COMMERCIAL ARBITRATION

 COMMERCIAL ARBITRATION

INTRODUCTION

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 Arbitration agreements in Kenya are governed by Arbitration Act Cap. 49 of (1995) Section 2 of the Act defines arbitration agreement as ‘a written agreement to refer present or future differences to an arbitrator, whether an arbitrator is named or not’. An arbitrator/arbiter is a person appointed by the parties as a judge for the purpose of settling any disputes that may arise between them. Arbitration may therefore be regarded, generally speaking, as a method of settling disputes between two or more parties by a hearing and determination in quasi-judicial manner instead of having recourse to an action at the court of law. The Act permits submission of disputes to arbitration only by written agreement.

 EFFECTS OF ARBITRATION AGREEMENT.

No party can bring an action in a court of law in relation to those matters referred to arbitration. If any of the party disregards the arbitration agreement and commences legal proceedings, the other party can apply for stay of proceedings. Under section 6, the court will stay the proceedings if the following conditions are fulfilled:

1.         The proceedings relate to the same matter as covered by the arbitration agreement.

2.         There is no sufficient reason why the matter should not proceed in accordance with the arbitration agreement.

3.         The party asking for a stay hasn’t delivered his pleadings or taken any steps in the court proceedings.

4.         The applicant for stay was and is still ready and willing to proceed with the arbitration and every thing necessary for the purpose.

REFFERENCE TO ARBITRATION.

 A dispute may be referred to arbitration in any of the following three ways:

1.         By order of the court: A court may refer a specific issue or the whole case before it which requires specialized technical, scientific or other treatment however the parties must consent to the reference.

2.         By certain statute: Certain Acts of Parliament provide that parties should refer disputes arising under those statutes to arbitration.

3.         By consent of the parties: Parties may by their consent submit to arbitration any matter to which they are disputing.

POWERS OF THE ARBITER

1. To determine whether he has jurisdiction to entertain the dispute.

2. To provide interim relief or remedy.

3. To require a party to provide security.

4. To administer oath.

5. To examine persons on oath.

POWERS OF COURT IN ARBITRATION PROCEEDINGS

Although courts have no inherent jurisdiction to control the arbitral process, there are instances in which the Arbitration Act permits their intervention at the instigation of the parties. The Act prohibits the courts from interfering with the arbitral process except in the circumstances specifically provided for by the Act.

1 Stay of proceedings

Where there is an arbitration agreement and a dispute arises, one of the parties may in disregard of the arbitration agreement institute judicial proceedings. The other party may apply to the court in which the proceedings have been commenced for stay of the proceedings for the dispute to be referred to arbitration.

2. Power to grant interim measures of protection.

These measures may include an order of injunction, for instance. This may be justified by the need to maintain the status quo pending the determination of the dispute.

3. Power to set aside appointment of arbitrator and to appoint an arbitrator:

Where one party appoints the sole arbitrator under section 12(4) of the Act, the other party (defaulting party) may apply to the High Court to set aside the appointment of the sole arbitrator and the court has such powers under section12(5) of the Act.

4 Power to assist in taking of evidence:

The High Court is mandated to assist in taking of evidence if an application to that effect is made by the arbitral tribunal or either party with the approval of the tribunal.

5. Power to remove an arbitrator:

If circumstances exist giving rise to justifiable doubts as to the arbitrator’s impartiality, a party may apply to the High Court to remove the arbitrator and the High Court may confirm the rejection of the application or uphold the challenge and remove the arbitrator.

6 Power to set aside arbitral awards:

The High Court has the power to set aside arbitral awards.

POWER OF THE COURT TO APPOINT AN ARBITRATOR OR UMPIRE.

Section 12 gives the High court powers to appoint an arbitrator or umpire in the following cases:-

1.         Where an arbitration agreement provides for appointment of a single arbitrator and the parties have failed to appoint one.

2.         If the appointed arbitrator refuses to act or is incapable of acting or dies and the vacancy is not filled.

3.         Where a reference is to two arbitrators and one is not appointed.

4.         Where the parties or the two arbitrators are to appoint an umpire or third arbitrator and they fail to appoint one.

5.         Where the appointed umpire or third arbitrator refuses to act or is incapable of acting or dies and the parties or arbitrators do not appoint one.

AWARDS.

The decision of an arbitrator is called an award. It must be written and signed by all arbitrators if more than one and copies must be sent to the parties to the dispute. An award is enforceable as a court order.

An arbitral award may either be made on agreed terms where the parties reach a

settlement under section 31 of the Act or by the arbitral tribunal. Section 32 provides for the form and contents of the arbitral award. Inter alia, the award must:

• Be made in writing and signed by the arbitrator or arbitrators

• State the reasons upon which it is made, subject to the exceptions under section32 (3).

• State the date of the award and the judicial seat of the arbitration

However it may be set aside by the High Court or reviewed under Section 34 of the Act if;

1.         The applicant was not afforded an opportunity to appoint an arbiter.

2.         The arbitration agreement was not valid in law.

3.         The applicant had no capacity to enter into the arbitration agreement.

4.         The award relates to a dispute not contemplated by the parties.

5.         The dispute is not capable of resolution by arbitration.

Once an arbitral award is set aside, the parties are free to file the case in a court of law. Unless otherwise provided, every award made by arbitrator or umpire shall be final and binding on the parties.

The High Court may remit any matter back to the arbitrator / umpire for reconsideration on the following grounds.

i.          Any defect in award, sufficient to justify the court to set it aside.

ii.         Any serious omission through inadvertence.

iii.        Formal defect or mistake by the arbitrator.

iv.        Where new and material facts have been discovered.

Where an award is referred back for reconsideration the arbitrators shall be required to make their award within 3 months after the date of order.

IMPLIED TERMS OF ARBITRATION AGREEMENT

Every arbitration agreement is presumed to include the following provision, unless expressly provided otherwise by the parties.

1.         Unless contrary intentions are expressed by it, the reference is to a single arbitrator.

2.         If the reference is to an even number of arbitrators, they must appoint an umpire immediately after they themselves are appointed.

3.         The arbitrator’s award is final and binding and an interim award may be made pending final decision.

4.         The arbitrator / umpire have the same powers as the High court to order specific performance of a contract other than a contract relating to immovable property.

5.         Parties to the arbitration must submit to examination on oath if the umpire or arbitrators require so.

6          The cost of reference and award shall be at the discretion of the arbitrator/umpire

7.         The arbitrator or umpire has the power to correct an error arising from an accidental slip or omission, or a clerical mistake in an award.

ADVANTAGES OF ARBITRATION.

1. Confidentiality: The proceeding can be conducted in private therefore controlling unnecessary publicity.

2. Expert’s assistance: The parties have the benefit to make use of experts in the field of dispute, as the arbitrators.

3. Convenience: The parties can fix a convenient place and time for hearing proceedings.

4. Informality: Arbitrations are informal and faster way of settling disputes through a more simple process than court process.

5. Cheap: It is less costly.

6. Finality: The award of the arbitrator once approved is final and no appeal lies for it.

7. User friendly: The gruesome process of litigation usually makes enemies between the parties whereas arbitration in its very nature enables them to determine their rights in a friendly manner.

8. Flexibility: Arbitral tribunals are not bound by previous decisions.

9. Eases congestion: It relieves overburdened courts.

DISADVANTAGES.

1. Miscarriage of Justice: It is believed that where arbitration is related purely to a question of law, the arbitrators do not have sound legal knowledge.

2. Lack of uniformity: Besides, arbitrators do not create uniform and well settled rule of law and so their decisions are not uniform in similar situations. Natural justice does not only require that administration of justice should be consistent but also predictable.

3. Biasness: There are not stringent mechanisms to control possible biasness.

4. Un-procedural: Lack of proper procedure may weaken confidence in the parties to the award.

5. Enforcement machineries: There are no proper enforcement machineries.

TERMINATION OF ARBITRAL PROCEEDINGS.

 Proceedings may be terminated by;

1. The final award of the arbitrator.

2. Mutual consent of the parties.

3. Withdrawal of the complaint or the matter by the plaintiff.

4. Arbitrators order to that effect.