JAMIU ABDULAFEEZ ENIOLA

1906001078

Arbitration
Arbitration is the process of bringing a business dispute before a disinterested third
party for resolution. The third party, an arbitrator, hears the evidence brought by
both sides and makes a decision. Sometimes that decision is binding on the parties.
To arbitrate a matter is to bring it before an arbitrator. Arbitration is a form of al-
ternative dispute resolution (ADR), used in place of litigation in the hope of set-
tling a dispute without the cost and time of going to court.
Arbitration is often confused with mediation, which is an informal process of
bringing in a third party who goes between the disputing parties to help them settle
a dispute. The mediation process is not binding on the parties, and the mediator
does not hear evidence. At the end of the arbitration process, the arbitrator will
make a decision, which will be binding on both parties.

The meaning of arbitration is securing an award on a conflict issued by reference

to a third party. Under the process of arbitration, a dispute is submitted to an im-
partial outsider who makes a decision which is usually binding on both parties. In
the process of arbitration, there is hearing and determination of a cause between
parties in controversy by a person or persons chosen by the parties or appointed
under statutory authority.

Types of Arbitration

1. Voluntary
2. Compulsory
3. Domestic
4. Foreign

1. Voluntary arbitration:-
In the case of voluntary arbitration the two contending parties unable to compose
their difference by themselves or with the help of the mediator or conciliator, agree
to submit the conflict / dispute between them to be resolved by an impartial author-
ity, where they are ready to accept the decision of that authority. In case of volun-
tary arbitration before the dispute is referred for adjudication, the parties can and
do themselves refer voluntarily the dispute to arbitration.
For voluntary arbitration to come into effect, following elements are essentials:-

(i) Voluntary submission of disputes to an arbitrator.

(ii) Subsequent attendance of witness and investigations.
(iii) Enforcement of an award may not be necessary and binding because there is
no compulsion. The award may be favorable or unfavorable.
(iv) Voluntary arbitration may be specially needed for disputes arising under agree-
ments.

2. Compulsory arbitration:-
In the case of compulsory arbitration parties are required to arbitrate without any
willingness on their part. If one of the parties is aggrieved by an act of the other,
then that particular party can apply to the appropriate government to refer the dis-
pute to adjudication machinery. This type of dispute is called a compulsory arbitra-
tion. The parties will be forced to a compulsory arbitration by the state if the fol-
lowing conditions are present:-

(i) If the parties fail to arrive at a settlement by voluntary method.

(ii) If there is a national emergency which requires that wheels of production
should not be obstructed by frequent work-stoppages.
(iii) Of the country is passing through grave economic crisis.
(iv) If there is a grave public dissatisfaction with the existing industrial relations.
(v) If Industries of Strategic importance are involved.
(vi) If the parties are ill balanced, where the unions are weak ill-organized and
powerless and the means of production are in the hands of the capitalists.
(vii) If the public interest and the working conditions are desired to be safeguarded
and regulated by the state.

3. Domestic arbitration:-
Domestic Arbitration is defined as an alternative dispute resolution mechanism in
which the parties get their disputes settled through the intervention of a third per-
son and without having recourse to the court of law. It is a mode in which the dis-
pute is referred to a nominated person who decides the issue in a quasi-judicial
manner after hearing both sides. Generally, the disputing parties refer their case to
an arbitral tribunal and the decision arrived at by the tribunal is known as an
'award'.
4. Foreign arbitration/International arbitration :-
Foreign arbitration means an arbitration relating to disputes arising out of legal re-
lationships, whether contractual or not, considered as commercial under the law in
India and where at least one of the parties is:-
(i) an individual who is a national of, or habitually resident in, any country other
than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) a company or an association or a body of individuals whose central manage-
ment

Arbitration Agreement:-

Essentials of a valid arbitration agreement are as follows:-

(A). The parties must have a written consent to arbitrate:

The Arbitration and Conciliation Act has a mandatory provision in Section 1 as to
the formalities of an agreement made
under it on the choice of the party (party autonomy) thus making both oral and
written formalities of the agreement valid. See Sections 1 (1) ACA.

(B). The outcome of the arbitration must be in writing:

It is a mandatory requirement that arbitration under the Arbitration and Concilia-
tion Act 1990 must be in writing. Section 1 (2) of the Act states that "Any refer-
ence in a contract to a document containing an arbitration clause constitutes an ar-
bitration agreement if such contract is in writing and the reference is such as to
make that clause part of the contract" Furthermore, if reference in a contract is
made to arbitration document, such contract constitutes an arbitration agreement,
provided the contract is in writing. It is worthy of note also, that an arbitration
agreement cannot be revoked once intention of the parties is clearly expressed ex-
cept by agreement of the parties or by leave of the court of competent jurisdiction.
Moreover, sometimes a party to arbitration is a corporate organization. When this
arises, the agreement must be written and presented under a seal. Other forms of
presenting the written agreement are contained in section 1 (1) (a) to (c) of the Ar-
bitration and Conciliation Act
(C). There must be an established legal relationship between the parties to ar-
bitration:
Before parties can consent to arbitration, the cause of disputes must be such that
have to do with predefined relationship between them. This predefined relationship
is the contractual agreement that exist between the parties. The contractual rela-
tionship must therefore be the reason behind dispute. The issues that cause disputes
from contracts are mostly linked to the breach of the contracts and these forms the
main reason for arbitration procedures.

(D). The dispute must be such that can be subject to arbitration:

This in essence means that the cause of such dispute must not be criminal.

Autonomy and Independence of an Arbitration Clause

An arbitration agreement can either be included in the main contract or be a sepa-

rate document. If it's part of the contract, it's legally seen as an independent con-
tract. In the case of Heyman v. Darwin Ltd (1942), the court ruled that an arbitra-
tion clause is unique because it shows both parties agree to resolve any disputes
through arbitration.

The Arbitration and Conciliation Act (ACA) doesn't specify how an arbitration
clause should be written, but courts generally honor the intention to arbitrate if it's
clear from the agreement. For example, in the case of C. N Onuselogu Ent. Ltd v
Afribank (Nig) Ltd (2005), the court supported this intention. Similarly, in ADC v
LGN (2002), the court stated that a clause requiring disputes to be settled by arbi-
tration excludes other methods of resolution.

Even if the contract is abandoned, the arbitration clause remains effective for re-
solving disputes from the breach of contract. However, if the arbitration clause is
illegal, it is void. Section 12(2) of the ACA emphasizes that the arbitration clause
is separate from the main contract.

Content of an Arbitration Agreement

1. Capacities of Parties to engage Arbitration

The ability of parties to use arbitration for dispute resolution is crucial in alterna-
tive dispute resolution. Not everyone can use arbitration; for example, if company
A has issues with company B, they can arbitrate only if they have an existing con-
tract that includes an arbitration clause. Without such a clause or any business con-
tract, arbitration is not an option.
Another key factor is the legal capacity of the parties, which is necessary for a
valid contract. Both parties must be legally capable of entering into the contract, or
it becomes invalid. This ensures they can comply with the arbitration award. Ac-
cording to Section 52(2) of the Arbitration and Conciliation Act 1990, incapacita-
tion, such as being a minor, of unsound mind, or bankrupt, prevents enforcement of
the arbitration terms.

2. The Reference.

An Arbitration Agreement allows parties to resolve disputes through arbitration,

requiring clear and comprehensive wording to give arbitrators enough authority.
The reference should cover all disputes, differences, and claims to avoid unre-
solved issues. Clauses limited to disputes and differences alone may not address all
matters, especially undisputed claims. Common law states undisputed claims are
for litigation, as seen in London and Northwest Railway Company v. Jones (1915).
Disputes arising after an arbitrator's appointment are outside their jurisdiction un-
less the agreement covers all transactions without time limits. Including clauses
like Scot v. Avery, which mandates arbitration before court action, or the AT-
LANTIC SHIPPING clause, which sets arbitration time limits, ensures timely arbi-
tration proceedings.

3. Arbitrators

An Arbitration Agreement covers the following key points:

1. Number of Arbitrators:- It specifies whether there will be one arbitrator or three,

as chosen by the parties (Section 6 of the Act).

2. Appointment of Arbitrators:- Parties can jointly appoint one arbitrator or each

appoint one, with a third arbitrator jointly appointed (Section 7(1)).

3. Authority of Arbitrators:- The agreement must clearly define the arbitrators' au-
thority.
4. Venue of Arbitration:- The venue should be convenient for both parties. If not
specified, Section 16 of the ACA, 2004, states the tribunal will decide the location,
considering the case's circumstances and party convenience. The tribunal can meet
elsewhere if needed for consultations or hearings.

5. Governing Law:- The agreement must indicate the law regulating the contract,
typically the law of the arbitration's location.

6. Procedure:-The agreement should outline the arbitration process, including the

initiation of the process, pretrial meetings, terms of reference, pleadings, hearings,
evidence, awards, and costs. It can be ad hoc or institutional.

7. Language:- The agreement should state the language of the arbitration, espe-
cially important in international cases. If not specified, Section 18(1) of the ACA
provides guidance.