Preliminary Considerations of Arbitration

There are issues which have to be considered in arbitration in order to further understand the applicability of the system.

Arbitrability

In order to talk about arbitration in arm length, first we have to know issues which are arbitrable and which are not. To state otherwise, some disputes are not subject to arbitration due to different reasons, for instance, public policy might be one reason to exclude an issue from arbitrability. The issue of arbitrability, therefore, concerns whether a particular dispute is properly the subject of arbitration.

Zekarias kenea quoted the proposition of Redfem and Hunter on the idea of arbitrability as follows:

The concept of arbitrability is in effect a public policy limitation upon the scope of arbitration as method of settling disputes. Each state may decide, in accordance with its own public policy considerations, which maters may be settled by arbitration and which may not. If the arbitration agreement covers matters incapable of being settled by arbitration, under the law of the agreement or under the law of the place of arbitration, the agreement is ineffective since it will be an unenforceable. Moreover, recognition and enforcement of an award may be refused if the subject matter of the difference is rot arbitrable under the law of the country where enforcement is sought.

Disputing parties, thus, have to first determine whether their dispute is arbitrable or not before they referred their case for a arbitrator who is appointed to give decision or opinion on the case. States, as to their real conditions, determine which matters are arbitrable or which are non arbitrable.  Under chapter three you will be familiarized the issue of arbitrability in Ethiopia.

Arbitration agreement

Other important concept in arbitration is arbitration agreement. If so, What is arbitration agreement?

Is there any difference b/n arbitration submission and arbitration clause?

Can you mention the requirements of arbitration agreement?

Arbitration, as one of out of court dispute settlement device, most of the time if not completely, depends on the agreement of the disputing parties to resolve their difference through it. To state otherwise, arbitration is hardly possible without the consensus of the conflicting parties to submit their difference  to third party, arbitrator and thereby  to be  bind by the award given thereof. Therefore, parties who intend to resolve their current or potential dispute by arbitration have to express their consent by agreement, mostly known as arbitration agreement.

The word arbitration agreement as defined in Indian arbitration and conciliation Act of 1996, specifically in section 7 thereof is stated as follows.

Arbitration agreement

1. In this part ‘arbitration agreement’  means an agreement by the parties to submit to arbitration, all or certain dispute which have arisen or which may arise b/n them in respect of a define legal relationship , weather contractual or not
2. An arbitration agreement may be in the form of arbitration clause in a contract or in the form of a separate agreement.

In arbitration agreement parties need to have a willingness to abide by the decision of the arbitrator(s). Essentials of arbitration agreement providing for arbitration are that there must be an agreement b/n the parties and the parties must be ‘adidem’ and that there is intention of the parties to have their dispute or differences referred and decided through arbitration.

In Ethiopian words arbitration agreement, submission and arbitration clause, which connote the same thing, are used in the Civil Code and Civil procedure Code and refer negotiated agreement of disputing parties to resolve their dispute by arbitration. The only difference, if it is considered as a difference at all, b/n arbitration clause and arbitration submission is that in case of arbitration clause the agreement of the parties to arbitrate their difference by arbitrator is inserted as a clause in the main contract which is made by the parties. Whereas in arbitration submission their agreement exists independently of main agreement-contract (there is separate agreement).

That is to meant that while persons enter in to legally binding transaction or relationship with other individuals, they may, apart their main obligations they assume for each other,  include in their agreement a clause to settle dispute arise out  of the contract or legal relation by arbitration. This is known as arbitration clause. Arbitration agreement in a contract called arbitration clause is fully distinct from contract in which it is included.

Unlike arbitration clause, arbitration submission is an agreement of conflicting parties usually to settle their current difference through private judge(s). Phrases ‘submission agreement’ and “arbitration clause” are enshrined under art 3325 and 3328 of the civil code Ethiopia respectively.

Art 3325, thus, defines arbitration submission as “contract where by the parties to a dispute entrust its solution to a third party, the arbitrator, who undertakes to settle the dispute in accordance with the principle of Law.”  Sub article 2 of the same article stipulates further that arbitrator may be ordered by the disputing parties to establish a point of fact without making decision on the legal consequences following there from.

Art 3328 of the civil code, on the other hand, talks about ‘arbitration Clause’ though the sub article of this article uses the ‘arbitration submission’ instead of arbitration clause as of the topic article.

As arbitration submission and clause are contracts, the requirements for valid contract in the general part of law of contract should be full filled for their validity.

Different scholars, nevertheless, share the distinct nature of arbitral clause (submission) than other ordinary contracts though it is contract by itself.

Ato Bezza work shimelash, for instance, directly cited the work of Lord Macmillan to show the peculiarities of arbitration submission unlike other types of contracts. To re-cite the paragraph on this matter it reads as:

The other clauses set out the obligations which the parties undertake towards each other, ‘Hincinde’, but arbitration clause does not impose on one of the parties an obligation in favor of the other: It embodies the agreement of both parties that if any dispute arises with regard to the obligation of which the one party has to undertake to the other, such dispute shall be settled by a tribunal of their own constitution.

Then, in arbitration clause, as stated above, the obligations that the parties undertake are not towards each other but rather they both undertake to submit the resolution of their dispute to a person or person(s) called arbitration(s).

The other feature of arbitration clause is that it creates of kind of obligation b/n the disputing parties to submit their conflict to third party for resolution and the other is b/n disputing parties and arbitrators. To state other wise, arbitration clause (submission) not only imposes obligation on the disputing parties to submit their dispute for arbitrator (s) for resolution, but also on the arbitrator, he/she is willing to arbitrate the case, to give arbitral award (opinion)

The fact that parties are able, through arbitral clause, to create their own private regime of administrative of justice is another peculiarity. By this mechanism parties can have their own private judges outside the court system and if they both continue subjecting themselves to this system throughout, there is a possibility to settle their difference up to the end without the intervention of government’s justice machinery, court or administrative tribunal.

A) Validity requirements for arbitration agreement

As far as arbitration agreement is a contract the requirements for the validity of contract have to be ensured. In deed these requirements may differ from one state to the other. In Ethiopian to establish lawfully sustainable agreement, there are requirements which have to be respected by the contracting parties.  Art 1678 of the civil code enumerates requirements of valid contract in their generality. The article reads;

Art 1678 Elements of contract

No valid contract shall exist unless.

1. The parties are capable of contracting and give their consent sustainable at law.
2. The object of the contract is sufficiently defined and possible and lawful.
3. The contract is made in the form prescribed by law, if any.

Therefore, parties in arbitration agreement should follow the above general requirements apart specific requirement(s) that apply(s) to arbitration agreement. In addition to general requirements mentioned under art 1678 above parties in arbitration agreement are expected to conclude their agreement based on special requirements for the same. In Art 3326(1) Civil code for example states that “The capacity to dispose a right without consideration shall be required for the submission to arbitration of a dispute concerning such rights”

When parties need to submit their dispute to be resolved by arbitrator, the first requirement that parties have to ascertained is that whether they do have the right to dispose a right on which they try to submit to arbitration freely (without price) or not. Nevertheless, the person should not always be an owner of a thing (right) to have the right to dispose a right without consideration. The right might emanate either from agency relationship by agreement of agent and principal or by the dictates of the law as witnessed in art 2179 of the Ethiopian Civil code. Even if the right to dispose a right without consideration mainly attached with being an owner of the right, this right might be acquired by being an agent someone who is the owner of the right.

Varieties of Arbitration

Arbitration might be divided having in to consideration different measurements. Accordingly arbitration may be:  Ad-hoc arbitration, contractual in built arbitration, institutional arbitration and statutory arbitration. Let us look briefly each of them.

1)      Ad-hoc arbitration is form of arbitration where the procedure of arbitration, an most of the time, set by the disputing parties them selves. Parties in a dispute need not stick on the institutional procedure. The national law of the place of arbitration avoids any problem arise of ad-hoc arbitration.

2)      Contractual in built arbitration came to juncture due to increasing of business transaction with complex phenomenon. While business relation increased, presumably clashes b/n parties in the transaction is natural, and this scene called for regular machinery in the shape of in built arbitration clause, an integral part of the contract covering present or future disputes and  the system devised was reference to named arbitrator or on arbitrator to be appointed by a designated authority.

3)      Institutional arbitration- this is another form of arbitration and probably most conducive for the parties’ as  the parties agree in advance that in the advent of future disputes they will be settled by arbitration by the named institute of which one or more of them were members. In institutional arbitration parties’ dispute is arbitrated according to pre- establish rules of the institution, which most of the times known to disputing parties. The Arbitrators mostly, are among named specialists.

4)      Statutory arbitration:- the above three kinds of arbitrations are constituted by the consent of the disputing parties. Where as Statutory arbitration is an imposition by law which governs the parties in dispute- parties should submit the case to specified person or institutions for arbitration to resolve their case irrespective of their consent.

Arbitration and litigation

“Sometimes critics of arbitration complain that it is ‘really just court’ ”  Do you agree with this statement?  If so please state your reason(s). If not, what is your ground to have such position?

Even though there are common features of arbitration and litigation, there are also grounds which differentiate both of them. It is to mean that there are features which intersect arbitration and court adjudication.   Chornenki summarized the similarity and difference among the two dispute resolving mechanisms. Here under we present the comparison made by this author in his book entitled ‘The corporate counsel guide to dispute resolution’.

Comparing civil arbitration and litigation

Arbitration-resembles litigation

Adversarial process- parties bring contending positions and try to convince decision- maker to rule in their favour.

Rule of natural justice apply (i.e. notice, fairness, impartiality)

Decision is made according to the law (unless parties agreed to use

Obligations of disclosure to opposite party (although may be streamlined and focused ) apply

Principle of res judicata and issue estoppel apply.

Appeal is possible unless expressly excluded

Arbitration awards like court judgments are enforceable at law.

Arbitration- differs from litigation

• Disputing parties incur costs accommodation (facilities) (e.g. room rental fees, court reporters)
• Parties pay the decision makers fee
• Hearing and other procedures are flexible and informal
• Arbitration decision is not precedential; stare decisis does not apply.
• Process in both private and confidential.
• Process can not be initiated with out the consent of all parties either by way of arbitration clause or an agreement to arbitrate
• A third party claim by a defendant does not exist unless the plaintiff and the third party both agree
• Parties select the decision maker.
• parties choose the decision- maker