Commercial Arbitration and Federation Arbitration Act - Assignment Example

Running head: ARBITRATION Name Course Institution December 30, 2010 Question 1 Although it is not a legal requirement, each contract should contain other provisions called the “boilerplate” or miscellaneous provisions. Arbitration clause is one of these provisions and it gives allowances so that disputes are solved by an independent arbitrator. If there is a dispute among the parties of the contract, this clause requires that the dispute be settled by a binding arbitration and not litigation. Arbitration is the process by which parties to the contract voluntarily refer their disputes to an independent third party called an arbitrator. It is a means of resolving disputes arising from parties to the contract, outside the court. In contracts, an arbitration agreement must be in writing and it binds the parties who give up their rights to move to court. The written arbitration clause gives the rules that need to be followed incase the dispute arise among the parties. The clause states that all disputes arising between the parties will be solved through arbitration and not in court. The clauses are included in several businesses as well as in individual contracts. Arbitration clause in the commercial contracts allows for the several provisions. Firstly, it provides that all disputes from contractual agreements are to be resolved by binding arbitration. Secondly, the dispute is reviewed and decided by an impartial arbitrator as provided by the Federation Arbitration Act (FAA). In a contractual agreement there must be the inclusion of an arbitration clause. Rising legal costs have heightened the need to have arbitration in contracts. During the signing of the contract the idea of future dispute may not be perceived but contracts disputes do occur and arbitration is the best way of resolving them. This is done without engaging lawyers or going through a court system and this helps to save a substantial amount of money in legal fees. Contractual disputes especially in business dealings are sometimes very minor and less complicated. This means that a faster way of solving them should to be adopted. The inclusion of an arbitration clause in a contractual agreement means that any risk of punitive or exemplary damages is significantly reduced. In the event that arbitration agreement authorizes the reward of compensatory damages only, none of the parties is likely to be assessed punitive damages. This is because the plaintiff will be required to arbitrate his claim and a punitive damage will not be established until the arbitration is concluded. In the contractual dealings, litigation is not preferred and instead arbitration is used for dispute resolution for international contracts. Arbitration is more flexible than litigation as parties can choose their own arbitration rules and procedures. This helps to avoid lengthy and costly court- mandated procedures. The fact that the parties to arbitration can select the venue of arbitration instead of being obliged to appear before court which has jurisdiction makes the structure flexible. Arbitration can be heard and settled more quickly than if the case was litigated and it is also very confidential. Question 2 The amendments to International Arbitration Act (section 21) came as two courts in Australia were considering the verdict in Eisenwerk v Australian Granites Ltd. It is a case that was generally ridiculed in international law and was therefore regarded as a bad law. The decision in this case resulted in uncertainty concerning the operation of section 21 of the IAA. It was held that the implementation of arbitral rules involved opting out of the Model Law. In the case of Eisenwerk v Australian Granites Ltd, the major concern was whether an arbitration agreement that included the rules of an arbitral institution, such as the 1976 UNCITRAL Rules, totals to an exclusion of the Model Law under section 21 of the IAA. The Queensland Court of Appeal decided that it did amount to exclusion. In these two cases, the courts decided that for any arbitration to take place in Australia and which is not covered by the Model Law must be governed by the procedural law. Model Law is only applicable to international commercial arbitration as explained and defined in article 1 of the Model Law. When the law is described as ‘international’ and ‘commercial’ in nature, the Model Law became effective. Therefore, most of foreign arbitration agreements will be captured by the capacity of the Model Law. However, if the agreement to arbitrate does not suit Article 1 of the Model Law, then this agreement will be governed by the commercial arbitration act. The implication of this lies in the fact that commercial arbitration acts offers a much greater chance for the judicial intervention than is permitted under the Model Law. Section 16 of the Act provides that the UNCITRAL Model Law on International Commercial Arbitration has the force of law in Australia. The Model Law which has gained much acceptance internationally deals with a vast scope of matters concerning the conduct of international arbitration. In the Granite Limited case it was held that parties who decided to adopt institutional arbitration rules that is, the ICC Rules aimed to exclude the application of the Model Law. This has created a lot of uncertainty as to which laws and rules applicable to the conduct of arbitrations conducted in Australia. The most important reform is that the Act now makes it clear that the Model Law is the exclusive law governing international commercial arbitration that are in operation in Australia. In the past, the parties had been able to opt-out of the Model Law. However, this provision was construed by the Queensland Court of Appeal in Australian Granites Ltd v Eisenwerk as meaning that the parties had opted-out of the Model Law if the arbitration agreement recommended the use of procedural rules such as the ICC Arbitration Rules. Question 3 In arbitration, the agreements to settle disputes have a special status in the presence of the law. For example, incase of a dispute on a contract, the only common defense is to plead that the contract is null and void and therefore any claim based upon it fails. If a party successfully claims that the contract is void, it then follows that any each clause contained within the contract, including the arbitration clause, would be invalid. In most countries, a contract can only be declared void by the court of law or other tribunal. In the case of Mr. Smith and Mr. Schmidt, the breach of contract exists when the goods sent to the plaintiff are unsatisfactory. In the contract of sale, goods must be satisfactory and the sale of good act provides a test to determine the meaning of a satisfactory quality. This is the standard that a reasonable person would regard as satisfactory, considering the price and the description of the goods. When the matter is taken to the arbitration tribunal or in this case to the proceedings are under ICC rules in Singapore, Mr. Schmidt can lodge his claims on the ground that the goods taken to him are unsatisfactory. However, Mr. Smith who is the defender can successfully object to the competence of the tribunal on the ground that he never signed the tribunal. In contracts, a signature is most important and without it the contract is just a piece of paper. For a contract to be valid and binding, it should have a cause, consideration and consent. Consent is the meeting of the minds between the buyer and the seller such that they completely agree in respect to the cause and consideration. By not signing the contractual document, Mr. Smith is not bound in any way by the contract and it is like the consent was not given. Question 4 Recent reforms to the International Arbitration Act (IAA) 1974 have greatly improved the conduct of International Arbitration and the Enforcement of Awards. It has increased the assurance and effectiveness of conducting and implementing international arbitrations in Australia. The IAA applies to arbitration agreements that are made in accordance to international trade and commerce. Most of the amendments that were made to the Act arose from the implementation of the 2006 amendments to the UNCITRAL Model Law on International Commercial Arbitration. Moreover, there have been several amendments made to the Act that are aimed at streamlining the conduct of arbitrations in Australia. Enforcement of arbitral awards is one of the most significant concerns in the international arbitration. The two critical issues that must be addressed are problem of enforcing arbitration agreement and the problem of enforcing the ultimate award made as a result of arbitration. It is of essence that an agreement to arbitrate is binding on the parties to the contract and also enforceable at law. In Australia, the procedures involved in the enforcement of an arbitration agreement are normally in the form of an action seeking to delay the judicial proceedings resulting from the breach of the agreement. The International Arbitration Act has brought several changes to the arbitration process in Australia. Firstly, the threshold test for determining the arbitrator biasness has been lifted. The Act has therefore helped to restrict the challenges faced the arbitrator on grounds of bias. Moreover, in relation to the UNCITRAL Model Law, the Act now states that the identity of an arbitrator may only be challenged where there are reasonable doubts as to his or her independence. It also determine if the arbitrator possess the qualifications agreed by the parties. The test for determining whether there are reasonable doubts is whether there is a real danger of bias by the arbiter. The IAA has now been made the exclusive law controlling the international commercial arbitrations in Australia. This means that the International Arbitration Act (IAA) 1974 is the Exclusive Governing Law in Australia. This change aims to provide more certainty in respect to the governing law in situations where Australian Courts have previously held that the commercial Arbitration Act of an Australian State of Territory could also be applicable to the international arbitrations in Australia. The scope by which the enforcement of foreign arbitral awards can be resisted has also been limited. The recent changes to the Act restrict the grounds on which an Australian Court may refuse to enforce a foreign arbitral award. Once the arbitral tribunal makes its award, it becomes final and abiding on the parties in agreement. However, a party is given an allowance of three months within which they can make an application in the country of the seat of the arbitration for the award to be excluded. It is not possible for any party to appeal an award on the merits of the decision or in respect to errors of law. International arbitration awards made in Australia can be rejected or set aside only on limited grounds as prescribed in the Model Law and New York Convention. The International Arbitration Act (IAA) in accordance to the UNCITRAL Model Law and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) provides a list of factors that are the conditions upon which an award in Australia can be challenged. Firstly, if the challenging party was subject to incapability and the arbitral agreement was not legal under its governing law. Also, if the challenging party was not given proper notice of arbitration. If the arbitral award concerns itself with a dispute that is beyond what is perceived by the arbitral agreement. The award may also be challenged when it is contrary to the public policy if it has not yet become binding on parties. Moreover if the arbitral tribunal was made up or the arbitration process was carried out in a manner inconsistent with the arbitral agreement, the award is likely to be recognized or enforced. Finally if the subject matter of the conflict is incapable of resolution by arbitration under Australian law. Reference: Steven C. Bennett, (2002). Arbitration: essential concepts. ALM Publishing, Read More