Fortior's Arbitration Guide - Lecture 1 - How to Commence Arbitration?
This lecture explains how to commence arbitration proceedings and prepare a notice of arbitration.
Welcome to the first lecture in the International Arbitration accompanying Fortior’s Law Arbitration Guide. The lecture is presented by Vitaliy Kozachenko, Managing Director of Fortior Law S.A
Topics Covered In This Lecture
In this lecture I will explain: what arbitration is; discuss various types of arbitration clauses and the importance of following the arbitration clause when commencing arbitration proceedings; mention some legal principles, which determine how the arbitration should be commenced when the arbitration clause does not contain any guidance; provide the list of steps necessary to commence arbitration proceedings; and explain what is the notice of arbitration, the document by which arbitration proceedings are commenced, should contain.
Arbitration: Private Dispute Resolution Process
Arbitration – is the private and consensual dispute resolution process, which results in binding decisions, enforceable almost everywhere in the world. Private - means that for the most part arbitration proceedings are conducted without the involvements of the State and without the involvement of the public. Usually, arbitration proceedings are confidential. In arbitration, parties decide on the procedure, select their arbitrators, decide where hearing are out to be held and so forth. It is also the parties, who pay for the entity of the arbitration procedure, including the fees of the arbitrators, the fees of the arbitral institutions, such as International Chamber of Commerce, the fees of the hearing facilities and all other costs
Arbitration: Consensual Dispute Resolution Process
Consensual – means that in order to use arbitration, parties have to agree to it. They mostly do so by inserting arbitration clauses in their contracts or by concluding separate arbitration agreements.
Arbitration: Results in Binding Awards Enforceable Almost Everywhere in the World
One of the greatest benefits of arbitration is the result in binding decisions, usually called awards, enforceable almost everywhere in the world. Most countries laws provide for recognition and enforcement of the awards made locally in the same manner as judgements of the local courts. The procedures for such recognition of enforcement are usually simple and fast. Recognition of awards made abroad is governed by the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. 159 countries are parties to the Convention. Pursuing to the Convention, an award made in one-member country should be recognized and enforced in all other member countries, subjects to very limited exceptions.
How to Commence Arbitration: 1. Read Carefully Your Arbitration Clause
If you want to commence an arbitration, the first thing you must do is to read carefully the arbitration clause in your contract. Arbitration clause comes in many different shapes and forms. Some may be half a page long, and some may be just 5 words. Since arbitration is a consensual dispute resolution process, both you and Tribunal must follow the arbitration clause. Failure to follow these requirements might lead to a delay or in worst cases dismissal of your claim or unsuccessful appeal against the Tribunal’s decision. Here is a standard arbitration clause, proposed by the London Court of International Arbitration:
“Any dispute arising out of or in connection with this contract, including any questions regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be [one/three]. The seat, or legal place of arbitration, shall be [City and/or Country]. The language to be used in the arbitral proceedings shall be [ ]. The governing law of the contract shall be the substantive law of [ ] …”
And here is a typical arbitration clause used in the charter party for a sea-going vessel:
“The place of General Average and arbitration proceedings to be London/ English law to apply.”
Having located the arbitration clause in your contract, you should ask yourself the following two questions.
Firstly, what is the scope of the arbitration clause? - does it cover the party whom you want to sue and the relevant dispute? If not, then you should go to State Courts and these lectures and Arbitration Guide are not for you. We had a case where our client’s opponent, the Claimant, commenced arbitration proceedings both against our client personally and our client’s company. The client was the owner and Director of the company; however, he only signed the contract with the Claimant in his capacity as the Director of the company and not at his personal capacity. Ultimately, the Tribunal ruled that it had no jurisdiction over the individual client because the client was not covered by the arbitration clause.
Secondly, you should ask yourself is whether the arbitration clause itself provides how arbitration proceedings should be commenced?”. Some clauses provide that arbitration is to be commenced by delivering to your contractual counterparty a request that your dispute is referred to arbitration. In which case, that it is what you must do. The first clause I cited in comperes by reference to the LCIA Rules. Article 1 of LCIA Rules, provides that arbitration must be commenced be delivering to the registrar of LCIA Court a written request for arbitration and paying the registration fee. The Article then goes into list the requirements, which every request for arbitration must fulfil. If your contract contains the LCIA Arbitration Clause, these are the requirements that you must follow.
How to Commence Arbitration: 2. Consider the Law of the Seat
If you are not subject to any arbitration rules, and your arbitration clause does not itself provide how arbitration proceeding should be commenced, then you should look at the Law of the Seat of the Arbitration. If your arbitration clause mentions London, then you should look at the Arbitration Act 1996, section 14 of the Act, which you can see here (picture) explains how the arbitration proceedings should be commenced. In essence, what you have to do is to serve a written notice on your opponent and any arbitral institutions calling for the appointment of the Tribunal. Where these are your only requirements, you may be able to commence the arbitration by simply writing to your opponent something like this:
We refer to our contract dated 30 July 2018.
Pursuant to the contract we were obliged to deliver you one lawnmower. We have done so. In breach of contract, you have failed to pay for the lawnmower. We are therefore entitled to seek from you purchase price and/or damages in the amount of the purchase price.
The contract provides that all disputes arising out of it are to be referred to arbitration in London, with each party nominating one arbitrator.
We hereby commence arbitration and require that you appoint your arbitrator.
We hereby nominate Mr Vitaliy Kozachenko as our arbitrator. He may be reached at email@example.com. “
There is English case law to the fact that even shorter notices of arbitration are effective. For example, at the Agios Lazaros, the High Court held that the message saying:
“Please advise your proposals in order to settle this matter or name your arbitrators expecting your reply “was sufficient to commence arbitration."
How to Commence Arbitration: 3. Steps Normally Required to Commence Arbitration
In my experience, if you do all of the following it should normally be sufficient to commence the arbitration in any circumstances. Firstly, if your arbitration clause provides for arbitration before an institution, such as LCIA, you must pay the institution’s fee. Guidance on what the fee is and how to pay it, is normally available on the institution’s website. Secondly, you must prepare a request for or notice of arbitration. Thirdly, you must deliver your notice or request for arbitration to your opponent and an institution, if any. Make sure that you keep a proof of delivery, in case of any disputes at the later stage as to whether the notice of arbitration has been delivered and when.
How to Commence Arbitration: 4. What a Notice of Arbitration Should Contain
Your notice of Arbitration should contain the following information:
Your full name and contact details, where the arbitrator and other parties can reach you.
Respondent’s full name and contact details
Full text of the arbitration clause
Brief description of the contract, the facts and the relief you seek (such as damages, injunctions, or the order that your counterparty does or does not do something).
The fact that you are commencing arbitration
Arbitrator nomination, if necessary (containing name and contact details)
Confirmation that the institution fee, if any
Explanation of how the notice will be served
Any procedural proposals (for example, you may propose that your arbitration be seated in the certain jurisdiction, if your arbitration clause does not specify the Seat).
Complying with these requirements should normally be sufficient to commence arbitration. If your opponent tells that it is not sufficient, please contact us for advice.
I hope this lecture was useful. If you require more information, please download our Arbitration Guide at www.fortiorlaw.com. Our Arbitration Guide provides more information as to how to commence the arbitration proceedings and it contains template notice of arbitration and the template response to the notice. Alternatively, get in touch with one of our lawyers at firstname.lastname@example.org.