Article by Rod S. Attride-Stirling and Jai Cedenio
Introduction
In Bermuda, there exist two separate legal regimes for arbitration:
- The Arbitration Act 1986- applies to domestic arbitrations ie. those arbitrations that are not within the scope of Art.1 of the Model Law.
- The Bermuda International Conciliation and Arbitration Act 1993 ("BICA'93) - enacts the UNCITRAL Model law and applies to any "international commercial arbitration" held in Bermuda, unless the parties agree otherwise. S29 allows for the parties to opt out of BICA'93 by agreement.
The text of the Model law can be found in Schedule 2 of Part III of the Act.
An advantage of BICA'93 over '86 Act is that arbitral awards obtained under BICA'93 are not as prone to judicial review as in the case of awards under the '86 Act, albeit leave of the court is required to challenge an award under the '86 Act. The finality of an award is one of the characteristics that entices parties to arbitration- no one wants to be dragged through court- this defeats the purpose of arbitration. Under the '86 Act, parties have the right to enter into an 'exclusion agreement', but the effect of such agreement is dependent on whether the arbitration agreement is considered 'domestic' or not.
An arbitration agreement to which one of the parties is incorporated outside Bermuda or is an exempt company under the Bermuda Companies Act 1981, is "non-domestic" for the purposes of the '86 Act. Thus an agreement between two insurance/reinsurance companies incorporated in Bermuda will be 'non-domestic', under the '86 Act.
The Model Law
- Drafted by a "working group" of representatives from over 40 states.
- Its aim: to produce a uniform law governing arbitral procedure designed specifically for international commercial arbitration.
- Significant features: emphasis on party autonomy and any interference by the courts of the place of arbitration being restricted to an absolute minimum.
- n.b. It is not a treaty and it is at the discretion of each state whether they adopt it, in full or in part, or not at all - Bermuda has opted to implement the Model Law in its entirety.
When does the Model Law apply?
Article 1(1) provides that the Model law applies to "international commercial arbitration
Article 1(3) provides that an arbitration is international if:
"(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country."
The term "commercial" is given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. A number of examples are given in article 1- insurance being one of them.
Where the parties have agreed that the Model Law should not apply and the parties have failed to opt for another law to govern the arbitral proceedings, the '86 Act applies in default.
n.b. s29 BICA'93 requires that the opting out of the Model Law and/or the '86 Act, be evidenced in writing- whether it be in the insurance contract itself "or in any other document..."
Practical Consequences of Article 1 and Section 29
1. Where both parties have their place of business in Bermuda, the arbitration is not international under Article 1(3)(a) and will be subject to the '86 Act, unless either Article 1(3)(b) or Article 1(3)(c) apply.
2. Article 1(3)(c) in effect permits parties to 'opt in' to the Model Law by expressly agreeing that the subject matter of the case of any reinsurance contract involving two Bermudian companies, this will frequently be the case.
3. Where both the reinsurer and the reinsured have their place of business in Bermuda, it is unlikely that a "substantial part of the obligations of the commercial relationship" is going to be performed outside Bermuda, for the purposes of the first part of Article 1(3)(b)(ii). However, "the place with which the subject matter of the dispute is most closely connected" may be outside Bermuda- the application of this can be potentially controversial.
* S23: provides that subject to Part III of the Act (provisions relating to International Arbitration), the Model Law has the force of law of Bermuda.
* S24: allows for the Model Law's travaux preparatoires to be used in its interpretation.
* S26: provides that orders made by arbitrators requiring a party to take interim measures of protection or provide security are enforceable as if they were arbitration awards.
* S29: allows parties to opt out of the Model Law but such Agreement must be evidenced in writing. The '86 Act will apply in default, unless the parties agree otherwise.
* Interest - unless limited by agreement, the tribunal has extensive powers to order interest of a "reasonable rate".
* Costs - unless the parties agree to the contrary, the tribunal has a wide discretion as to what and how costs are to be paid.
* Conduct of proceedings- section 35, in addition to other matters, contains provisions regarding the Court's powers to make orders in relation to the arbitration proceedings.
* S33: provides for immunity from service of civil process upon any arbitrator, party, party representative or assistant, witness or expert relating to a dispute in respect of an arbitration under the Model Law, and who are present in Bermuda for the purpose of arranging for or participating in an arbitration under the Model Law.
* S34: confers a further immunity upon arbitrators, subject to "consequences of conscious and deliberate wrongdoing".
* S37: provides that a party has a right to be represented by whomsoever he wishes in an arbitration held in Bermuda under the Model Law.
Definition and form of arbitration agreement
* Art.7 provides
(1) "Arbitration agreement" is 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. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.
* The Seat of the Arbitration
- Legal term for the geographical location to which the arbitration is ultimately tied and which typically prescribes the procedural law of the arbitration.
- Arbitration clauses in reinsurance contracts between one party which has a place of business in Bermuda and one which has not will be subject to the Model Law if the arbitration is held in Bermuda, even though the contract may have been made before the enactment of the 1993 Act. It is always open to the parties to opt out of the Model Law by subsequent agreement, even after a dispute has arisen.
- An arbitral tribunal must apply the procedural law of a particular country (the lex arbitri) to determine any preliminary questions which may arise, for example, as to its jurisdiction or as to the place of arbitration. Where the arbitration clause does not specify that the arbitration is to be held in Bermuda, any arbitral tribunal will have to determine where the seat of the arbitration is to be.
- If the Model Law is the lex arbitri, the parties are at liberty to choose the place of the arbitration, but failing agreement between the parties, Art.20(1) provides that "the place of the arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties".
- Art.20(2) gives the tribunal the power to meet at any place it considers appropriate for consultation among its members for hearing witnesses, experts or parties, or for the inspection of goods, other property or documents.
* Art.8: where an action is brought in a matter which is the subject of an arbitration agreement, the court "shall ...refer to the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed"
Separability of arbitration agreement
* An arbitration clause is treated as a separate and independent agreement which generally survives the termination of the underlying contract.
* Art.16(1) states the doctrine of separability as:
"(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."
* Art.16(3) provides the arbitral tribunal with the power to rule on its own jurisdiction.
* The tribunal can do this either as a preliminary question or in an award on the merits. A ruling by the tribunal under art.16(3) can be challenged in the Supreme Court of Bermuda but any decision by the court is final- there is no appeal.
* Art.16(3) only gives a party the right to challenge a ruling by the tribunal that it has jurisdiction- not to challenge a ruling that it has no jurisdiction. The effect of this is that if the tribunal rules that it has no jurisdiction the parties have to pursue any claim they might have in the courts.
* (Under the Model Law there are limited circumstances in which a party can make an application to the Supreme Court: eg. appointment of an arbitrator in default of the appointment procedure agreed to by the parties; challenge to the appointment of an arbitrator; and failure or impossibility of an arbitrator to act. Again, there is no right of appeal from the Supreme Court.
The Conduct of the Arbitral Proceedings
* The general principle is that the Model Law gives the parties freedom of choice with regard to the procedure but it does provide minimal rules in default of agreement by the parties.
* Art.10- parties are free to determine the number of arbitrators
* If the parties fail to determine the number then the Model Law provides that three arbitrators should constitute the tribunal.
* Art.11- parties are free to determine the procedure for appointing the arbitrator or arbitrators.
* If the parties fail to agree then, the Model Law provides that in an arbitration with three arbitrators each party shall choose one arbitrator and then the two arbitrators will choose the third. If a party fails to choose an arbitrator or the arbitrators fail to agree on the third, then any party can make an application to the Supreme Court or, again either party can make an application to the Supreme Court.
* Art.18 - requires the tribunal to treat the parties "with equality" and to give each party full opportunity to present his case. (It should be noted that contravention of this provision is a potential ground for challenge under Art.34 for appealing an arbitral award)
* Art.19 - the parties are free, subject to the Model law, to agree upon the procedure to be followed in the arbitration proceedings.
* Failing such agreement, Art.19(2) provides that:
"...the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.
* Art.30: if the parties request, and the tribunal does not object, any settlement arrived at may be given in the form of an award.
Form and Content of the Award
"(1) The award shall be made in writing and shall be signed by the arbitrator or arbitrators. In arbitral proceedings with more than one arbitrator, the signatures of the majority of all members of the arbitral tribunal shall suffice, provided that the reason for any omitted signature is stated.
(2) The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under article 30.
(3) The award shall state its date and the place of arbitration as determined in accordance with article 20(1). The award shall be deemed to have been made at that place.
(4) After the award is made, a copy signed by the arbitrators in accordance with paragraph (1) of this article shall be delivered to each party.
Judicial Review
* The only grounds upon which an award may be set aside by the Court of Appeal under the Model Law are as follows:
1. A party to the arbitration agreement was under some incapacity
2. The arbitration agreement was not valid:
a. Under the law to which the parties have subjected it; or
b. Failing any indication in the arbitration agreement as to which law is to apply to it, under the law of Bermuda
3. The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case
4. The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside
5. The composition of the arbitration tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of the Model Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with the Model Law.
6. The subject matter of the dispute is not capable of settlement by arbitration under the law of Bermuda
7. The award is in conflict with the public policy of Bermuda
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
