Introduction to Arbitration and Dispute Resolution under FIDIC. Dr. Asanga Gunawansa Attorney-at-Law
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1 Introduction to Arbitration and Dispute Resolution under FIDIC Dr. Asanga Gunawansa Attorney-at-Law
2 PART 1 ARBITRATION
3 Arbitration Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
4 Advantages of arbitration Disputes can be resolved faster than through Courts Speed reduces the cost Control over the process and procedures Ability to choose arbitrators who are experts in the area of dispute Confidentiality 4
5 Key Features of Arbitration Arbitration is a creature of contract, thus the parties must agree to arbitration. The contractual basis of arbitration means that it can be structured by the parties to meet the specific needs of their relationship. The parties can set out the powers of the arbitrators, their jurisdiction, their qualifications and any other matters the parties feel are relevant to their contractual relationship. 5
6 Key Features of Arbitration Arbitration provides for confidentiality, choice of language and choice of site for the arbitration The parties can choose a neutral site or a site where the witnesses and documents are available or a convenient location The binding nature of the award means that the parties must honour the award Arbitration Awards can be enforced internationally as a result of most countries adapting the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1957 (New York Convention of 1957). An Arbitration Award can be set aside only on very limited grounds. 6
7 Grounds for setting aside an Award: Setting aside an Award a)where the party making the application furnishes proof that : (i) a party to the arbitration agreement was under some incapacity or the said agreement is not valid under the law to which the parties have subjected it to; (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iii)the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on maters beyond the scope of the submission to arbitration.
8 Setting aside an Award cont (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with the provisions of this Act, or, in the absence of such agreement, was not in accordance with the provisions of this Act : or (b) where the Court finds that : (i) the subject matter of the dispute is not capable of settlement by arbitration; (ii)the arbitral award is in conflict with the public policy.
9 The agreement to arbitrate An agreement to arbitrate shows that the parties have consented to resolve their disputes by arbitration The element of consent is essential Once the parties have consented to arbitration, this consent cannot be unilaterally withdrawn Even if the Contract between the parties comes to an end, the obligation to arbitrate survives the severability of the arbitration clause 9
10 The agreement to arbitrate Article 7, chapter II of the UNCITRAL Model Law defines an arbitration agreement as follows: - Arbitration agreement is 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. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. 10
11 The agreement to arbitrate Article 7, chapter II of the UNCITRAL Model Law defines an arbitration agreement as follows: - The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract. 11
12 A QUESTION The ADR Clause in a MoU signed between two parties states that: Any disputes in relation to this agreement must be resolved in good faith by both CEOs of both companies... What are the legal consequences of this clause?
13 The arbitration clause When drafting an arbitration clause/agreement, care needs to be taken to ensure that it is appropriate for the particular circumstances of the case. The following are relevant: Have the parties been properly identified Is there a clear reference to arbitration Where is the seat of the arbitration? Is there a choice of the proper law of the contract? 13
14 The arbitration clause Is there a choice of the procedural law? How will the Tribunal be appointed? Is there an appointing authority? Is the tribunal required to have any particular attributes or qualifications? 14
15 The arbitration clause The number of arbitrators? Are there to be procedural and/or evidential rules and if so, which ones? What will be the language of the arbitration? Is specific provision for confidentiality required? Should applications and appeal to the court be excluded? 15
16 Arbitration clause There are different arbitration clauses used by parties - E.g. Any doubt, difference, dispute, controversy or claim arising from, out of or in connection with this contract, or on the interpretation thereof or on the rights, duties, obligation, or liabilities of any parties thereto or on the operation, breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Rules of the Arbitration Centre of the Institute for the Development of Commercial Law and Practice". What would be the effect if you replace shall be settled with may be settled? 16
17 Arbitration Clause A UK court held recently (in Christian Kruppa v Alessandro Benedetti & Anr [2014] EWHC1887) that the following clause did not amount to an arbitration agreement: In the event of any dispute between the parties pursuant to this Agreement, the parties will endeavour to first resolve the matter through Swiss arbitration. Should a resolution not be forthcoming the courts of England shall have non-exclusive jurisdiction.
18 What is an Ad hoc arbitration An ad hoc arbitration is one which is not administered by an institution Therefore, the parties are required to determine all aspects of the arbitration like the number of arbitrators, manner of their appointment, procedure for conducting the arbitration, etc. Provided the parties approach the arbitration in a spirit of cooperation, ad hoc proceedings can be more flexible, cheaper and faster than an administered proceeding. The absence of administrative fees alone make this a popular choice. 18
19 Ad hoc arbitration - disadvantages Parties wishing to include an ad hoc arbitration clause in the underlying contract between them, or in a subsequent agreement to arbitrate, have the option of negotiating a complete set of rules and establishing procedures which fit precisely their particular needs. Experience has shown that this approach can require considerable time, attention and expense without providing assurance that the terms agreed will address all eventualities. 19
20 Ad hoc arbitration - disadvantages Its effectiveness may be dependent upon the willingness of the parties to agree upon procedures at a time when they are already in dispute. Failure of one or both of the parties to cooperate in facilitating the arbitration can result in an undue expenditure of time in resolving the issues. 20
21 Ad hoc arbitration - advantages Properly structured, ad hoc arbitration should be less expensive than institutional arbitration and, thus, better suit smaller claims and less affluent parties. The primary advantage of ad hoc arbitration is flexibility, which enables the parties to decide upon the dispute resolution procedure. Ad hoc arbitration also permits the parties to shape the arbitration in a manner, which enables quick and effective resolution of disputes involving huge sums of public money and public interest. 21
22 Ad hoc arbitration - advantages In ad hoc arbitration, parties negotiate and settle fees with the arbitrators directly, unlike institutional arbitration wherein the parties pay arbitrators fees as stipulated by the institution The parties only pay fees of the arbitrators, lawyers or representatives, and the costs incurred for conducting the arbitration i.e. expenses of the arbitrators, venue charges, etc. They do not have to pay fees to an arbitration institution 22
23 Institutional arbitration An institutional arbitration is one in which a specialized institution with a permanent character intervenes and assumes the functions of aiding and administering the arbitral process, as provided by the rules of that institution. Often, the contract between the parties will contain an arbitration clause which will designate an institution as the arbitration administrator. 23
24 Institutional arbitration - disadvantages If the institutional administrative charges, which may be substantial, are not a factor, the institutional approach is generally preferred. The primary disadvantages attending the institutional approach are: (i) administrative fees for services and use of facilities (ii) the institution's bureaucracy may lead to added costs and delays; and (iii) the disputants may be required to respond within unrealistic time frames. 24
25 Institutional arbitration - advantages Availability of pre-established rules and procedures which assure that arbitration will get off the ground and proceed to conclusion with dispatch Administrative assistance from institutions providing a secretariat or court of arbitration Lists of qualified arbitrators, depending on the fields of expertise required for the arbitration 25
26 PART 2 DISPUTE SETTLEMENT UNDER FIDIC
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