to that procedure and provide that disputes arising under them are to be referred to arbitration in accordance with that procedure. |
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The dispute resolution procedure should additionally make provision for consolidation of arbitral proceedings involving substantially the same or connected disputes, and/or the same parties. |
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Depending on the nature of the parties’ relationship and the number of parties involved, it should also provide for multi-party arbitration. |
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Provision requiring parties to appoint the same arbitrators in the related arbitrations. |
In spite of the fact that drafting such a dispute resolution procedure will not be easy, it may be rewarded by avoiding of the cost and chaos which parallel proceedings can produce.
Where to go.
Speaking about international arbitration as an alternative dispute resolution mechanism it should be stated out that there are two basic types of arbitration. First and the most popular is institutional arbitration and the second is arbitrations “ad-hoc”. Institutional arbitrations can also be specialized in particular field (e.g. the Crain & Feed Trade Association Arbitration).
Probably more common than ad hoc arbitrations are those run under the auspices of an arbitral institution. Institutional Arbitrations acts on the basis of regulations that every such institution has. The regulations contain procedure rules that are the basis for the dispute resolution. The rules of every concrete arbitration institution contain both obligatory and optional clauses for the parties.
There are a few most popular institutional arbitrations that received name “main centers of international commercial arbitration”.
Among them:
While the rules of the various arbitral institutions contain similar provisions on many issues, there are important differences among the various institutional rules. As an example we can take, the situation in which two parties have agreed that arbitration is to be before a three-arbitrator tribunal. The ICC rules generally provide that each party nominates an arbitrator, with the third arbitrator being chosen by an ICC body unless the parties have provided that the party- appointed arbitrators agree on a third arbitrator within a fixed time-period. The UNCITRAL rules provide for a similar procedure, except that when the party-appointed arbitrators cannot agree either on the third, presiding arbitrator or on an institution to appoint that arbitrator, the Secretary-General of the Permanent Court of Arbitration at The Hague, upon application by a party, chooses the appointing authority for that arbitrator.
By contrast, the AAA International Arbitration Rules provide that the parties may agree on any procedure for appointing arbitrators, However, if within sixty days after the commencement of the arbitration the parties have not agreed on the procedure for or the designation of the arbitrators, the AAA administrator may, upon written request by a party, appoint the arbitrator(s) or perform all functions provided for in a procedure agreed to by the parties. Interestingly, the standard AAA Commercial Arbitration Rules, in cases in which the parties have not agreed on-the tribunal or its method of selection, contain somewhat different default procedures for the choice of arbitrators. In such cases, the AAA provides the parties with a list of potential arbitrators. The parties may then strike names from the list and rank remaining names in order of preference, with the AAA choosing from the list any arbitrators on which the parties cannot agree.
It seems appropriate to conclude this article with the following observation. International arbitration is the most popular way of the commercial dispute resolution. In the modern world international arbitration has moved beyond those parties that traditionally used: parties to trade in commodities, parties with longstanding relationships, etc. One could say that arbitration has become litigation before a different type of tribunal. As a result the process has become more litigious and less a true alternative to national court litigation. However the future of international arbitration may well depend, at least in part, on the ability of arbitrators, signatories to arbitration agreements, and courts to maintain the integrity of the international arbitral process.
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