arbitration insights:arbitration insights
Arbitration is commercial when it emanates from a relationship of a commercial nature. The footnotes to Article 1 (1) of the Unicitral Model Law (“the Model Law”) suggest the following as examples of relationships of a commercial nature: “any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road”.
Commercial arbitration may be of an international or domestic character. According to Article 1 (3) of the Model Law, arbitration is international if the parties to an arbitration agreement have their places of business in different countries or if the place of arbitration or a substantial part of the obligations of the commercial relationship is in a country outside that of the place of business of the parties. The statute which governs the conduct of international arbitration in Zimbabwe is the Arbitration Act [Chapter 7:15] (“the Act”) which is based on the Model Law. The Act provides a legislative framework for the conduct of arbitration proceedings and for enforcing arbitration agreements and arbitration awards.
International commercial arbitration is endowed with certain fundamental features which distinguish it from formal litigation. In their work, Comparative International Commercial Arbitration (Kluwer Law International 2003) at page 3, Lew, Mistelis and Kroll define four essential features of international commercial arbitration as follows: (i) it is an alternative to national courts, (ii) it is a private mechanism for dispute resolution, (iii) it is controlled by the parties and (iv) it constitutes a final and binding determination of parties’ rights and obligations.
An alternative to national courts
The prevalent method for the settlement of disputes is the system of national courts. It is the responsibility of the state to ensure that these courts function properly and to put in place substantive and procedural rules to regulate their processes. However, litigation in these national courts is beset with an assortment of disadvantages, which include, among others, significant costs and delays. These vagaries of litigation coupled with increasing globalization have led to migration towards arbitration which is perceived to be a more flexible and quicker means of resolving disputes. International commercial arbitration, therefore, is not part of the national court system but rather a quasi-judicial institution and a special supplementary mechanism which derives its power from an arbitration agreement. The arbitration agreement removes the dispute from the jurisdiction of national courts and confers exclusive jurisdiction on the arbitral tribunal.
A private mechanism for dispute resolution
Parties to international business transactions generally want their commercial affairs to be kept private from the prying eyes of the general public. Where the subject-matter of the transaction is sensitive, corporations and individuals invariably desire to protect their trade secrets. Arbitration is a private dispute resolution mechanism which guarantees the confidentiality which most business people crave. If you find yourself in a contested legal battle, you need not fear that your dirty laundry will be aired in a public court where the media or other interested members of the public can observe the proceedings. Nonetheless, an arbitration award is just as enforceable as an order of a national court.
Controlled by the parties
One of the essential characteristics of international commercial arbitration is that it is controlled by the parties. The parties enjoy the freedom to determine the form, structure, system and other essential details of the arbitration. The parties’ consent provides the basis for the jurisdiction of the arbitrators to decide the dispute. The parties’ consent also limits the arbitral tribunal’s powers because an arbitrator can only decide issues within the scope of the parties’ agreement. Arbitrators are also bound to apply rules, procedures, and laws chosen by the parties. Normally, the parties express their consent to submit any future dispute to arbitration in a written agreement by way of an arbitration clause in the commercial contract between them. In the absence of such an arbitration clause in their contract, they can still agree to arbitrate after a dispute has arisen. This is known as an arbitration agreement.
Final and binding determination of parties’ rights and obligations
In the arbitration agreement, the parties agree that the arbitral tribunal shall resolve their dispute and whatever decision rendered by the arbitrators shall be final and binding. Not only do the parties agree that arbitration will be their method of dispute settlement, they also agree that they will accept and give effect to the arbitration award. Although there are occasional opportunities to appeal in some jurisdictions, for the most part, a party can challenge an award only if there was some defect in the process. Under most arbitration laws, the only grounds for setting aside an award are quite narrow. Such grounds include, among others, procedural defects and the arbitrators exceeding their powers by deciding an issue that is not before them. In Zimbabwe the grounds for setting aside an arbitral award are listed in Article 34 of the Model law. Once the arbitrators render an award, the losing party may voluntarily comply with the terms of the award, failing which the prevailing party will be entitled to have the award recognised and enforced by a court in a jurisdiction where the losing party has assets.
In conclusion, by choosing arbitration parties avoid litigation in a foreign jurisdiction. Parties have the latitude to have their disputes determined under the supervision of the law of a neutral third country and are thus able to avoid encounters with unfamiliar legal systems. Additionally, arbitrators are non-governmental decision-makers. They are usually private citizens who do not belong to any government hierarchy. Compared with magistrates and judges, they will probably dwell less on any questions of public policy or public interest.
l Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted at +263775987784 or at email@example.com