ALTERNATIVE DISPUTE RESOLUTION
There are a number of dispute resolution mechanisms, which are
alternative to litigation.
They include inter alia, mediation and
arbitration.
MEDIATION
Mediation is a process of negotiation facilitated by or through the
intervention of a neutral third party or intermediary, a Mediator. A
mediator helps the parties in communicating their positions on the
issues relating to the dispute and in exploring possible solutions or
settlement. Unlike an Arbitrator or a Judge, he does not decide or
adjudicate the dispute between the parties. He is merely a facilitator
who helps the parties to reach a consensus by listening, suggesting
and brokering a compromise.
Mediation is a voluntary and non
binding process. The parties themselves must be willing to come to
some form of settlement.
The process of mediation is non-adversarial whereby parties are
encouraged to look at the broader aspects of their interests instead
of focusing on the narrow aspects of their interests and obligations.
This process is not restricted by legal principles or rules of procedure
akin to litigation. In other words parties are not required to prove
their cases on the balance of probabilities by using legal and
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principles of evidence or by calling witnesses. For this reason, the
Mediator is usually more skill-oriented than legal knowledge –
oriented. A good Mediator must have excellent negotiation, listening
and problem solving skills.
In Zambia the process of mediation is Court- Annexed. Order 31
Rule 4 of the High Court Rules provides as follows:
“Except
for
cases
involving
constitutional issues or the liberty of an
individual or an injunction or where the
trial Judge considers the case to be
unsuitable for referral every action
may, upon being set down for trial, be
referred
by
the
trial
Judge
for
mediation and where the mediation
fails the, the trial Judge shall summon
the parties to fix a hearing date…”.
In an action commenced in the Commercial Registry of the High Court, a
Judge may refer a matter to mediation during the Scheduling Conference
when the circumstances of the case require that it would be prudent for it to
be settled by a Mediator.
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It should be noted that a Judge may refer a matter to mediation only with the
consent of the parties or their Counsel. He must not force mediation on the
parties.
ADVANTAGES OF MEDIATION
1.
Since the process of mediation is not constrained by legality and
procedural rules, it is easy for parties to tailor a flexible format to suit
their own specific requirements. Consequently, mediation can be quite
informal and speedy to the extent that a simple or less complex dispute
can be settled within a few days as opposed to litigation or arbitration,
which may take many months or years.
2.
Because the process does not take too long, costs of the parties are
considerably reduced.
3.
Relationships between the parties are preserved, which is especially
important if there will be ongoing contract. No outside adjudicator
pronounces a Winner and a Loser.
4.
In mediation, the focus is not necessarily what is legally correct but
rather what the parties’ joint interests are.
5.
Most importantly, the parties have greater commitment to the solution
reached since they fully participated in generating it. This means that
the agreement reached is likely to be more enduring.
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6.
Privacy of the matter remains intact.
DISADVANTAGES
1.
Since the process of mediation requires the consent of parties, it is
bound to fail without their good will.
2.
Mediation cannot succeed in circumstances where one of the parties is
bent on causing delay by insisting on litigation.
3.
Similarly mediation will not succeed if parties are desirous of setting
legal industry precedent.
MEDIATION PROCEDURE
The mediation usually starts with a joint session attended by the Mediator the
parties and their representatives. At joint session introductions are made and
the issues briefly highlighted.
Ground rules such as confidentiality
maintaining civility and respecting others etc are also set.
Once the issues have been agreed and listed the Mediator then invites
solutions and options from the parties.
After the initial joint session, the proceedings often move to individual
sessions between the Mediator and each of the parties in turn. These private
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sessions, which are sometimes referred to as caucuses help the parties to be
more forth coming with ideas and suggestions than in the presence of the
other party. If an agreement is reached, it is recorded in a written form and
signed by the parties. It becomes a consent judgment which can be enforced
like any Judgment of the Court.
ARBITRATION
Arbitration may be described as a process where a dispute is put to one or
more neutral third party/parties chosen by the parties for a final, binding and
enforceable decision.
CHARACTERISTICS OF ARBITRATION
1.
Parties submit disputes to a neutral Arbitrator/s for a decision on the
merits.
2.
Each party has an opportunity to present evidence to the arbitrator(s)
in writing or through witnesses.
3.
Arbitration proceedings are more informal than Court proceedings and
strict adherence to evidential and procedural rules is not usually
required.
4.
Arbitrators decide cases issuing written decisions known as Awards.
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5.
Awards are final and binding on the parties and the only recourse lies
in setting them aside.
DIFFERENCES BETWEEN ARBITRATION AND MEDIATION
ARBITRATION
MEDIATION
a.
Binding
- Non binding
b.
Legally enforceable
- Enforceable only
with the Consent
of the parties
c.
Arbitrator decides the dispute
- Parties decide
for themselves
with Mediator’s
assistance
d.
Solution by Judicial evaluation
(predictability)
-Solutions
innovative and
varied
e.
Formal legal procedures
- No formal legal
but not strict rules of evidence
procedures, not
limited by Legal
doctrines
f.
Focuses on rights of parties
- Focuses on
interest of
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parties
g.
Solution is based on past events
- Solutions seek to
incorporate
future
relationships
h.
Process is knowledge based
(knowledge of law)
-
Process
is
based
on the skill of
the Mediator
i.
Winner takes it all (win – lose situation)
- Win – win
situation is
possible
j.
Can be tedious and costly
- Can be speedy
and cost
effective.
SIMILARITY
(a)
Confidentiality
- Confidentiality
(b)
Proceedings held in private
- Proceedings held
in private
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THEORETICAL ADVANTAGES OF ARBITRATION OVER LITIGATION
1.
Expertise of the decision maker
An arbitrator is not imposed on the parties unlike in litigation where
parties have no choice of who should adjudicate their dispute. They
can choose a decision maker who is an expert in the subject matter of
the dispute.
2.
Finality of the Decision
The Courts will always respect a provision that the arbitrator’s decision
is final and binding. This serves to discourage appeals to the Courts
and to make provisions for finality meaningful.
In litigation only
decisions of the Supreme Court cannot be appealed against.
3.
Privacy of proceedings
If the parties wish their proceedings to be shielded from public scrutiny
arbitration which is a private forum is more preferable to the Courts
which will rarely deny public access.
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4.
Procedural informality
Since the parties determine the procedural rules, they can opt for
simplicity and informality. There is no departure from procedures in
litigation.
5.
Low cost
Simplified procedures tend to reduce the costs of dispute resolution.
Costs are also reduced by lack of opportunity to appeal the arbitrator’s
decision.
6.
Speed
The same factors which lead to low costs lead to speedy resolution of a
dispute. In addition, parties need not wait for a trial date to be assigned
to them but can proceed to arbitration as soon as they and the
arbitrator are ready.
In practice, these theoretical advantages are not always fully realized.
MATTERS WHICH CAN BE ARBITRATED
According to S. 6 (1) of the Arbitration Act, any dispute which the parties have
agreed to submit to arbitration may be determined by arbitration.
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However, S. 6 (2) gives the following exceptions:
(a) an agreement contrary to public policy;
(b) a dispute not determined by arbitration in terms of any law;
(c) a criminal matter or proceeding except as permitted by written law or
unless the Court grants leave;
(d) a matrimonial cause;
(e) a mater incidental to a matrimonial cause, unless the court grants
leave;
(f) the determination of paternity, maternity or parentage of a person;
(g) a matter affecting the interests of a minor or an individual under a legal
incapacity, unless represented by a competent person.
As long as there is an arbitration agreement between the parties a Court must
stay proceedings in such a matter at the request of any of the parties. This is
provided for in S.10 (1) of the Act.
This provision not withstanding the following interim measures may be
granted by the Court – (see S. 11 (2)).
(a) An Order for the preservation, interim custody, sale or inspection of
any goods which are the subject matter of the dispute;
(b) An order securing the amount in dispute or the costs and expenses of
the arbitral proceedings;
(c) An interim injunction or other interim order;
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(d) An order to ensure that an award which may be made in the arbitral
proceedings is not rendered ineffectual.
CHARACTERISTICS OF AN ARBITRATION AGREEMENT
An arbitration agreement in a contract is treated as a separate and
independent agreement, which survives the termination of the underlying
contract. This is known as the doctrine of separability/severability. In the
case of HEYMAN AND ANOTHER V DARWIN’S LTD (1942) AC 356 OR ALL
ER 337 Lord Macmillan described an arbitration clause in the following
terms:
“….. an arbitration clause in a contract …
is quite distinct from the other clauses.
The other clauses set out the obligations
which the parties undertake towards
each other …. But the arbitration clause
does not impose on one of the parties an
obligation that affects the other.
It
embodies the agreement of both parties
that if any dispute arises with regard to
obligations, which the one party has
undertaken, to the other such dispute
shall be settled by a tribunal of their own
constitution….
The
purpose
of
the
contract has failed, but the arbitration
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clause is not one of the purposes of the
contract”.
And later in the case of PAUL WILSON & CO. A/S V PARTENREEDEREI
HANNAH BLUMENTHAL, THE HANNAH BLUMENTHAL (1983) 1 ALL
ER 34.
Lord Diplock gave the following 3 characteristics of an arbitration clause:
“the first characteristic is that which was
established by the House in HEYMAN V
DARWIN LTD … an arbitration clause is
collateral to the main contract in which it
is incorporated and it gives rise to
collateral
primary
and
secondary
obligations of its own. These collateral
obligations
survive
the
termination
(whether by fundamental breach, of
condition or frustration) of all primary
obligations assured by the parties under
the other clauses in the contract….”.
The second characteristic of an arbitration clause is that the primary
obligation that it creates is subject to conditions precedent. The clause
comes into operation so as to impose primary obligations on the parties to
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the contract only on occurrence of a combination of future events, which
may or may not occur, viz -
1. The coming into existence of a dispute between the parties as to their
primary or secondary obligations under the main contract, and
2.
The involving of the arbitration clause by a party to the contract who
desires to obtain the resolution of that dispute by the procedure for
which the arbitration clause provides.
The third characteristic is that the subject matter of an arbitration
agreement is not a thing that is susceptible of physical destruction. It is an
agreement by the parties -
DEFINITION OF ARBITRATION AGREEMENT – SECITON 2 ARTICLE 7
OF THE UNCITRAL LAW
Contents:
1.
Appointment of arbitrators (NO.)
2.
Place of arbitration
3.
Law to apply to the arbitration.
Sample of arbitration clause
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Any dispute or difference arising out of or in connection with this agreement
shall be referred to and settled by arbitration (no. of arbitrators appointed)
(place of arbitration) and be conducted in the English language. The law
applicable to arbitration shall be Zambian Law.
THE ARBITRAL PROCESS
The arbitral process starts with a dispute having arisen in connection with
or out of an agreement or contract between parties.
For a dispute to be referred to arbitration, the contract between the parties
must contain an arbitration clause to that effect. If the agreement does not
contain an arbitration clause there must be an ad-hoc arbitration agreement
subsequently signed between the parties referring the dispute to arbitration
(see also S. 6 (1).
The next stage is the constituting or appointment of an arbitral tribunal.
S. 12 (2) –
Parties are free to agree on a procedure of appointing the
arbitrator or arbitrators.
In general the arbitral tribunal may be appointed through one of the
following ways:
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(a) By direct appointment by the parties pursuant to an arbitration
clause or ad-hoc arbitration agreement.
(b) By existing arbitrators – this applies in the case of three member
arbitral tribunal
(c) By an appointing authority; or
(d) By a competent Court of law.
In the event that parties fail to agree on the procedure of appointing the
arbitral tribunal S. 12 (3) provides that the appointment shall be as follows:
(a) In an arbitration with 3 arbitrators, each party shall appoint one
arbitrator, and the 2 arbitrators so appointed shall appoint the third
arbitrator. If a party fails to appoint an arbitrator within 30 days of
receipt of a request to do so, or if the 2 arbitrators fail to agree on the
third arbitrator within 30 days of their appointment, the appointment
shall be made upon request of a party, by an arbitral institution;
(b) In an arbitration with a sole arbitrator, the arbitrator shall be
appointed, upon request of a party by an arbitral institution.
Sub Section 4 also provides:
Where under an appointment procedure agreed upon by the parties
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(a) a party fails to act as required;
(b) the parties or 2 arbitrators are unable to reach an agreement; or
(c) a third party including an arbitral institution fails to perform
any function entrusted to it under such procedure.
Any party may request the Court to take the necessary measures.
According to S. 12(5), a decision on a matter entrusted by Subsection (3) or
(4) to the court or to an arbitral institution shall not be subject to appeal.
Section 12(6) states that the court or arbitral institution, in appointing an
arbitrator, shall have due regard to any qualifications required of the
arbitrator by the agreement of the parties and to such considerations as are
likely to secure the appointment of an independent and impartial arbitrator.
That in the case of a sole arbitrator or third arbitrator, shall take into
account as well the advisability of appointing an arbitrator of a nationality
other than any of the nationalities of the parties.
Section 13 provides for the appointment of substitute arbitrators. It
provides that where an arbitrator’s mandate is terminated after a
successful challenge by one of the parties on ground of the arbitrator’s
lack of impartiality or independence; or because of his withdrawal
from office for any other reason or because of the revocation of his
mandate by the parties or in any other case of termination of his
mandate, a substitute arbitrator(s) will have to be appointed.
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Section 13 (1) provides inter alia, that a substitute arbitrator shall be
appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced.
Section 13 (2) provides that
“Unless otherwise agreed by the parties –
(a) Where the sole or other presiding arbitrator is replaced,
any hearing previously held shall be held afresh; and
(b) Where an arbitrator, other than a sole or presiding
arbitrator is replaced, any hearing previously held may be
held afresh at the request of any party.”
See also Subsection (3), which reads:
“Unless otherwise agreed by the parties, an order or ruling
made prior to the replacement of an arbitrator under this article
is not invalid solely because of a change in the composition of
the arbitral tribunal”.
THE ROLE OF CHAIRMAN OF TRIBUNAL
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The Chairman of a three- member arbitral tribunal is also an
arbitrator. As such he is vested with jurisdiction from the date of
his appointment just like the party appointed arbitrators. Where
there is a difference among the three arbitrators, the majority vote
carries the decision. If a majority vote cannot be achieved then the
decision of the chairman shall prevail.
OUALITIES AND QUALIFICATIONS OF ARBITRATORS
Whether the arbitration is domestic or international, Section 12 (6)
of
the
Act
gives
the
following
requirements
as
necessary
qualifications for appointment of an arbitrator:
1. The qualifications imposed by the parties in their
agreement
The arbitration clause may also stipulate
the qualifications desired by the parties of the person they
wish to arbitrate their dispute e.g. a lawyer, civil engineer,
accountant etc. The appointment will not be valid unless the
nominee meets all the qualifications agreed by the parties. It
also follows that any award made by such unqualified
arbitrator is void.
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2. Independence of the Arbitrator
The concept of independence relates to questions, which may
arise out of the relationship between an arbitrator and one of
the parties. It may be financial or otherwise. An independent
arbitrator is one not liable to perform under pressure from or
dependent upon a party on account of the relationship. An
arbitrator should have no direct professional relationship
with one of the parties or financial interest in the outcome of
the arbitration. In case of a sole arbitrator in an international
arbitration, he should not be of the same nationality as that
of either of the parties. This is aimed at avoiding suspicion
of bias or favouritism arising from nationality.
3. Impartiality
Partiality relates to the bias or prejudice of an arbitrator
either:
(a) In favour of one of the parties
(b) In relation to the issue in dispute
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Partiality of an arbitrator will be evident in the following
circumstances:
(a) If he applies a procedure in the arbitration which is not in
accordance with the notions of arbitral due process of speed
or equality of treatment of the parties.
(b) If he fails to observe the rules of natural justice.
TERMINATION OF ARBITRATOR’S MANDATE
The arbitrator’s mandate may be terminated in the following
circumstances:
1. By virtue of a successful challenge of an arbitrator’s mandate
by a party under Article 13 (2) of the Model Law on the
grounds provided under Articles 12(2) of the Model Law.
2. Failure or impossibility of the arbitrators to act in the
following circumstances:
(a) If the arbitrator is unable to perform his functions e.g. if
he is incapacitated;
(b) If the arbitrator fails to act without undue delay (see
Article 14 of the Model Law).
3. By an agreement of the parties at any time revoking or
terminating his mandate;
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4. By the arbitrator withdrawing from office due to any other
reason e.g. his own doubts as to his independence or
impartiality;
5. When the arbitrator becomes functus officio i.e. performance
of his mandate to its conclusion when he has made his final
award (see Article 32 (3) of the Model Law).
PROCEDURE FOR CHALLENGING ARBITRATOR
An arbitrator’s appointment can only be challenged by a party if
there are valid grounds for doing so (see article 12 (2) of the Model
Law). This restriction in intended to prevent parties from disrupting
the arbitral proceedings by making frivolous challenges. To preempt such challenges, it is incumbent upon the arbitrator to
disclose to the parties any circumstances, which are likely to give
rise to a possible challenge in respect of his impartiality and
independence. Where possible, this should be done at the time of
his appointment.
The challenge procedure is specified in Article 13 of the Model Law
as follows:
Either: (a)
the parties may agree on the
procedure for challenging the
arbitrator (Article 13 (1),
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or
(b)
if there is no agreement, the party making the
challenge should within 15 days of becoming
aware of the constitution of the tribunal or
becoming aware of the circumstances giving
rise to justifiable doubts as to the arbitrator’s
impartiality or Independence - send its or his
written statement of reasons for the challenge
to the arbitrator (Article 13 (2)).
The following options are available to the challenged arbitrator:
1. To withdraw from his office. This does not mean acceptance
of the validity of the ground of challenge (Article 14 (2)).
2. To withdraw from office if the other party agrees to the
challenge. This also does not necessarily mean acceptance of
the grounds of the challenge.
3. To constitute himself into a tribunal for purposes of deciding
the challenges. When he does so, he should hear both parties
on the grounds of the challenge.
If after hearing the parties, the arbitrator decides that the challenge
is successful, he must withdraw. If he decides otherwise, he may
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continue with the arbitration. If the challenging party is dissatisfied
with the arbitrator’s decision, he must within 30 days from the date
of receiving the notice of the challenged arbitrator’s decision apply
to the Court for a determination on the challenge. The Court will
not be hearing the matter in an appellate capacity but will be making
a decision on the merits of the challenge itself. The Court’s decision
is final and not subject to appeal.
PRELIMINARY MEETING
After an arbitrator has accepted the appointment, the next stage is
to convene a PRELIMINARY MEETING which is attended by the
parties and their legal/other representative. A Preliminary Meeting
is like a Scheduling Conference in the Commercial Registry because
it is at this meeting that the Arbitrator and the parties agree on the
future conduct of the arbitration and an Order for Directions is
subsequently given.
The agenda for the preliminary meeting will usually include the
following:
1. To see the original agreement
2. To identify the issues in dispute
3. Arbitrator’s schedule of charges
4. Whether parties are represented or not
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5. The Arbitration Act pursuant to which the arbitration is
commenced.
6. The Rules to apply to the Arbitration
7. Reasoned Award (see S.16 (2) of Act No. 19 of 2000)
8. Programme for the submission of:
(i)
Statement or Points of Claim
(ii)
Defence and Counter Claim
(iii)
Reply to Defence and Counter Claim
(iv)
Defence to Counter Claim
9. Discovery
(i)
Procedure
(ii)
Exchange of List of Documents
(iii)
Inspection of Documents
(iv)
Bundle of Documents (Agreed) - when to be provided
to the Arbitrator before hearing
10.
Liberty to Apply
11.
Whether Documents only Arbitration
12.
Hearing
(i)
Venue
(ii)
Estimated devotion (dates of hearing)
(iii)
Procedure
13.
Expert Witnesses
14.
Witnesses of Facts
Exchange of witness statement and when
15.
Communication with the Arbitrator – copies to
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be sent to the other party
16.
Transcript of hearing
17.
Oath
18.
Opening Addresses – reduced to writing
- date of service
19.
Final submissions – reduced to writing
- date of filing
20.
Taxation of costs of Award and Reference
-by Taxing Master/Registrar
of High Court
- By arbitrator
21.
Any Other Business – Claimant
- Respondent
JURISDICTION OF AN ARBITRATOR
In addition to challenging an arbitrator for lack of impartiality or
independence, a party can also challenge the arbitrator for lack of
jurisdiction.
In general, an arbitrator’s jurisdiction is derived from the consent of
the parties.
An arbitrator has no jurisdiction in the following
circumstances:
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1.
Where an agreement between the parties does not contain an
arbitration clause unless they subsequently enter into an adhoc agreement to arbitrate.
2.
If the arbitration agreement is invalid under the law which
the parties have subjected it to (see S. 6 (2)) of the Arbitration
Act.
3.
If the arbitrator has not been validly appointed e.g. if he does
not meet the prescribed qualifications.
4.
If the issue in dispute is not one that was contemplated by
the parties.
For example, if an arbitration clause is for
contractual disputes, a dispute between the parties arising
out of tort would not be within the scope of the arbitration
clause.
However, an arbitrator is vested with one statutory jurisdiction,
namely: his competence to decide and rule on his own jurisdiction.
It is commonly referred to as KOMPETENZ KOMPETENZ. It arises
only if his jurisdiction is challenged.
Article 16 (1) of the Model Law states that the arbitral tribunal may
rule on its own jurisdiction including any objections with respect to
the existence or validity of the arbitration agreement.
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The advantage of this doctrine avoids delays and difficulties when a
question is raised as to:
(a) Whether there is a valid arbitration agreement
(b) Whether the tribunal is properly constituted
(c) What matters have been submitted to arbitration in
accordance with the arbitration agreement
According to Article 16 (2) a plea that the arbitral tribunal does not
have jurisdiction shall be raised not later than the submission of the
Statement of Defence.
Article 16 (3) – the arbitral tribunal may rule on its jurisdiction either
as a preliminary question or in an award on the merits. A party
dissatisfied with the arbitral tribunal’s ruling may request the Court
to decide the matter and the Court’s decision shall not be subject to
appeal.
THE AWARD
Section 16(1) - the award shall be in writing and shall be signed by
the Arbitrator or Arbitrators.
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In arbitral proceedings with more than one arbitrator, the signature
of the majority of all members shall suffice provided that the reason
for any omitted signature is stated.
Section 16 (2) – the award shall state reasons upon which it is based
unless otherwise agreed by the parties.
Section 16 (3) – the award shall state its date and the place of
arbitration and it shall be deemed to have been made at that place.
Article 31 (4) - after the award is made, a copy signed by the
arbitrator’s shall be delivered to each party – subject to the payment
of his fees.
On request by any of the parties, an award can be corrected or
interpreted by the arbitrator. The arbitrator can also correct the
errors at his own instance or initiative. (See Article 33).
RECOURSE AGAINST AWARD
An award rendered by an arbitrator is final and binding on the
parties see Section 20 (1) of the Act the only recourse against an
award is to set it aside pursuant to Section 17 (2) of the Act which
sets out the grounds for setting aside.
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RECOGNITION AND ENFORCEMENT OF AWARD
An arbitral award shall be recognized by the Court as binding
regardless of the country in which it was made. The party in whose
favour the award is made files it in court for it to be recognized as
valid and binding.
Recognition alone is sufficient if the losing party willingly pays the
amount awarded to the successful party. If he is unwilling, the
successful party can enforce the award. According to Section 18 (1)
an arbitral award, irrespective of the country in which it was made,
shall be recognized as binding and upon application in writing to the
competent court shall be enforced subject to the provisions of
Section 19 (1). Recognition or enforcement of an arbitral award may
be refused under the grounds stated in Section 19 of the Act; the
grounds are similar to those stated in Section 17 (2) for setting aside
an award.
Recognition and enforcement of foreign arbitral awards is governed
by
the
CONVENTION
ON
THE
RECOGNITION
AND
ENFORCEMENT OF FOREIGN ARBITRAL AWARDS (the New York
Convention) SECOND SCHEDULE ( Article I, II, III and IV are
pertinent).
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