COMMERCIAL ARBITRATION: A Short Introduction
INTRODUCTION
Alternative dispute resolution methods are increasingly becoming more attractive. This is more so in commercial dispute resolution. The Constitution of Kenya acknowledges alternative dispute resolution methods. This is under Article 159(2)(C) of the Constitution that provides that:
“Alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted…”
The purpose of this article is to discuss the advantages, merits, and demerits of arbitration as an alternative dispute resolution method, in commercial enterprises. It is anticipated that the reader will be enlightened on the operations of arbitration agreements, and the arbitration process in general.
COMMENCEMENT OF ARBITRATION
Arbitration in Kenya is governed by the Arbitration Act Number 4 of 1995.
The act applies in disputes, especially commercial disputes, where there is an arbitration agreement signed by the parties in the dispute. Most commercial agreements do provide for arbitration as a dispute resolution method.
Under Section 4 of the Arbitration Act, an arbitration agreement can either be in the form of a clause in a contract or a separate agreement. Further, it must be in writing through a document signed by both parties, or an exchange of communication where both parties acknowledge the existence of the agreement.
Once there is an arbitration agreement, any dispute will have to be resolved through arbitration. Should one party to the dispute decide to override the agreement and move to court for the substantive determination of the dispute, the other party can move to the court to halt proceedings and have the matter referred to arbitration.
Notwithstanding the above, any party still has the right to move the court for interim reliefs pending referral of a dispute to arbitration. This is provided for under Section 7 of the Act.
Appointment of an Arbitrator
Good arbitration clauses will always provide for a method of appointment of an arbitrator. The procedure set out would have to be followed to the letter.
Under Section 11 of the Arbitration Act, the parties to a dispute are free to agree on the number of arbitrators who will constitute the arbitral panel. If do not have such an agreement, it is then assumed that the arbitrator shall be one.
Under the Act, if the parties are to agree on an arbitrator and one party fails to propose an arbitrator within 14 days, the other party will write to the defaulting party informing the defaulting party that the arbitrator the other party has selected will be appointed as an arbitrator in another 14 days if the other party does not communicate.
In my experience, I have however found it useful to speed up the process of appointment of an arbitrator through moving the court to break stalemate and compel the appointment of an arbitrator, where one party ( especially the offending party) frustrates the process of appointment of the arbitrator.
Advantages of an Arbitration Process
An arbitration process has several advantages. One of the major advantages is that it does save time. In commercial disputes, time is money. Bussiness efficacy demands that disputes be resolved within the shortest time possible. Arbitration affords commercial entities the opportunity to have disputes resolved within a relatively shorter period as compared to litigation in court.
The arbitration process offers flexibility of process that litigation through courts does not. While the basic rules of substantive justice are maintained, rules of civil procedure are often relaxed, with the arbitrator choosing to focus majorly on the substantive issues at hand. Its flexibility compliments its speedy nature.
Arbitration also affords a high level of privacy which is not the case in courtroom litigation. This is because courts are public places, unlike arbitral tribunals. Privacy becomes important where the dispute involves the disclosure of sensitive information such as trade secrets, intellectual property blueprints e.t.c.
Disadvantages of the Arbitration process
The major disadvantage of arbitration as a process is that it is more costly as compared to courtroom litigation. On average, arbitrators are paid from Kshs 15000/= to Kshs 50,000/= per hour, depending on their rank. This is more costly compared to court litigation which may only be a fraction of that cost.
The cost factor is an important factor for small and medium-sized enterprises in the determination of whether or not to include an arbitration clause in their business contracts. Some big enterprises take advantage of smaller enterprises by getting them into costly arbitration that the small enterprises are not able to afford, thus hampering the resolution of the dispute.
CONCLUSION
In conclusion, the process of arbitration is favorable for the speedy resolution of disputes of a commercial nature. Where there is a delay in the appointment of arbitrators, we do advise that interim applications be made to the High Court to mandate such appointments. It remains imperative on all enterprises to take into account the cost factor in deciding whether or not to agree to arbitration as a dispute resolution process.
