It is important that one is clear in terms of how they want to structure an arbitration agreement.
Barlany Car Hire Services Ltd v. Corporate Insurance
In this case an application was made under Section 6 of the Arbitration Act to Stay Proceedings. There was also a point taken on a preliminary basis that no claim could be made under an arbitration agreement in that case because a claim had not been raised within the time limit of 12 months. The relevant arbitration clause or arbitration agreement was to the effect that all differences under the policy should be referred to the decision of an arbitrator to be appointed by the parties. And if they cannot agree on a single arbitrator then each party was required to appoint an arbitrator within one calendar month of the request to do so and the two arbitrators would then appoint an umpire who would sit with the arbitrators and preside at their meetings. The clause also provided that if the company disclaimed liability the claim should then be made or commenced within 12 months from the date of disclaimer.
In this case the insured vehicle was stolen a claim was made on the insurance company which repudiated liability on the 9th August 1994. There was an attempt to appoint an arbitrator in April of 1995 which did not materialise. An application was then made to the Court under Section 12 of the Arbitration Act for the Court to appoint an Arbitrator. That application was dismissed by the Court as being premature and finally, no arbitrator was ever appointed and the insured then decided to go to court to try and pursue its claim there and that was well after the 12 months had lapsed.
The court essentially upheld the argument that parties under an arbitration agreement are at liberty to contract a shorter limitation period than that which is prescribed under the limitation of actions Act. The other important point that the court makes is that the Plaintiff had not complied with the Agreement as set out in the arbitration clause as to how or as to the manner of appointing an arbitrator. According to the High Court, the Arbitration Agreement provided 4 steps for the appointment or for the constitution of the Tribunal.
1. Once the insurance company repudiated liability the parties were then to agree or attempt to agree on a single arbitrator;
2. If a single arbitrator was not agreed upon, either party could give a 30 days notice to the other side for the appointment of own arbitrator and to require the other party to appoint its own arbitrator;
3. If the parties appoint “their respective arbitrators” then those two arbitrators are required to appoint the umpire.
4. If either party fails to appoint then an application can then be made under Section 12 to the Court to appoint.
The important points that emerge from this decision are that
(a) the drafting of the arbitration clause is a very important task
(b) once parties have agreed on a process of appointment including time limits the courts will honour that agreement and
(c) a party may easily protract the process of commencing arbitration and again an advocate can avoid some of these consequences in provided a well considered properly worded arbitration agreement.
Section 11 of the Arbitration Act stipulates that parties are free to determine the number of arbitrators. Usually an arbitration agreement will provide for either a sole arbitrator or two arbitrators with an umpire as has been demonstrated by the clause in Barlany or three arbitrators. But theoretically speaking, Section 11 permits parties to have any number of persons as arbitrators which means one can appoint even numbers.
Important when drafting the arbitration agreement one is alive to most of these issues so that one does not provide for two arbitrators and one can run into serious problems.
An even number is undesirable.
Section 11 (2) provides that where the Arbitration Agreement does not stipulate the number of arbitrators, the presumption is that one arbitrator is intended and indeed in practice the provision for a single arbitrator is the norm.
By the time the parties are seeking arbitration, there are already differences and therefore it is difficult for them to sit down and agree on one arbitrator where the clause provides for one arbitrator. It would be helpful to provide that the parties go to the Chartered Institute of Arbitrators in case of dispute.
One of the problems that is involved or arises in constituting the tribunal in a sole arbitrator scenario is
(i) After the dispute has arisen, the task of agreeing on an arbitrator becomes difficult because in the atmosphere of difference the parties are hardly in a position to agree on many things; this is a difficulty.
(ii) Section 12 then says that if the parties fail to agree they make an application to court and when this happens the court will disregard the proposed arbitrators and even if the proposed arbitrators were experts in that certain field, the court will decide and name other arbitrators.
(iii) Where a dispute has arisen and your client asks you to propose names for the persons to put forward as likely arbitrators, how is one to do this? It is safer to approach the chartered institute for them to assume that responsibility lest you name an arbitrator and the client loses and continues to blame you for your choice of arbitrator. Firstly the parties may not have the reservoir of information with regard to who should be nominated as suitable arbitrators. An institution may be better placed to do that and secondly the parties’ advisers are usually reluctant to suggest names. What procedure would one employ to come up with one name? you could agree to pick lots, elimination method with a criteria i.e. must be an architect, Q.S etc. Section 12 (3) permits you to agree on a procedure.
All these disputes can be avoided by substantially suggesting a name in advance as by nominating the arbitrator in advance e.g. should disputes arise they should referred to arbitration by Mr. Onyango.
Problems with two or more arbitrators
1. The cost, where an arbitration agreement stipulates two or more arbitrators, it is a costly arrangement. The difficulties in doing this would be, the two arbitrators may not agree on a third, when this happens Section12 (3) kicks in. The advantage is that the party who one party nominates does not require consultation. Another problem would be that constituting a 3 panel tribunal is a time consuming exercise. When it comes to charging, there are problems, how do you justify paying more to one arbitrator for a certain job to the parties who are paying. There are however advantages, if you have a dispute that cuts across industries i.e. you have an engineer, lawyer, architect, then you are well equipped with the expertise from all the fields. When it comes to the final decision if all arbitrators cannot agree, then there is a problem. But Section 30 provides for a majority decision. When it comes to writing the award, there are still problems in terms of logistics, if the arbitrators live in different cities or town, how do you get 3 people together to expeditiously deliver the award. All these go back to the initial step of when one is drawing the original agreement and all these matters have to be considered.
There is a distinction between a tribunal of 2 arbitrators and an umpire and a tribunal of 3 arbitrators. The umpire usually comes in to break ties between the two arbitrators and in the case of 3 arbitrators they are all substantive in the sense that they all have an input.