Definition of arbitration
The following definition of arbitration by Lord Justice Raymond 250 years ago is still valid:
"An arbitrator is a private extraordinary judge between party and party, chosen by their mutual consent to determine controversies between them, and arbitrators are so called because they have arbitrary power; for if they observe the submission and keep within their due bonds their sentences are definite from which there lies no appeal". (Quoted in Totterdil B (2003) An introduction to construction adjudication: Comparison of Dispute Resolution Techniques.)
The International Law Commission has defined arbitration in respect of sovereign states as follows:
"A procedure for the settlement of disputes between states by a binding award on the basis of law and as a result of an undertaking voluntarily accepted."
Key features of arbitration
The following features of arbitration are discernible. One, the procedure of settlement is as agreed by parties either point by point or by adopting a pre-existing procedure made by an institution. Arbitration awards are on basis of the law just like judgements in litigation. This may be contrasted to decisions in other mechanisms e.g. negation which may not necessarily be on merits of the law. Thirdly, an arbitrator is a private judge chosen by parties or through a process agreed upon by the parties and given arbitrary power to decide the dispute between them. Arbitration award is usually binding upon the parties and subject to appeal like any other a normal judgement of a subordinate court. Finally, the definition of arbitration necessarily refer to agreement between parties which agreement is often times embodied in the arbitration clause in contracts.
Advantages of Arbitration (www.lcia.com)
Arbitration as a mode of disputes resolution is possessed of the following advantages among others:
Confidential: Arbitration is a private process. Parties select an arbitrator privately and proceedings are held privately. This eliminates the presss element highly prevalent in litigation and mitigates bad publicity that disputes may yield.
Experienced and knowledgeable Arbitrators. Unlike court litigation Parties choose arbitrators or appoint the person or body so to do. They can thus inject integrity in the process at will. Where the matter involved is complex or technical, there are no qualms choosing an arbitrator knowledgeable in the field or with relevant experience. For example, in building and construction disputes, an architect who is also an arbitrator will be an ideal choice..
Expeditious: The private nature of arbitration and the possibility of parties consenting to expedite the process make arbitration a speedier process compared to litigation. Often, the arbitrator has no other pending matter can, therefore, dispose of the case with expedition.
Affordable: Given its speed and flexibility (as we shall see in a moment) Arbitration is, overall, cost-effective in comparison with litigation. That is not denying that arbitral tribunals or arbitrators require to be paid for their services. So do the lawyers and persons who represent parties in the arbitration process.
Flexible: By private and by consent arbitration can be very flexible. There are no formal or unchangeable rules like one finds in the courts. Parties and arbitrators are free to adopt flexible procedures and rules which suit everybody. After confidentiality, flexibility is perhaps the most attractive attribute of arbitration.
Representation: in the courts one needs a lawyer to represent him. Lawyers are expensive. In arbitration one may appear in person or send a lawyer or representative or indeed anyone one chooses. It is part of flexibility.
Limited Appeals – expediency: Except in the most blatant cases of bad arbitrating the arbitrator's award will be final and binding on the parties. Where the law allows appeals it will usually be in cases of disregard for the principle of natural justice or the express agreement of the parties.
Minimum formality and expeditious disposal of matters: Procedure in courts is founded on rules of practice some of which are of great antiquity. The court procedures require an experienced lawyer to apply them correctly. In arbitration these rules do not apply. The rules to apply are either those agreed by the parties or some institutional procedural rules like those of the Chartered Institute of Arbitrators (UK) or the London Court of International Arbitration.
The overriding rules of arbitration may simply be paraphrased as the rules which will enable justice to be rendered between the parties with a minimum of formality and with expedition. These rules will be found in what is called "rules of natural justice." The application of the rules of natural justice as a minimum starting point ensures that justice is done and seen to be done.
Limitations of Arbitration in Kenya
Despite all the advantages that it possesses, arbitration has practicability restrictions. Internationally though, it is probably the most acceptable and effective method of resolving disputes. However, at the national level in Kenya, the process of arbitration is governed by a statute, the Arbitration Act, 1995.
The Act in section 4 requires an Arbitration clause to be in writing and in essence to be signed by the parties. Basically, the Act envisaged the application of arbitration in the context of commercial dispute resolution.
Arbitration in the context of Kenyan law
Arbitration in Kenya is recognized under the Arbitration Act 1995. The Act contains provisions relating to arbitral proceedings and the enforcement of the ultimate awards by the court. "Arbitration" is defined in section 3(1) of the Act to as "Any arbitration whether or not administered by a permanent arbitral institution".
Arbitration is thus conceived to include all types of arbitrations that can be envisaged in society. Traditional institutions dealing with issues brought before them can still carry out arbitrations. In any case, persons appointed by parties to be arbitrators need not be affiliated to any formal organization.
There is no doubt that at arbitration has a vast potential as a dispute resolution mechanism as is afforded wide application by the law. The hassles of litigation can thus be avoided through arbitration. As a plus, the Arbitration Act ensures that parties retain their autonomy in critical matters including venue, language of arbitration and procedures. These are luxuries unheard of in litigation.
The Kenyan Arbitration Act deals with domestic and international arbitration (see section 3(2) thereof. The statute is similar in many respects to the Arbitration Act 1996 of the United Kingdom (UK). In section one, the UK Act states that the provisions of the part shall be founded on the following principles and shall be construed accordingly:
The object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense.
The parties should be free to agree on how their disputes are resolved subject only to such safeguards are necessary in the public interest.
When arbitration is international in Kenya
As per section 5(3) Arbitration Act of Kenya, arbitration is international where:
The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states;
One of the following places is situated outside the state in which the parties have their places of business;
The place of arbitration if determined or pursuant, to the arbitration agreement; or
Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is mostly closely connected.
The parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one state.
For the purposes of subsection (3) –
if a party has more than one place of business, the place of business is that which has the closest relationship to the arbitration agreement; and
if a party does not have a place of business reference is made, to his habitual residence.
Recognition and enforcement of foreign Arbitral awards
The Act further deals with the recognition and enforcement of arbitral awards irrespective of the state in which it was made subject to certain limitations (as outlined under section 37). The refusal to enforce can be on the grounds of incapacity, lack of jurisdiction and public policy.
The distinction between local, private and public international arbitration becomes somewhat blurred, however in cases involving a private party and a state. Here we find processes that combine features of both public and private arbitration and which shift uncertainly between the two (Arbitrations under ICSID are good examples of arbitrations of this kind).
Conclusion
Arbitration is a binding process of dispute resolutions. The decision of the Arbitrator is final. Arbitration is governed by the Arbitration Act 1995 and is generally a formal process.
Arbitration as envisaged in Kenyan law is just as adversarial as litigation. There is a tendency that Arbitration assumes a formal and cumbersome streak especially where lawyers are involved in representing parties.
But overall, it affords a cost effective, binding, confidential and expeditious decision making method that parties to disputes should tap to avoid undue litigation. There is also the chance that it will preserve business relationships while solving the contentious issues betweens the parties.
So next time you are handling a contract, you may need to consider whether it bears an arbitration clause. Equally important, you may consider advising a client before to implore to pursue arbitration instead of litigation. At least, your efforts will unclog our courts! And if you are a player in legal reforms in Kenya, be part of the effort to customise arbitration to suit Kenya's the local dispute resolution needs.
