Other on International Trade Law (UNCITRAL) Model Law on

Other than litigation, number of
alternative dispute resolution (ADR) mechanisms can be found. Mediation,
Negotiation, Conciliation, Arbitration, etc. Due to the adversarial nature of
courts ADR methods are always faster. Apart from that adopting an ADR mechanism
can confidential and also be conducted in private. However when compared to
Arbitration, it usually imposes a binding award on the parties. Parties to commercial contracts and
agreements prefer Commercial Arbitration as a means of settling disputes by
referring them to a neutral third party, referred to as an Arbitrator. Contracting
parties tend to prefer Arbitration over Litigation due to its procedural
flexibility. The Law of Arbitration permits the contracting parties of a
contract or an agreement to choose and adopt the applicable law, rules,
appointing of arbitrators, etc. This allows the parties to structure the manner
of Arbitration upon their autonomy. Perepelynska defines Party Autonomy as
“Party Autonomy is with regarded to the agreement of the parties to concerned,
gives the latter possibility to determine the procedure of resolution of their
case”1. The
principle of “Party Autonomy” is considered as the core principle of
Arbitration. “Party autonomy is the guiding principle in determining the
procedure to be followed in an international commercial arbitration”2.

 

As mentioned, in Arbitration parties are
free to agree upon the rules of the dispute resolution mechanism. This includes
but not limited to Choice of Law, place of Arbitration, appointing Arbitrators,
Arbitrable disputes, language of the proceedings and agreements. It can be
observed that this freedom has been recognized by the international arena.
United Nations Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration (“Model Law”) in Art. 19 (1) states “Subject to the provisions of this Law, the parties are
free to agree on the procedure to be followed by the arbitral tribunal in
conducting the proceedings”3.
Due to its international validation most of the countries in the contemporary commercial world tend to
recognize and accept Party Autonomy Rule as a mechanism for investor attraction.
Foreign investors are reluctant to engage with local dispute resolution
mechanisms including litigation. Arbitration with extensive recognition to
Party Autonomy provides a fair ground for both local and foreign parties to
tailor the provisions to fit their purpose.

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This article will concern the reliability
of Party Autonomy principle.

Analysis

 

It is
widely accepted that autonomy of the parties to be reflected through the
mutually agreed terms and conditions of the Arbitration Agreement. Scholars
have identified two main characteristics of the Party Autonomy Principle. First
being the freedom to decide contractual terms without the influence or
intervention of judicial power and secondly the mutual consent of the parties
to enter in to the contract.

In
deciding contractual terms, even though the parties are free from judicial
intervention the Law itself has imposed limits and restrictions. Even from the
wording of the Model Law it provides, that the parties’ ability tailor the
proceeding is not absolutely boundless4.
On the other hand the extent of the party autonomy enjoys by the parties may
differ at several levels of the Arbitration process. Apart from that there are
certain restrictions to the party autonomy depending on the agreement as well. Arbitration
Agreement being the fundamental document to the Arbitration process, the Law
imposes basic requirements to ensure the validity of the Agreement, where it
should complies with. Though it may depend on the jurisdiction, it is
recognized that there to be a common framework in general. Arbitration Law does
not permit the parties to alter or modify fundamental norms of Arbitration or
exclude the principles of Natural Justice.

 

In
illustrating the above limitations, there is a fundamental requirement that the
Arbitration Agreement to be in written format. While retaining the validity of
the agreement it enhances the practicality when refereeing to the agreement.
Most importantly, this evident the existence of an agreement for Arbitration
and the consent of the parties. The absence of validity
requirements is a issue vitiating the validity of the arbitration agreement and
constitutes limitations to party autonomy a sit may be invoked to render the
resulting award unenforceable as these requirements constitute mandatory provisions
under the legislations. Nonetheless, the recent judgments have affirmed that
such mandatory requirements can be excused owing to the bonafide intention of the parties to refer to arbitration. In the
case of Elgitread Lanka (Private) Ltd. vs. Bino Tyres (Private) Ltd5,
Justice Marsoof held that there can be no agreement to arbitrate without a
manifestation of consent of the parties to submit to arbitration any dispute
that may arise from a contract entered into by them or other defined legal
relationship.

 

Capacity
of the parties to contract is another fundamental requirement, where lack
of such capacity invalidates the contract. In considering the fundamental principles, parties do not have a
discretion but to respect them . Principles such as equality, fair hearing are
to be incorporated in the Agreement. As the process being a private mechanism
there tendency of biased to one party. And also if one is having a higher
bargaining power it more likely to cause a prejudice to other parties. This
provide evidence that regulating bodies has imposed these mandatory rules to
ensure that the process of arbitration meets the standard of a court
litigation.

 

Under
Party Autonomy, parties are free to determine the law applicable for
Arbitration. The Sri Lankan Arbitration Act6
incorporates express provisions under section 24 for the determination of the
law applicable to the substance of the dispute between the parties. Section 24(1)
of the Act provides that an arbitral tribunal “shall decide the dispute in
accordance with such rules of law as are chosen by the parties as applicable to
the substance of the dispute. Thus Section 24(1) is sufficiently wide to permit
the parties to select either a national law or even transnational rules of law
as the law that would govern the substance of the dispute. If the agreement is
clear with the provisions of “lex arbitri”,
Arbitrators’ shall conduct the proceeding in accordance. Chukwumerije in his work “Choice of law in
international commercial arbitration”7
suggests that the Arbitrator may disregard the choice of law provision if it
brings a prejudice to any party. This prejudice may be due a legal restriction.
For instance if Arbitration agreement confers powers to the arbitrators beyond
the limit which the jurisdiction permits a conflict of interest arises. If the
arbitrators are not in a position to exercise and execute the vested powers
that will certainly not meet the desired outcome. Here it can be concluded
that, certain restriction may come across as the process of arbitration should
meet the requirements of lex arbitri.
Furtado8
states that in India it established that every legal entity under the law of
India should comply with Indian legal system at the first instance. This
imposes a huge barrier upon the contracting parties as they have to comply with
domestic laws at first. This leaves no room for party autonomy relating to lex arbitri.

 

In respecting the principle of Party
Autonomy the process of Arbitration and Arbitral Tribunal stands free from Judicial
interference. However it is observed that this veil is removed in few
circumstances, where the Judiciary intervenes to the matter in assisting the
process. This may include deciding the validity of the agreement, appointing
and removal of arbitrators etc. The court holds the supreme authority determine
the validity of the agreement. Either a party or the Arbitrator may refer the
matter to the courts. In situations where the parties fail to agree upon the
composition of arbitrators nor their appointment, the matter shall be referred
to the courts. On the other hand it the parties are not satisfied with the
arbitrator nor if a party with reasonable grounds believes that the Arbitrator
has caused prejudice, may seek the assistance of the court. In the Supreme
Court case “Reliance Industries Ltd. & Ors. Vs. Union of India9”
it was held that independence and impartiality are important factors in
appointing arbitrators.

 

Though the Arbitration tribunal may have
exclusive powers to impose awards in accordance with the terms and conditions
of the agreement, it lacks the power to grand orders to the parties compelling
to perform the award. In a scenario where a party refuses to accept the award,
the party itself or the other shall seek the assistance of the Courts, where
with reasonable grounds courts may either issue an order compelling the parties
to act in accordance with the award of the tribunal or review the award. The
Arbitration Tribunal has no power over third parties who are outside of the
contract. For instance the tribunal cannot compel third parties to attend
hearing. Only the parties to the contract are binding, as a result they cannot
agree upon terms which directly affect third parties.  Sec.3310
of the Sri Lankan act states that, it is mandatory to file a petition in High
Court in order to enforce a foreign arbitral award. This might not be
applicable in other jurisdictions, but it up holds the doctrine of public
policy.

 

The principle of Public Policy ois the
far framed limitation to the principle of Party autonomy. In different
jurisdictions, there may be different policies establish in order to secure the
smooth run of the society. These policies are to be adhered by all components
the society with no exception to the foreign bodies. There may be instances
where either the issue or the award of the arbitration is contrary to public
policy, which may cause injury to the public good. Public policy in commonly
connected with the culture, moral values and beliefs of the society. As a result
of this importance where any violation to the public policy principles may lead
the award null and void. The term “public policy” has been generally accepted
as any conduct, which violates fundamental conceptions of legal order in the
country concerned. The Supreme Court of India in the case of “Bharat Heavy
Electricals Vs. C.N. Garg”11,
has interpreted the term contrary to public policy to mean any agreement that
is against the fundamental policy of the country, interest of the country, morality,
justice and legal norms. Thus, the term “public policy” has been generally
accepted as any conduct, which violates fundamental conceptions of legal order
in the country concerned.

 

As the basis for public policy are
sociological factors courts from different jurisdictions have interpreted the
term public policy in different ways. This has left a vague nature to the
concept of public policy. Though it provides a limitation to the principle of
party autonomy it prevents the execution of illegal or immoral contracts and
awards.

 

Apart from public policy National laws
of many of jurisdictions provide that certain categories of disputes are not
being capable settled by arbitration. These disputes are viewed as non-arbitrable
disputes which to referred to litigation or other legal body as prescribed by
the domestic laws.  Article V(ii)(a) of
New York Convention12
provides that a state can refuse enforcement and recognition of an arbitral
award if it finds that “the subject matter of the difference is not capable of
settlement by arbitration under the law of that country.” here, the Convention
only refers lex arbitri where the
award is sought to be enforced. This doctrine rests on the idea that certain
public rights and interests of third parties require extensive protection that
can only be produced by governmental authorities. As a result, agreements to
solve disputes on these rights and interests cannot be given effect. In other
words with regard to those specific disputes, the arbitrator has no competence
whatsoever to deliver a verdict. As a result the parties do not retain their
given freedom to exclude the jurisdiction of national courts. In most
jurisdiction disputes relating to intellectual property, public relations, labor
relations are viewed as non-arbitrable disputes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conclusion

 

Party autonomy is not unlimited in commercial
arbitration. Though it gives authority to the parties to decide the process of
the arbitration towards resolve their dispute, one of the major restrictions to
the party autonomy is that it subject to the Public Policy. Most of the times
party autonomy is used for international commercial arbitrations agreements. On
such circumstances parties subject to different jurisdictions and they should
select one of those foreign jurisdiction to the arbitration process. According
to this fact final award from arbitral tribunals would affect to the public
policies of that particular Jurisdiction. If the parties to the contract are
bona fide it should go on the General Law proceedings. Considering this
situation party autonomy was clearly restricted and limited under this
circumstances. When considering most of the Arbitration enactment doesn’t
provide clear view of the party autonomy rule. But go through such provisions
it was impliedly on there. But in some circumstances it was clearly restricted.
According to the Sri Lankan Arbitration Act section 3313
clearly stated that parties filing a petition to High Court for enforcement of
foreign arbitral award. On Such situation In Sri Lankan Arbitration Act limit
the choice of place in arbitration (lex arbitri). This is very important fact
when consider about the party autonomy rule. But Indian Arbitration and
Conciliation act not restricted the above mentioned fact but in practical
scenario some case laws decided to limit this choice of place situation in
party autonomy principle.

 

To sum up, one can definitely
acknowledge the existence and effect of the above mentioned restricting factors
over parties’ autonomy in international commercial arbitration. However,
minimizing the restrictive effect of these factors is effortlessly achievable
once the parties are sufficiently aware of their existence and the boundaries
these factors generally create over parties’ autonomy. Regardless, outside the
considerably narrow frame of these restrictions, business parties enjoy a
significant amount of freedom in international arbitration through which they
can perfectly tailor their arbitral settlement to suit the needs and
circumstances of their relationship and dispute

 

Party Autonomy rule is one of the best practices
in commercial arbitration though it subjects to criticisms and limitation.

 

 

 

 

 

 

Recommendations

 

·        
When considering the enforcement of the
arbitral award it is important claimant to recover his lose from other party in
commercial matters. Parties in commercial dispute always go to the arbitration
process to acquire the commercial values. On such ground if the arbitral award
given in favor of the claimant the opposite party can refuse such decision made
by the arbitral tribunal. On such circumstances the claimant has to go for a court
litigation process under general law to acquire his previous award granted by
the arbitration process. This should be change and implemented new mechanism to
binding such parties to that particular award was made by the arbitral
tribunal.

 

·        
The Law should further more specify the
appointment and qualification of the Arbitrators. Because arbitrators to these
arbitral tribunal should have thorough knowledge about the field of arbitration
and its binding principles. On such circumstances act should furthermore specified
what qualifications minimum for selecting as an arbitrator. This should support
for the betterment of decisions and the much more important establish good
standards of party autonomy principle where it lowers the necessity of judicial
intervene.

 

1
Olena S. Perepelynska, ‘Party Autonomy vs Mandatory Rules in International
Arbitration’ 2012 38 The Ukrainian Journal of Business
Law
accessed 19 January 2018

2
A Redfern and Others, Law and Practice of International Commercial Arbitration,
(4th edn, 2004) 265

3.Uncitralorg,.’UNCITRALsModelaLawaonkInternationalaCommercialaArbitration’a(Uncitralorg,a1985)

accessed 23 October 2017

 

4a.Uncitralorg,.’UNCITRALsModelaLawaonkInternationalaCommercialaArbitration’a(Uncitralorg,a1985)
accessed 23 October 2017

5 SC (Appeal) No.
106/08 (Marsoof LJ)

6 Arbitration Act
No 11 1995

7 Okezie Chukwumerije, Choice of Law in International Commercial
Arbitration (1 st edn, Praeger Frederick 1994)

8 Rebecca Furtado,
‘A Critical Analysis Of Party Autonomy In Arbitration – iPleaders’ (IPleaders,
21 September 2016) accessed 21 January 2018

9 Reliance
Industries Ltd & Ors Vs Union of India and Others 2014 7 SCC 603 (Supreme Court of India)

10 Arbitration Act
No 11 1995

11 BHARAT HEAVY ELECTRICALS LIMITED V C N GARG AND OTHERS 2001 12 SCC 405 (Supreme
Court Of India)

12 The United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards of 1958

13 Arbitration Act
No 11 1995