Consider, if you will, the
following basic propositions:
1. Section
1 of the Arbitration Act 1996, and its whole philosophy, is that the agreement
of the Parties should be paramount.
2. Arbitrations
can only arise by agreement between the Parties and generally speaking, the
agreements for Arbitration contain detailed procedural steps to be used during
the course of the Arbitration.
3. Even
if they do not, they refer to rules of an Institute or other Organisation which
are to be adopted as to procedural matters if an Arbitration arises. The rules are agreed to apply to whatever
dispute might arise out of the contract whether it be, for example, a discreet
issue on the interpretation of some contractual clause, the ascertainment of
loss and expense or some technical engineering dispute such as, for example,
the manner of drawing and laying cables.
4. By
contract, the principal duty imposed on the Parties and the Arbitrator, and one
of the proclaimed advantages of using Arbitration, is that the procedure should
be tailored to the dispute to save time and money (see Section 33 of the Act).
5. In
a nutshell, it’s Section 1 (Autonomy) versus Section 33 (Statutory Mandation).
Question: Are the principles of autonomy of the
Parties on the one hand, and the duty imposed on the Parties by Section 33 of
the Act reconcilable in circumstances where the directions agreed by the
Parties, in the pre-Arbitration agreement, conflict with the duty imposed by
Section 33?
Which
obligation is to prevail? And what is the effect, if any, of Section 33 of the
Act where the hands of the Parties and the Arbitrator are tied (unless both
Parties agree otherwise) by possibly having to use (usually), an unnecessarily
cumbersome set of procedural rules that the Parties have agreed to abide by
prior to commencement of the contract.
There is no
doubt that the procedural concepts in Arbitration, of versatility and
flexibility, are of considerable importance. They give it the edge over Court
resolution of disputes; yet the tendency is for the Parties to feel themselves
bound by and to adhere strictly to cumbersome and detailed time constraints
imposed by institutional pre-contract requirements. A huge amount of time and
money is spent by many organisations drafting such rules. However, it surely
has to be accepted that, no amount of drafting subtlety is going to be able to
replace the discretion that both the Parties and the Arbitrator can use when
the ―nature of the dispute has crystallised.
It is the
Arbitrator’s duty to adopt procedures that are suitable to the circumstances of
the particular case (Section 33). It is
for the Parties to co-operate (Section 40). The difficulty is, that it is
impossible for the Arbitrator to carry out this duty where the agreed
directions are not consistent with the Act, unless and until the Parties agree,
either that he should have the authority to do so, or they agree to vary the
original contractual directions. Nor can it be in the lap of one Party to
determine such a variation of the agreement; both Parties have to agree. There may be all sorts of political and
other factors whereby one Party would wish, quite contrary to the Act, to
adhere to some pre-contractual directions that would delay or involve heavier
costs than might otherwise be employed.
How,
therefore, can the problem of this divergence be overcome?
First, let us
consider the options open to the Parties.
It seems they may have the following options.
1. In
their “pre-contract” agreements for Arbitration they could provide for the
utilisation or employment of the agreed procedures to be subject to the
provisions of the Act. Unless such a
provision is made, it is quite clear that the Parties original agreement and
directions must prevail and notwithstanding Section 33. The Act proclaims that the Parties’ wishes
are paramount (Section 1) subject only to such safeguards as are necessary in
the public interest. Is this (Section
33), a safeguard which can be classified as being in the public interest? Doubtful! The difficulty is compounded by
the fact that Section 33 is mandatory; in other words it cannot be ousted by
the agreement of the Parties (as many other provisions in the Act can).
2. Secondly,
of course, the Parties can agree, where a dispute arises, to vary their
original agreement. Frequently they
will do so but it will often by the case that for economic or other reasons one
Party may wish to prolong the outcome or “out-finance” the other. However, if the Parties can agree to a
variation or to allow the Arbitrators direction to prevail, the problem can be
overcome.
3. Alternatively,
the Parties may agree to vary one or the other of the pre-ordained
directions. This, however would be
merely tinkering with the problem. Supposing
the dispute was capable of being determined by the Arbitrator, by the making of
a single inspection of the locus in quo (page, Lord Woolf, the Latin!). What use then for the detailed requirements
of pleadings, discovery, time constraints and hearings, which a Party might be
able to insist upon?
Next,
what, if anything can the Arbitrator do to overcome the problem?
1. Can
he make it a condition of his appointment, that the Parties do agree to abide
by his directions and vary the original terms – a bold step, that!
2. Can
he extend or curtail the existing prescribed directions as to time without the
Parties’ agreement. There is normally a
degree of flexibility within the pre-contract conditions to enable extensions of
time, but not usually powers of curtailment to enable times to be foreshortened
without Parties’ consent. Could he demand that a step which is provided for in
the directions be omitted as being totally unnecessary? Not, it is suggested, without the consent of
both Parties.
In my humble
opinion, it is not in the interests of Arbitration that the Parties should bind
themselves to procedural conditions prior to the dispute having arisen. Indeed, it often seems absurd to me that
pre-contractual provisions require, in the absence of agreement between the
Parties, that the appointment of the Arbitrator be made by a President of an
Institute of one discipline or another which may be wholly inappropriate. Why, for example, should the Parties be
restricted to the appointment of an Arbitrator by the President, say, of The
Royal Institution of Chartered Surveyors who will almost certainly have to
appoint, from its panel, somebody from that discipline. If the dispute involves solely a point of
law, or maybe a point of electrical engineering, surely such a provision is
hopelessly inappropriate. The problem
is that one simply cannot foresee the nature of the problems that might arise.
In
conclusion, it seems to me, as a comparatively new legal entrant to the Arbitral
process, that there is a real flaw in the Arbitration procedures here. In this connection, although it might not be
of the most common practical importance, it is a flaw which is surely, of such
significance, that it should be addressed by better Gungadins than I!
Answers
please, on a postcard, to our revered Editor.