Arbitration is a process in which a third party neutral or an odd numbered panel of neutral persons render a decision on the merits of a case.
The statute that deals with arbitration in Kenya is the Arbitration Act (1995) Act No. 4 of 1995 Cap 49 Laws of Kenya. This statute commenced on the 2nd of January 1996 by virtue of Legal Notice No. 394 of 1995. This date is important because prior to this statute we had an Arbitration Act that was based on different legal principles for instance under the repealed or previous Acts , the courts had a wider role in Arbitration than they do under the current Act. Parties to Arbitration under the previous statute had recourse to the High Court more than they do under the current Act. For instance under the old Arbitration Act a party could challenge an award of an arbitrator on the grounds that the arbitrator has misbehaved in the course of arbitration. Misbehaviour on the part of an arbitrator suggested that it was a ground on which the award could be challenged which is not the case under the current law. Some cases may suggest that one might have recourse to the High Court when it is not so. Under the current Act the situations where one can go to court to complain after arbitration are limited.
The current Arbitration Act is based on a Model of the United Nations Commission on International Trade Law (UNCITAL) which was adopted in 1985 with a view to encouraging arbitration and processes that would have global recognition. United Nations came up with a model of a statute that has been adopted by many countries. The essence of the Act is that it provides for very broad party autonomy in fashioning the Arbitration process. This means that parties who enter into an arbitration agreement are to a large extent at liberty to determine the process of adjudication of the disputes that will go to arbitration. Autonomy for example in deciding who the arbitrator will be , the venue of arbitration , the substantive law that will apply to that agreement or arbitration. Once a dispute has arisen , they also have autonomy with regards to how the arbitral process itself will be conducted. To a large extent , the Arbitration Act provides the default position in very many respects so that if parties in an arbitration agreement have not provided the number of arbitrators , then the statute will tell you that the default position is the presumption that the parties intended for one arbitrator.
WHAT IS AN ARBITRATION AGREEMENT?
According to Section 3 of the Arbitration Act Arbitration Agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. A distinction is made or liberty is given to the parties to choose that only certain types of disputes will go to arbitration and not all of the disputes that arise will go to arbitration. An example is where you have a tenancy agreement between a tenant and a landlord which provides that there will be review of rent after every two years of the term under the tenancy and the tenancy agreement may proceed to say that at the time of review the margin by which rent will be increased will be by agreement of the two parties. It may proceed to state that if there is a dispute as to what the margin should be , then the matter should be referred to arbitration.
Effectively what those two parties have done is to select certain type disputes that would arise under that agreement and decide that they are the only two that would go to arbitration if they arose. Parties are at liberty to select certain disputes and agree that those should go to arbitration while others may remain for determination by the courts.
The other important distinction made by the statutory definition is that parties can anticipate disputes and parties can also decide to go into arbitration after disputes have already arisen i.e. an agreement to arbitrate may be made in respect of existing disputes between the parties or in respect of disputes that may occur in the future and in each of these cases that agreement to refer either existing or future disputes to arbitration is an arbitration agreement.
Traditionally an agreement to refer future disputes to arbitration was referred to as an Arbitration Agreement whilst an agreement made after disputes have arisen was traditionally referred to as a submission or a submission agreement. But in light of the statutory definition that distinction between submission and agreement is no longer relevant.
Section 2 - except as otherwise provided in a particular case the provisions of the Act shall apply to both domestic and international arbitration.
WHAT ARE THE FORMALITIES/FORMAL REQUIREMENTS
This is dealt with under Section 4 of the Arbitration Act.
The formal requirements under the Arbitration Act are set out under Section 4 of the Arbitration Act and the first thing the statute provides for is that an arbitration agreement may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement all together. So for example in a contract between the government and a building road contractor , the contract will set out what the works are and the instructions from the engineer and one of the clauses in that agreement may simply be the clause that says any or all the disputes arising from this contract shall be referred to Arbitration. That is one option.
The other option is where the contract is silent on whether it should bind the parties to arbitration.
An Arbitration Agreement shall be in writing , it is a requirement that it be not oral. Section 4 (3) an arbitration agreement is in writing if it contains
1. a written document by the parties;
2. an exchange of letters; telex , telegram or other means of telecommunications which provide a record of the agreement;
3. an exchange of statements of claim and defence in which the existence of the agreement to arbitrate is alleged by one party and not denied by the other party.
Section 4 (4) … the reference in a contract to a document containing an arbitration clause shall constitute an arbitration agreement if the record is in writing and the reference is to make that arbitration clause part of the contract. This is talking of incorporation of an arbitration agreement by reference.
CONSTITUENTS OF A PROPERLY WORDED ARBITRATION CLAUSE
In practice not both parties to an agreement are as keen to have the dispute resolved. The disputants are usually at different positions. So if you have a clause that facilitates a protraction of the process then the Respondent will capitalise on it since he is not interested in having the matter resolved. It is thus advisable that a basic arbitration agreement or clause should provide some essential details. For if an arbitration clause simply provides that disputes to be settled by arbitration questions would arise as to how the arbitrator is to be appointed , what qualifications the arbitrator should have , where the arbitration should take place , how many arbitrators , what substantive law is to apply to that contract , what procedural law is to apply to that contract etc.
Is there a distinction between the law governing the contract and the law governing the arbitration?
There is a distinction between the law governing the contract and the law governing arbitration. For instance if a contract stipulates that in case of a dispute the substantive law to apply will be Kenyan law , then any other arbitration law will apply. It is important if one is to avoid conflict in basic matters that the arbitration clause should be as clear in these matters as possible.
WHAT ARE THE ESSENTIAL INGREDIENTS
1. PROVISION WITH REGARD TO THE NUMBER OF ARBITRATORS
Section 11 of the Arbitration Act provides that the parties are free to determine the number of Arbitrators and section 11(2) failing a determination by the parties on the number of arbitrators , the number shall be one. The nature of the dispute should dictate how many arbitrators to go for.
2. METHOD OF APPOINTMENT
A lot of time can be spent and wasted between parties on this question once a dispute has arisen. The default position is that if the parties do not agree on the method of appointing then they can apply to the court to appoint Section 12 of the Arbitration Act. There is a drawback in doing that , firstly time is of the essence and you will lose so much time like a few months. Then there is the question of the costs to be paid to court over the process. So if the procedure for appointment had already been provided for in the arbitration clause one can avoid the delay and the cost. Parties will choose an institution if they are not agreeable on an arbitrator , they can approach another institution i.e. the chartered institute of arbitrators to appoint. They can for example decide if there is a dispute as to method the chairman of LSK becomes the appointing authority.
3. CHOICE OF THE RULES TO APPLY IF ANY
The Arbitrator has power to control the preparations for hearing. He is obliged to exercise that power and to do so by reference to demanding standards. Also an arbitrator is involved in each case during its interlocutory stages. If he makes proper use of his powers he can and should shape the preparations so as to eliminate unnecessary costs. In particular he can direct the advocates , the experts and even the parties to get to grips with identifying what the issues really are and how best to present them. He can decide a preliminary issue quickly; or it may be enough if he merely indicates his provisional views. In this way both the issues themselves and the costs that have to be incurred in preparing for them , can be greatly reduced.
4. TIME FRAMES
Time frames are matters that should be spelt out in the Arbitration Agreement for the following:
(i) the time limit for the giving of the notice of claim
(ii) the time limit for giving of notice to appoint an arbitrator;
(iii) and the time limit for the commencement of arbitration.
Time frames give certainty in any industry and a time frame within which the parties should agree is essential.
5. REMUNERATION:
Parties may decide how the arbitration costs are to be shared , whether the loser in the dispute bears the cost or both parties provide for the costs.
Section 12 of the Arbitration Act provides that parties are free to agree on procedure of appointment and failing such agreement where parties have provided for 3 arbitrators the presumption is that each party shall appoint one arbitrator each and the third one is to be appointed by those two.
There is a common misconception that in situations where you have 3 and each party appoints one that the arbitrators are the agents of the respective parties , they are not , arbitrators must always remain impartial.
In arbitrations where provision is made for one arbitrator then the parties should agree on the person to be appointed failing which an application is then to be made to the High Court.
Section 12 of the Arbitration Act - to read
No person shall be precluded by reason of that person’s nationality from acting as an arbitrator , unless otherwise agreed by the parties.
(2) The parties
The Chartered Institute of Arbitrators has published rules and it is open to parties to an arbitration agreement to provide in that agreement that for instance the Arbitration Rules of the Chartered Institute of Arbitrators shall apply. For instance these rules will provide for how parties to an arbitration agreement can approach the institute to appoint an arbitrator where the parties are unable to agree. They also provide the procedure to be adopted by the arbitrator upon appointment. To a large extent the rules in arbitration are influenced by the rules of pleadings in a civil process e.g. the Chartered Institute of Arbitrators Rules provide that the claimant should make a statement for a claim within 21 days , 21 days to file defence and 14 days to file a reply..
It also provides for what is to happen if one of the parties does not comply.