Jun 08, 2017 Assignments

The ICC and International Arbitration

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The ICC and International Arbitration

Abstract

The international commercial disputes are bound to take place giving rise to need for arbitration. The arbitration can either be carried out by an international arbitration or rulemaking institution or by an ad hoc arbitrator. In many instances, the parties to the international arbitration are required or deemed to have waived their right to legally challenge the arbitral award granted by the appointed arbitrator. However, when the arbitrators exceeds powers conferred upon them by the substantive law together with the parties contractual agreement, the aggrieved party or parties can seek legal redress of the matter, which can have the net effect of setting aside the arbitral award, or discontinuing the arbitral proceedings. The arbitral tribunal usually has limited power, but the current international legal framework does not set a clear remedy for ensuring that the arbitrator do not use the limited power granted upon them by the applicable law and parties agreement to give a careless award. In light of this legal loophole, this study analyses the US punitive damages with a view of proposing them as possible tool for providing remedy to this problem. The study looks at the legal framework of the international arbitration, more particularly under the ICC, the impact of wrong arbitral award, legal challenge to the arbitral award and offers recommendations on proper mechanisms that need to be instituted in order to preserve the confidence of the international community on the international arbitral institutions and ad hoc arbitrators.


 

Table of Contents

Abstract 2

1.0 INTRODUCTION.. 4

1.1Background Information. 4

1.2 Conceptual Framework. 7

1.2.1 The International Contractual Dispute Case Evaluation. 7

1.2.2 The Power and jurisdiction of Arbitrator in an international Arbitration Agreement 9

1.2.3 The Arbitration and the National Courts. 12

1.2.4 ICC and International Arbitration. 13

1.3 Thesis Statement 14

1.4 Problem Statement 15

1.6 Objectives. 16

2.0 LITERATURE REVIEW.. 16

2.1 Punitive Damages. 17

2.2 Punitive Damages in US. 19

2.3 International Arbitration Law in UK. 21

2.4 Grounds for Challenging Wrong Arbitration Awards. 22

2.5 Previous Appeals on International Arbitration Judgments and Actions. 24

3.0 METHODOLOGY. 26

4.0 FINDINGS. 27

5.0 DISCUSSION OF FINDINGS. 27

5.1 Powers of Arbitrator in International Arbitration Agreement 27

5.2 Punitive Damages in UK International Arbitration Law.. 29

5.3 Grounds for Challenging Wrong Awards. 31

5.4 Impact of Wrongful Awards by the International Arbitrator 33

6.0 CONCLUSION.. 34

6.1 Recommendations. 35

Bibliography. 36

 

 

 

1.0 INTRODUCTION

1.1Background Information

International commercial agreements often give rise to the commercial and relational disputes. In many instances, parties to the international agreements hail from different cultural and legal backgrounds. This necessitates creation of international arbitration in the binding contract, which helps to resolve their disputes without indulging the formalities of the parties’ respective legal systems[1]. The parties privy to the international agreements makes a decision to submit any disputes that might arise to binding resolution by either one or more arbitrators, who are selected on behalf or by the parties and applying the adjudicatory procedures mainly through inclusion of the provision for the future disputes arbitration in their contract.

Owing to the growth in international cooperation and global integration, the international contractual agreements have increased along with the need for arbitration. Arbitration has become one of the attractive dispute resolution mechanisms because of its salient features. The international arbitration bears characteristics that include having a final and binding award that is not subject to the regular courts appeal except for the recognized procedure and it is controlled by both parties[2]. The international arbitral tribunal has unique characteristics as compared to other courts that include being private, flexible and confidential and transcends the national courts boundaries.

The disputes resolutions, which fall within the international commercial contracts, are mainly carried out under the auspices of different rulemaking bodies and institutions[3]. Some of these internationally recognised institutions include the JAMS International, International Centre for Dispute Resolution (ICDR), the London Court of International Arbitration (LCIA), International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), and International Centre for Dispute Resolution (ICDR). On addition to this, there are specialist ADR bodies that have mediation and arbitration panel and  centres such as the World Intellectual Property Organisation (WIPO). Some of these arbitral institutions have adopted the rules of the UNCITRAL, which they use in the arbitration of the international cases. As such, international institutions like the ICC plays instrumental role in constituting tribunals that arbitrate various international business or relational disputes[4].

The parties to the international commercial agreements are at liberty to choose their arbitrator and include this provision in their contract. Parties to the disputed international contracts often opt for the institutions like the ICC as the arbitrator due to its ability to resolve the dispute in a more neutral forum and the ability to make more enforceable binding decisions. The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 serves as the principal instrument that governs the awards and enforcement of the international commercial agreements’ arbitrations. This convention is ratified by more than 140 countries and was drafted under the UN auspices. The convention obligates the states, which have ratified it, to enforce and recognize the foreign arbitral awards and the international arbitration agreements that are issued in the other contracting states, subject to some exceptions[5].

Some developed countries like the UK have consciously elected not to adopt or follow the model law on the international commercial arbitrations drafted under the UNCITRAL[6]. In the United Kingdom, the Arbitration Act 1996 regulates the proceedings of the arbitrations that are within the country’s jurisdiction. Section 69 of the Arbitration Act 1996 allows either party to the dispute resolution to appeal to a court on a point of law if the parties to the disputed agreement have agreed for this cause of action to happen. Either party to the arbitration can also appeal on the basis arbitrators’ powers, that is, if the arbitrator exceeds or goes beyond the allotted power.

This act together with other legislations and international laws arbitration framework create ground against which the arbitral awards can be challenged in the court of law. However, the ways of protecting against the careless arbitrators awards are very limited in the international arbitral laws framework. This necessitates the establishment of ways in which the careless arbitration awards can be prevented and their awarders punished. The punishment of wrongful and careless arbitration awards would create confidence of the international community on the ability of the arbitration tribunals constituted under the auspice of ICC and other international arbitration bodies to issue a fair decision and awards.

For this reason, this research seeks to assess the impact of giving a wrong arbitral award. As a foundation to the development of the research’s epistemological philosophy the International Arbitration in United Kingdom that related to the arbitrator’s decision in Lesotho Highlands Developments Authority v Impregilo [2005] UKHL 45 will be evaluated. This case will reveal the ground against which the arbitrator awards can be challenged[7]. More precisely, the research will focus on the limited power of arbitrator in an arbitration agreement and find the way to protect or punish the careless arbitrator’s awards. The research will also looked on different tools for solving the limited power of arbitrator in an arbitration agreement and find the way to protect or punish the careless arbitrator’s awards.

The research commences by evaluating the decisions of the court of appeal and House of Lords in Lesotho Highlands Developments Authority v Impregilo.The decision of the House of Lords is imperative in understanding the current position on the arbitrators’ powers. The research then looks at the wider conceptual framework within which the international arbitration is carried out. The thesis of the research is then presented before elucidating the problem statements and the research objectives. The evaluation of the literature will shed light on the issues surrounding the international arbitration, arbitral awards, powers arbitrator, and review the use of punitive damages in various jurisdiction blocks like UK, USA, and AU. The research ends with the discussion on the all the findings, the summary of the main ideas and the recommendations that should be adopted by various jurisdictions, international arbitration institutions and international arbitral rules making bodies.

1.2 Conceptual Framework

This section looks at the concept of international arbitration, challenges to the international arbitral awards, and the ICC arbitral rules. The segment commences by looking at the challenge of the error in the arbitral award that was presented to the House of Lords and Court of appeal in the Lesotho Highlands Developments Authority v Impregilo.

1.2.1 The International Contractual Dispute Case Evaluation

In Lesotho Highlands Developments Authority Impregilo[2005] UKHL45,the House of Lords were to consider whether the ICC arbitrator had acted and made a decision in excess of the powers vested upon them under the section 68 of the United Kingdom Arbitration Act 1996[8]. The case ended up examining whether the ICC arbitral tribunal awards can be challenged in the court of law. The Highland Water Venture (HWV) was a consortium of international contractors who built the Katse Dam in Lesotho who were contracted by the Lesotho Highlands Developments Authority under the funding of the UN[9]. The contract to build the dam incorporated the ICC rules and was an amended version of the FIDIC 4th edition[10]. This means that the ICC was to be the arbitrator in case the dispute arose. During the dam construction, the contractors demanded extra payment arising from extra labour cost and some other expenses[11].

The ICC constituted a three experienced lawyers tribunal, which held the arbitration in London and awarded the HWV three out of the seven claims. The award by the tribunal was challenged by the clients based on the UK’s Arbitration Act where they cited that the arbitrators exceeded substantive jurisdiction. They claimed that the arbitrator did not apply the contractual provisions in the awards. The commercial court found the clients on point and ruled that the tribunal had exceeded power under the UK Arbitration Act1996 section 68 by giving contract in different currency other than the one provided in the contract[12]. Similarly, the court of appeal judges upheld the commercial court ruling and found the arbitrators to have departed from the parties’ agreement provisions. The court of appeal held that the tribunal exceeded its power when it thought that it had power under the section 48(4)

of the UK Arbitration Act 1996 to depart from the prior agreement between the parties.

Under the section discretionary Section 49(3) of the Act, the arbitral tribunal is given discretionary power of resolving the dispute through the application of the substantive law

of the agreed contract and by failing to do so the tribunal exceeded its power. The to the House of Lords by the clients focused on the fact that the arbitration was carried out under the international laws as opposed to the UK law. Under the arbitral law article 28, the parties to the ICC arbitration are obligated towaive their right in any form to taking a legal challenge to the award by the tribunal as much as it is permissible by the tribunal laws of state in question[13]. This makes section 69 of the English Arbitration Act 1996, which allows the parties to appeal the award on a question of law, to be a subject of reservation. As such, the ICC rule under the English Arbitration Act 1996 has a net effect of excluding legal challenge of the award on the question of law that can rise out of the ward[14].

The House of Lords held that the tribunal exercised the erroneous power that was vested upon it and not the excess of jurisdiction. The powers of the tribunal were held to be found on the are arbitration agreement which is read with the curial law as opposed to the underlying contract. The curial law in this case was the English Arbitration Act 1996. Under the international arbitration laws the parties are allowed to nominate the substantive law (the law that will govern the contract) and the curial law (that will govern the arbitration proceedings) following the principle of the contractual parties autonomy. This means that the English Arbitration Act 1996, being the curial law in this contract determines the power that the ICC tribunal had on arbitrating the Lesotho Highlands Developments Authority and the consortium of the contractors. The House of Lords upheld the tribunal awards to the Highland Water Venture contractors.

1.2.2 The Power and jurisdiction of Arbitrator in an international Arbitration Agreement

Upon the selection and appointment of an international arbitrator by the international contractual parties the power to administer the arbitration proceeding is usually deemed to have been conferred on the appointed arbitrator having obtained the power from the consent of the parties as illustrated in the agreement of arbitration. Other than the arbitration agreement being the source of the arbitrator’s power, the power of the arbitrator is also derived as may be conferred in the applicable laws. As the arbitration proceeding progress the power gradually devolves from the parties to the arbitrator. However, the arbitrator is supposed to stick within the power vested upon them by the applicable law and the parties arbitration agreement when conducting the arbitration proceedings.

The parties to the arbitration proceedings can confer express powers to the arbitral tribunal. They can also confer an indirect power on the tribunal by providing the set arbitral rules this is especially the case in the adhoc arbitration and the automatic rules, which follow under the institutional proceedings. For instance, the UNCITRAL model rules in the adhoc arbitral proceedings vests wide discretionary power upon the arbitral tribunal or other arbitrators to carry out the arbitration proceedings as they consider being appropriate provided they adhere to the principles of fairness[15].

On addition to the express conferment of the powers by the parties to the tribunal, the tribunal can obtain its power from the operation of the curial law. For example the  English Arbitration Act, 1996 confers the power to the arbitrator to carry out various duties like administering the oath to the witness. The Act also, as evidenced in the case of the Lesotho Highlands Developments Authority Impregilo[2005] UKHL45 above gives the tribunal the power to discretional power to give fair awards on merit. The UNCITRAL model laws Article 19 gives the tribunal the power to determine the relevance, admissibility, weight, and materiality of any evidence and Article 17 gives the tribunal power to order any party, at the party’s request, to take an interim protection measure in respect of the subject matter.

An arbitral tribunal must operate within the jurisdiction and the power that is conferred upon it by the involved parties. This means that the tribunal or the arbitrator must remain within the stipulated terms of reference without exceeding it. parties to the arbitration process, particularly under the auspice of ICC  agree on their term of reference which stipulate the addresses and names of the parties as well as their representatives, the summary of the claims, the location or place in which the arbitration will take place and the list of all the issues to be determined if applicable. Failure by the parties or the arbitrator to abide by the terms of reference agreed upon can render the final award not to be enforced or recognized or liable to be set aside.

In case of objection of the arbitral tribunal’s jurisdiction, it is widely recognized that it will have the jurisdiction of determining its own jurisdiction. The ICC Arbitration rules, UNCITRAL Model Law, the English Arbitration Act, and other arbitral laws have clauses that confer upon the arbitrators’ power to rule on their own jurisdiction.The ICC rules provides for a tow stages approaches toward determining a jurisdiction. The first approach is for the ICC arbitration court to prima facie satisfy itself that the arbitration agreement exist and then refer the matter to the arbitrator that would determine its jurisdiction issue. A party can object to the arbitral tribunal jurisdiction based on such claims as lack of authority by the person who signed the agreement, non-arbitrable dispute, and arbitration agreement becoming void.

The power of the arbitrator or the arbitral tribunal to rule on its jurisdiction was recognized in Saudi Arabia v. Arabian American Oil Co. Ltd (ARAMCO) where the government of Saudi Arabia inter alia challenged the jurisdictional competence of the adhoc tribunal based on the ground that the government could withdraw any act done by the tribunal in the account of its sovereign power[16]. The tribunal held that it has the required competence to rule and determine o its jurisdiction. This was also re-affirmed in the Texaco Overseas Petroleum Co./CaliforniaAsiatic Oil Co. v. Government of Libya where the arbitrator appointed by the ICJ had to determine its own jurisdictional competence when the government of Libya failed to take part in the arbitration proceedings[17]. The arbitrator held that it possessed jurisdiction to rule on its own jurisdiction on the basis of the customary rule of the international law.

1.2.3 The Arbitration and the National Courts

When the parties to a disputed international or local contract choose the arbitration as their means of resolving the dispute, they exclude in a way the national courts from acting as their arbiter. This means that when the parties seize of a matter to the tribunal, the court is effectively relegated to the back stage. However, the intervention of the courts is often required to decide on the proceedings difficulties. As a result often the courts are enjoined in their role to consider the term of reference, party autonomy, and the governing applicable law. The courts assistance can be called for in constituting the tribunal from where the power of the court is devolved to the tribunal and its handed back to the court to decide on the fairness of the tribunal decision upon the end of the arbitration where the court can also be called upon to enforce the arbitral award.

The national courts can assist through making the injunctive orders for protecting the jurisdiction of the arbitral tribunal or to impede the conduct of the arbitration proceedings. The parties can request the court to restrain the conduct of the arbitral proceedings. Under such application, the courts usually issue an injunction only when it is clear that the proceeding of the arbitration would not have been instituted. The UNCITRAL Model Law, enjoins the national courts in dealing with the matter which are subject of arbitration, by referring the parties to the arbitration unless in the situation where the agreement is found to be incapable of performance, inoperative or null and void. However, is some cases the courts issues injunctions against the continuance or commencement of the arbitration proceedings. For example, in Himpurna California Energy Ltd. v. Republic of Indonesia the Jakarta based courts issued injunctions against the proceedings of the arbitral tribunal[18].

The question of the court interference with the arbitral proceedings varies across the jurisdictions. In France, for example, the laws require the courts to decline the jurisdiction in the matters that are adjudged to be the subject of the arbitration unless the agreement of arbitration is manifestly void[19]. In Switzerland, it has been held that the national courts should decline the jurisdiction, particularly to the cases, whichlexarbitriis the Switzerland, unless the arbitral agreement ineffectiveness is manifest patently[20]. In England, the courts attitudes are in support of the arbitration conducts proceedings, while at the same time retaining the power for general supervising and intervening in the deserving cases. In USA, the court adopts a more liberal approach where they are willing to entertain the application either at the beginning or during the arbitration proceedings.

1.2.4 ICC and International Arbitration

The ICC international court of arbitration has assisted in resolving more than 17000 international dispute cases from parties hailing from about 180 countries[21]. The procedure and process used by the ICC is shaped by its members. The current new rules of the ICC come into force in the year 2012. The main duties of the ICC are dispute resolution, rule setting, and policy advocacy. The standards and rules of the ICC are prepared by the specialized bodies. The ICC rules of mediation and rules arbitration are contained in the publication number 865. This publication is available upon the court request. The ICC arbitration is usually a private procedure but it lead to enforceable and binding decisions.

In resolving the commercial disputes, the ICC sets various tribunals that report on their decision and proceedings to special constituted committee of the ICC. The ICC arbitration system offers full supervision as well as a range of essential services like the scrutiny of the draft arbitration awards. Unless the relevant parties have agreed it is not possible to use the ICC as an arbitrator in a commercial dispute. During the arbitration proceedings under the ICC, the parties are at liberty to choose the language of the proceedings, and the applicable law. In absence of the law and language agreed between the parties, the arbitral tribunal is vested with the mandate of determine rules and language that it considers to be appropriate. The arbitration parties under the ICC are also at liberty to choose the applicable procedures, subject to some mandatory provisions which may be applicable and

The ICC offers the institutional arbitration as opposed to the ad hoc arbitration. Ad hoc arbitration is usually the arbitration that involves no institution with the parties and the arbitrator administering of the proceedings themselves. In 2008, Queen Mary University Law School carried out a research the popularity of both ad hoc and institutional arbitrations. The research revealed that between the year 1998 and 2008, 86% of all the rendered awards were under the arbitration institution rules while 14% were under the ad hoc arbitration. The research cemented the anecdotal evidence that the institution form of arbitration is more popular and preferred compared to the ad hoc form of arbitration. On the ICC, the research revealed that 50% of the corporations that participated in the research preferred the ICC arbitration. This shows that ICC has become a central institution to the global commercial arbitration.

1.3 Thesis Statement

Given the ruling in the Lesotho Highlands Developments Authority v Impregilo [2005] UKHL 45 by the court of appeal and the House of Lords, there are grounds for challenging arbitrator awards in which case the punitive damages that are generally used for protection the damages in US, serve as amicable tools to solve the problem of protecting or punishing the careless arbitrator’s awards.

1.4 Problem Statement

The Court of Appeal, Commercial court, and House of lords agreed that the arbitrators in the case of Lesotho Highlands Developments Authority v Impregilo [2005] had made errors by failing to comply with the contractual provisions that detailed the currency in which the parties should make payments. The case identified the grounds for challenging the arbitration awards. Different jurisdictions allow different exclusions from the legal challenge of the arbitral award. The ICC rule, which is cross jurisdictional excludes the legal challenge of the arbitral award to the extent that it is permissibleby the arbitration law of the country in question. However, the arbitration can be challenged when the arbitrators are considered to have exceeded their powers or through such acts departing from the agreement of the parties.

Article 34 of the UNCITRAL model laws on arbitration of the international commercial disputes stipulates the recourse for applying for setting aside of the arbitral award[22]. The application of setting aside the award requires the aggrieved party to furnish the proof of that the party to the arbitration had incapacity, the constitution of the tribunal was not in accordance to the parties agreement, and the party to the tribunal was not furnished with proper notice. The power of the arbitrator is to offer awards is expressed in the contractual agreement of the parties as well as the substantive and curial law. The applicable law and the parties’ agreement can give the arbitrator limited power[23]. This can affect the entire arbitration proceedings and final issue of award. In spite of the, the international arbitral laws offer few remedies to careless award in arbitration.

The availability of the limited power of arbitrator in an arbitration agreement and lack of properly instituted ways of protecting or punishing the careless arbitrator’s awards leaves a legal and knowledge gap in the international arbitration law. This creates a need for identification and establishment of the tools that can be used to solve this challenge. For this reason this research seeks to answer the question, how can punitive damage that are generally used for protecting the damages in US be used in international arbitration in UK?

1.6 Objectives

The aims of this research are to:

  1. Evaluate the powers of the intern

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