Unit 3 Flashcards
What is an Arbitration Clause
Arbitration agreement may be made prior or subsequent to a dispute. Whero thay are
made before a dispute arises, they are generally drafted as clauses, which are inserted into contracts governing a primary transaction between or among parties which may lead to a dispute. Such agreements which are inserted into main transaction contracts are referred to as “arbitration clauses”. However, an arbitration agreement may stand alone and be in a separate document, but it must refer to the main transaction or relationship between or among the parties, which may lead to a dispute. It is important to note, that generally under common law, arbitration clauses are presumed to survive the termination of contracts except where there is an express agreement of the parties to the contrary.
Thus, even where a contract is terminated by the parties, is void or voidable, the arbitration agreement lives on to govern dispute resolution between or among the parties.
An arbitration agreement should include
The subject matter of the arbitration
Expression of binding obligation to arbitrate
The appointing authority and appointment procedure herd
The number of arbitrators. It should be noted, however, that the ACA provides that where parties are silent on the number of arbitrators to be appointed, the number shall be deemed to be three.
Place of arbitration
Language to be used during the arbitral proceedings
The substantive law to be applied by the arbitrators
Other details that must be included
The number of arbitrators shall be [one/three] (optional) [who is/are to be a
[specify any qualifications requirement];
The seat or legal place shall be[City and/or Country];
The place of arbitration shall be [Lagos, Nigeria];
Is this a good arbitration clause if not correct it “In case of dispute, the parties undertake to submit to arbitration but in case of litigation the Federal High Court Abuja shall have exclusive jurisdiction”. (Please use the interactive check list below for evaluation of arbitration clauses in classroom and virtual learning situations. Check the box for each element of a properly drafted arbitration clause that is contained in the given sample.
Highlight the part of the text that contains the checked element in the given sample using the colour code below):
No
The number of arbitrators are missing
Place of arbitration
Is there an fault in this if yes then correct
“Any dispute or claim arising out of or relating to this agreement, including any question regarding its existence, validity, or termination or the business relationship created thereof shall, unless resolved by the parties within 14 days, be referred to and finally settled by arbitration in Nigeria with the appointment of one (or three) arbitrators by the President of Nigerian Institute of Chartered Arbitrators under the Arbitration and Conciliation Act of
2004. The language of the arbitration shall be English”.
Discuss arbitration clauses in contracts and agreements
Consent of the parties to submit to arbitration is therefore a condition precedent to a valid arbitration process and award. “The agreement to arbitrate covers the full elements of a contract - offer, acceptance, consideration and intention to be bound into a legal relationship. The strength of the agreement comes from its voluntary nature and the sanctity of contracts.” This underlies the importance of a well-drafted arbitration clause in an agreement. Such a clause reduces contention over the validity and efficacy of the clause, as well as the enforceability of the arbitration award. The provision of model clauses by various arbitration bodies and institutions attest to the fundamental importance of such clauses. However, these model clauses notwithstanding, arbitration clauses still pose challenges. Why is this so?
Why do arbitration clause fail
Nigerian National Petroleum Corporation v Lutin Investment Ltd & Another
- Where a there is no dispute or dispute, is outside the scope of an Arbitration clause
- in valid Arbitration clause.
Nigerian National Petroleum Corporation v Lutin Investment Ltd & Another what was gotten from this case
In Nigerian National Petroleum Corporation v. Lutin Investment Ltd. & Another, the Supreme Court described arbitration as the reference of a dispute or difference between not less than two parties for determination after hearing both sides in a judicial manner, by person or persons other than a court of competent jurisdiction. One can easily pick out the first possible cause of failure of an arbitration clause. This is the issue of the subject matter of the arbitration. An arbitration clause in a contract or commercial agreement, expresses the intention of the parties to the contract to submit to arbitration in the event of a dispute or matter arising from their agreement.
Where there is No Dispute or Dispute is outside the Scope of an Arbitration Clause
The existence or non-existence of a dispute is a preliminary issue to be settled before arbitration can commence. A resort to, or a request for arbitration will fail where the clause relied upon does not cover the matter in issue. There must be a dispute for the arbitration clause to be evoked. This principle was explained in United World Limited Inc. v. Mobile Telecommunications Services (MTS).
United World Ltd. vs. MTS: Arbitration Only for Actual Disputes what was the significance of the case
United World Ltd. vs. MTS: Arbitration Only for Actual Disputes
Contract: United World placed an ad in a newspaper with MTS, with a payment deadline and late fees. The contract also included an arbitration clause.
Dispute: MTS missed the payment but admitted liability. United World sued and requested immediate payment.
MTS’s Argument: They argued the issue should be settled through arbitration as per the contract.
Court’s Decision: The court sided with United World. Arbitration cannot be forced if there’s no true disagreement. Admitting a debt doesn’t constitute a dispute requiring arbitration.
Key Points:
Definition of Dispute: A dispute arises when parties can’t agree on an issue stemming from the contract. Neither party budges, or one is unreasonable.
Wording of Arbitration Clause Matters: Broad clauses cover most disagreements, while narrow ones focus on specific issues.
Broad Example: “Any dispute…relating to this agreement…”
Narrow Example: “Any dispute arising under this agreement…”
Standardized Clauses: Arbitration institutions like ICC and UNCITRAL often use broad clauses encompassing “any controversy or claim arising out of or in connection with” the contract.
Overall Significance:
This case clarifies that arbitration can’t be a forced method for resolving situations where there’s no actual disagreement. The court emphasizes the importance of clear, well-defined arbitration clauses within contracts.
Invalid arbitration Clause
An invalid arbitration clause is a negation of an obligation to arbitrate. Courts are called upon from time to time, to interpret and enforce arbitration clauses in agreements. The essence of such exercise is to ascertain the intention of the parties as captured in the clause. This will be thwarted where the wording of the arbitration clause is unclear, ambiguous or contradictory. The English case of Kruppa v Benedetti provides a classic
example.
What was stated in Kruppa V Benedetti
Key Points About Invalid Arbitration Clauses
The passage discusses two main reasons why an arbitration clause in a contract might be considered invalid:
- Lack of Binding Agreement to Arbitrate
The clause doesn’t clearly state a binding obligation for both parties to use arbitration for disputes.
Words like “endeavor” or “attempt” to resolve through arbitration suggest a non-binding recommendation, not a mandatory step.
The clause might be missing details about the arbitration process, such as location, rules, or arbitrator selection.
Example: “In the event of any dispute… the parties will endeavor first to resolve the matter through Swiss Arbitration.” (Invalid)
- Ambiguous Wording
The clause’s wording is unclear and creates confusion about when or how arbitration applies.
It might be difficult to determine what situations qualify for arbitration or which disputes the clause covers.
Example: “Any controversy… shall necessary be submitted to arbitration…; in case of disagreement between the arbitrators… the dispute shall be submitted to State Courts.” (Ambiguous)
Case Examples:
Kruppa v Benedetti: The clause used “endeavor” and lacked details about the arbitration process, making it non-binding.
Unclear Clause Example: It’s unclear if the arbitration applies to a disagreement between arbitrators or the original dispute between parties.
Overall:
A well-drafted arbitration clause should be clear, concise, and create a binding agreement for both parties to settle disputes through arbitration. It should also outline key aspects of the arbitration process to avoid confusion.
The case of Kruppa v Benedetti established that an arbitration clause in a contract can be invalid for two reasons:
Lack of Binding Agreement: The wording must clearly show a mandatory obligation for both parties to use arbitration, not just an “endeavor” to resolve disputes that way.
Ambiguous Wording: The clause cannot be unclear about when or how arbitration applies. It should be clear what situations qualify for arbitration and what the process entails.
Defect of Arbitration Clause
can be seen from the foregoing, that arbitration clauses can fail for a number of reasons.
Parties give insufficient thought, time, and attention to the drafting of the clause, contrary to their attitude toward the main contract or agreement. Apart from being downright invalid, arbitration clauses which fall short of the invalidity threshold may nevertheless be defective. One of the defects that may be found in an arbitration clause is with regard to the seat of arbitration.
State the first defect of an arbitration clause
Failure to Stipulate Number of Arbitrators, their Qualification and
Failure to clearly state the number of arbitrators means that default rules may apply or that the court may decide the number of arbitrators as well as the procedure, depending on which national law applies to the contract. The outcome may not be what either or both parties would have wanted. Where courts appoint arbitrators, the tendency may be to appoint retired judges with little or no experience with arbitration.
Failure to Stipulate Applicable Substantive Law
The substantive law applicable to an arbitral proceeding is very important because amongst other reasons, it will be the basis for plugging gaps not expressly addressed by contractual provisions. In the absence of an express provision for applicable law, an undesired law might be applied by the tribunal.
