The arbitration process

The arbitration process

Although every arbitration is different, there are general steps and procedures that are followed:

1. Starting the arbitration

Any party to an agreement can start an arbitration (usually called the claimant). The claimant will typically send a notice of arbitration (sometimes called a Notice to Request to Arbitrate, or Arbitration Application) to the other party involved in the dispute. Where and how notice is to be given is often covered under the notice terms of the agreement that is being arbitrated.

This notice should contain information such as:

·         the name and address of both parties,

·         a description of the dispute, and

·         what result the person starting the arbitration hopes to obtain.

The person receiving the notice must respond within a certain time period, and must either confirm the accuracy of the information in the notice, or make corrections to it. If an arbitrator has already been agreed upon, the notice must also be sent to the arbitrator.

2. Choosing the arbitrator

An arbitrator must be chosen and agreed upon by all parties. Often, the process for selecting an arbitrator, and the number of arbitrators that will be required, is set out in the document under dispute. If there is no written agreement, the parties can agree on an arbitrator and decide if more than one arbitrator is necessary. If the parties cannot agree upon an arbitrator, the court may appoint one.

3. First meeting

Once an arbitrator is chosen, all parties and the arbitrator usually hold a first meeting. The parties may also retain legal counsel to attend at the arbitration and represent them. The initial meeting, sometimes called a pre-hearing examination, gives the participants a chance to discuss and clarify any outstanding issues regarding the arbitration process, such as:

·         identifying the issues in dispute,

·         determining what form the arbitration will take: that is, an oral hearing, or in writing,

·         the scheduling of all events, including the date and place of the arbitration hearing, and

·         identifying and listing witnesses and any experts that will be called to give evidence.

This meeting could be held in person, by telephone, or by videoconference.

4. Arbitration hearing

If it is determined that the arbitration will be in writing, the arbitrator will examine documents and render a decision. The arbitrator may ask for further documents or explanations with regard to the documents being examined.

Often, the parties will request an arbitration hearing. At the hearing, each party presents their case, evidence is given, and witnesses may be examined. Depending on the complexity of the case and the monetary value at stake, the parties may choose to hire lawyers to represent them at the arbitration.

5. Decision of arbitrator

Once the arbitration has taken place, the arbitrator or panel will make its decision, which is usually final and binding. The decision must be in writing and provided to all parties. The decision must include an explanation of why the decision was made. Among other things, the decision may involve:

·         ordering specific action to be taken, such as having one party make a payment to the other,

·         ordering an injunction against specific actions, such as refraining from selling a product,

·         monetary awards (which may include one party paying the other party’s costs of arbitration, plus interest).

Subject to applicable legislation and any arbitration agreement that may exist between the parties, the decision of an arbitrator may be appealed to a court of law.

6. Fees and costs of arbitration

There are costs to both parties in preparing and participating in an arbitration. The costs include such things as the arbitrator’s fees, the cost of expert witnesses, disbursements and so on. The costs can vary depending on several factors, such as:

·         whether there was an oral hearing requiring the attendance of the arbitrator and fees for the hearing facility, or if the arbitration required only written submissions,

·         if expert witnesses were called,

·         how long the arbitration lasted, and

·         if the arbitrator awarded costs of the arbitration to be paid by only one of the parties.

Generally, fees or a deposit must be paid when a copy of the notice of arbitration and response is sent to the arbitrator.

Is it important to note that there are time frames that exist for all steps in an arbitration, either as set in the Arbitration Act, or as agreed upon by the parties and the arbitrator.

Rights and duties of arbitrators

Rights and duties of arbitrators Article 11 

(1) An arbitrator must accept his appointment in writing. Such acceptance may be made by signing the arbitration agreement.

(2) An arbitrator must conduct the arbitration with due expeditiousness and undertake measures on time in order to avoid any delay of the proceedings.

(3) Unless agreed otherwise, the parties may discharge by their consent an arbitrator that fails to perform his duties, or does not perform them in a timely manner.

(4) An arbitrator has the right to reimbursement of expenses and a fee for the work completed, unless he has waived these rights in writing. The parties shall be jointly and severally liable for the payment of such expenses and fees.

(5) If an arbitrator has determined the amount of his own expenses and fees, his decision does not bind the parties unless they accept it. If the parties do not accept this decision, the expenses and fees will be determined, upon request of an arbitrator or of a party, by the authority specified in Article 43, paragraph 3 of this Law. The decision made by such authority is a title for enforcement against the parties to the arbitral dispute.

 Challenge of arbitrators Article 12

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have been previously informed of them by him.

(2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or if the arbitrator does not possess qualifications agreed to by the parties or if he fails to fulfill his duties specified in Article 11, paragraph 2 of this Law. Law on Arbitration (Arbitration Act) 6

(3) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons that occurred after the appointment or reasons of which he becomes aware after the appointment has been made.

(4) The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph 7 of this article.

(5) Failing such agreement, a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the appointment of the arbitrator or after becoming aware of any circumstances referred to in paragraph 2 of this article, send a written statement of the reasons for the challenge to the arbitral tribunal.

(6) Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral court, including the arbitrator subject to the challenge, shall promptly decide on the challenge.

(7) If a challenge under the procedure specified in paragraphs 4 and 6 of this article is not successful, the challenging party may, within thirty days after having received notice of the decision rejecting the challenge, or if the arbitral tribunal does not decide on the challenge within thirty days after the challenge was made, in a further thirty days from the moment of the expiration of the first thirty days, request from the appointing authority specified in Article 43, paragraph 3 of this Law to decide on the challenge. While such a request is challenged arbitrator, may continue the arbitral proceedings and make an award.

Relevant Conventions and Documents

Relevant Conventions and Documents

One of the most relevant convention in the field of international commercial arbitration is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). It requires courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states and it applies to arbitrations which are not considered as domestic awards in the state where recognition and enforcement is sought.

On European point of view, the next relevant legal document is the European Convention on International Commercial Arbitration (1961), which applies to arbitration agreements concluded for settling disputes arising from international trade between physical or legal persons residing in different Contracting States.

The UNCITRAL Model Law on International Commercial Arbitration reflects the worldwide consensus on key aspects of arbitral process accepted by different states and it is designed to assist States in reforming and modernizing their laws on arbitral procedure.

The UNCITRAL Arbitration Rules provides a set of procedural rules upon which parties may agree for the conduct of arbitral proceedings arising out of their commercial relationship. These rules are widely used both in ad hoc arbitration and in permanent arbitration institutions.

In addition with these conventions and documents, arbitration process is regulated by other regional conventions, such as Inter-American Convention on International Commercial Arbitration, and Conventions covering certain subject matters, such as the EU Tax Arbitration Convention, as well as national arbitration laws.

Powers and duties of arbitrators

Powers and duties of arbitrators.

(1)  Arbitrators shall have the duty to conduct fair and impartial hearings, to take all necessary actions to avoid delay in the disposition of proceedings, to maintain order, and to meet the sixty day time frame required  for the rendering of a decision. They shall have all powers necessary to meet these ends including, but not limited to, the power:

(a) To consider any and all evidence offered by the parties which the arbitrator deems necessary to an understanding and determination of the dispute;

(b) To regulate the course of the hearings and the conduct of the parties, their representatives and witnesses;

(c) To schedule vehicle inspection by the technical experts, if deemed necessary, at such time and place as the arbitrator determines;

(d) To continue the arbitration hearing to a subsequent date if, at the initial hearing, the arbitrator determines that additional information is necessary in order to render a fair and accurate decision. Such continuance shall be held within ten calendar days of the initial hearing;

(e) To impose sanctions for failure of a party to comply with

(f) To calculate and order the joint liability for compliance obligations of motor home manufacturers, when applicable, as part of arbitration decisions when ordering repurchase or replacement of a new motor vehicle

.

(2) The board is responsible for the assignment of arbitrators to arbitration hearings. The selection and assignment of arbitrators is not subject to the approval of either party.

(3) Arbitrators must not have a personal interest in the outcome of any hearing, nor be acquainted with any of the participants except as such acquaintance may occur in the hearing process, nor hold any prejudice toward any party. Arbitrators shall not be directly involved in the manufacture, distribution, sale, or warranty service of any motor vehicle. Arbitrators shall maintain their impartiality throughout the course of the arbitration proceedings.

(a) An arbitrator shall sign a written oath prior to the commencement of each arbitration hearing to which he or she has been assigned, attesting to his or her impartiality in that case.

(b) There shall be no direct communication between the parties and the arbitrators other than at the arbitration hearing. Any other oral or written communications between the parties and the arbitrators shall be channeled through the board. Any prohibited contact shall be reported by the arbitrators to the board and noted in the case record.

THE LAW GOVERNING THE ARBITRATION AGREEMENT

THE LAW GOVERNING THE ARBITRATION AGREEMENT

The Governing Law

The law governing the arbitration agreement can be truly different, if the parties chooses to conclude a separate arbitration agreement instead of arbitration clause included in the substantive contract.

In the case of separate arbitration agreements, parties are free to choose the law governing the arbitration agreement. This can lead to situation where the proper law of the arbitration agreement can be different from the law governing the dispute, because the arbitration agreement and the contract from which the dispute arises are separate entities and are governed by different laws.

But on the other hand, in the case of arbitration clauses, finding the governing law can be a bit more difficult. Firstly, the proper law of the arbitration agreement will normally be the law applicable to the substantive contract as a whole. So if the contract contains an express choice of law made by parties, the chosen law also governs the arbitration clause. Secondly, in the case where the parties have failed to express their choice of law, the law governing the contract (and arbitration agreement) is normally implied from the seat of arbitration. And thirdly, if parties have failed to express their choice of law and they have not designated the seat of arbitration, the proper law of the arbitration clause is the law of the country with which it is most closely connected.

Refusal of the Recognition of the Arbitration Agreement

The national court can refuse the recognition of the arbitration

n agreement, if under the law of the country the dispute is not capable of settlement by arbitration. Usually this type of issues are related to status and family law matters, and of course criminal law matters, in which the parties have restricted ability to enter into agreement over the matters. In some countries, also consumers are protected by setting additional requirements for the arbitration agreements.

Validity of the Arbitration Agreement

The validity of the arbitration agreement is considered under the choice of law governing the arbitration agreement. But if there is no choice of law made by the parties, the validity of the arbitration agreement is considered on the basis of the law of the country in which the award is to be made. In some cases it can be hard to say in which country the award is to be made. In these cases, where there is no choice of law and the country in which the award will be made cannot yet be determined, the validity is considered in accordance with the law of the country in which the court is considering the validity.

AWARD AND TERMINATION OF PROCEEDINGS

AWARD AND TERMINATION OF PROCEEDINGS

(1) The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given state shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.

(2) Failing any designation by the parties under paragraph 1 of this article, the arbitral tribunal shall apply the law that it considers to be most closely connected with the dispute.

(3) The arbitral tribunal shall decide ex aequo et bono or en qualité d’amiable compositeur only if the parties have expressly authorized it to do so.

(4) In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the applicable usages.

Decision making by panel of arbitrators Article 28

(1) Unless otherwise agreed by the parties, the arbitral tribunal shall make any decision by a majority of all its members.

(2) If a majority has not been achieved, arbitrators shall continue deliberations on each issue.. If after repeated voting the majority still cannot be achieved, the award shall be made by the presiding arbitrator.

(3) Outside joint sessions of the arbitral tribunal, questions of procedure may be decided by a presiding arbitrator, unless the parties or all members of the arbitral tribunal have not agreed otherwise.

(4) The panel of arbitrators may entrust to one of its members to undertake certain fact-finding activities.

DUE DILLIGENCE FOR COMPANY

DUE DILLIGENCE FOR COMPANY

If your company has ever been involved in a significant transaction, whether in the form of a business combination, a public offering of securities or securing a credit facility, you are probably painfully familiar with the due diligence process. Although the due diligence process can be time consuming and sometimes overwhelming, especially for a target company unfamiliar with the process, it is a crucial component to significant corporate transactions.

Due diligence is essentially the investigation of a target company through reviewing documents and interviewing persons with knowledge about the company. For the buyer of a business or an investor in a significant equity stake in a company, the due diligence investigation will attempt to reveal all material facts and potential liabilities relating to the target business or company. There are various sub-categories of due diligence, including business due diligence, legal due diligence, accounting due diligence and even "special" due diligence. This column will focus on the legal due diligence process, generally from the perspective of a target company, in connection with a merger or acquisition transaction. The summary provided in this column will be helpful for a target company in understanding how to efficiently navigate the legal due diligence process and generally what to expect. The column will briefly summarize (i) the primary reasons for legal due diligence and (ii) the basic manner in which legal due diligence is usually conducted.

Why Is Legal Due Diligence Necessary?

Some of the primary reasons for conducting legal due diligence are outlined below.

·         Better Understand Your Business. Legal due diligence is necessary to give the buyer the information that it needs to learn about your target company and to structure its purchase of your company. In addition, legal due diligence will help the buyer's counsel to become acquainted with your company so that they can communicate effectively with your company's counsel and with the buyer in structuring the transaction.

·         Help to Value the Target Company. The buyer will use the information learned in the legal due diligence process to determine how much to pay for your company. In addition to carefully examining obvious indicators of value such as your company's cash flows and balance sheet, the buyer and its counsel will search for more subtle indicators of value or potential liabilities in things such as (i) your organizational documents and important contracts (e.g., is your company restricted in how or where it operates its business or subject to unusual pricing terms or contingent liabilities?), (ii) lawsuits to which your company is a party, (iii) insurance policies benefiting your company, (iv) employee benefit and labor arrangements, (v) potential environmental claims, (vi) intellectual property owned or used by your company and (vii) rights or obligations under earn-outs or indemnification provisions.

·         Help in Drafting the Relevant Documentation. The information learned in the legal due diligence process will be helpful for both the buyer's counsel and your company's counsel in drafting and negotiating the merger or acquisition agreement and related ancillary agreements. This information will be particularly helpful in allocating risk when drafting your company's representations and warranties, your company's pre-closing promises and the post-closing indemnification rights of the buyer. Further, your company will likely need to prepare a disclosure schedule, to be delivered at the time the primary transaction agreement is executed, that discloses exceptions to the representations and warranties made by your company in the agreement. The information gathered in the legal due diligence process will be helpful for your company and your counsel in preparing the disclosure schedules. In addition, if the transaction includes a securities component, this information will be very helpful in crafting a disclosure document that may need to be delivered to the buyer.

·         Identify Impediments to Closing. In the legal due diligence process the parties will attempt to identify everything that must happen before the transaction can close. For example, counsel will focus closely on (i) your organizational documents, to determine the stockholder and other approvals required to complete the transaction, (ii) your contracts, including assignment clauses, and your permits and licenses, to determine whether the transaction is contractually prohibited or whether specific consents are required; (iii) regulatory requirements, to determine if any governmental approvals are required; and (iv) your debt instruments and capital leases, to determine repayment requirements. With respect to item (ii), note that if the transaction is structured as a sale of your company's assets, it is likely that you will need to seek consent from the other parties to many of your contracts before assigning the contracts to the buyer. If the transaction is structured as a sale of your company's stock, consent will only be required if "assignment" is defined broadly to include a change of control transaction (common in real estate leases). If the transaction is structured as a merger, depending on the applicable state statute, whether consent is required may depend on whether it is a forward merger (in which case the legal existence of your company ceases and seeking consents may be advisable) or a reverse merger (in which case the legal existence of your company continues and it is less likely that seeking consents is required).

·         Legal Opinions. Often the target company's counsel, the buyer's counsel or both will be expected to render a legal opinion at the closing of the merger or acquisition transaction. In order to reach the relevant legal conclusions in the legal opinions, counsel will need to rely on factual information provided by the target company. The legal due diligence process provides counsel with the opportunity to learn this information.

How Is Legal Due Diligence Accomplished?

Some of the primary steps involved in the legal due diligence process are outlined below.  

·         Help Establish the Big Picture First. Before diving into a stack of thick contracts, competent buyer's counsel will first seek to understand your company at a broader level. Unless your company is a public company with SEC reports available at the click of a button, be prepared to help the buyer establish a big picture understanding of your company by providing concise summaries about your business and industry. Such summaries are often found in offering memoranda or in audited financial statements. You might also consider directing the buyer to your website or to relevant news articles about your company.

·         Be Prepared to Provide Documents and Interviews. Buyer's counsel will likely prepare a lengthy due diligence request list asking you to provide every piece of paper that possibly relates to your company. The request list will likely be daunting, but take comfort in knowing that it is often over-inclusive. Still, be prepared to provide copies of all important documents relating to your company, including your company's organizational documents, all material contracts, all documents relating to pending litigation and litigation recently completed, all documents relating to labor and employee benefits matters and tax documents, among others. These documents are often organized in a central "data room," which may be located in your company's offices and where the buyer's counsel and your counsel can convene to spend countless hours reviewing documents. Increasingly, electronic "virtual data rooms" are replacing physical data rooms. In addition, be prepared to make available members of your executive management (preferably your Chief Financial Officer) to answer questions about your company. Interviews can be an extremely efficient way to quickly address issues and resolve concerns in the legal due diligence process.

·         How Much Legal Due Diligence Is Necessary? The legal due diligence process can take anywhere from several days, in a relatively small and uncomplicated transaction, to several months, in a larger and more complex transaction. The scope of legal due diligence in your transaction will depend on the size of your company and the number of issues requiring additional analysis. The legal due diligence process will end when the buyer is satisfied that it has sufficiently identified and analyzed the relevant issues and gained an adequate understanding about your company. The buyer will typically try to substantially complete the legal due diligence process before the primary transaction agreement is executed.

·         Presentation of Legal Due Diligence Findings. The presentation of legal due diligence findings is really only a relevant issue for the buyer and its counsel. The buyer will normally expect its counsel to present legal due diligence findings promptly and in a user-friendly format. For small deals or cost-sensitive buyers, the presentation may take the form of a verbal conversation. On the other end of the spectrum, for large complicated deals, it is not uncommon for legal due diligence findings to be presented in the form of a memorandum, ranging from 50 to 100 pages, that describes all documents reviewed, analyzes the key issues discovered and recommends various solutions. Many buyers simply ask for a bullet-point list of key issues identified in the legal due diligence process. The point is that, if you are a buyer, you should make your expectations clear and communicate with your counsel regarding any cost sensitivities and the format in which you would prefer the legal due diligence findings to be presented.

Legal due diligence is a crucial component to any significant corporate transaction. Although it can be a demanding process, once your company understands the reasons for legal due diligence and the basic manner in which it is usually conducted, the process should proceed more efficiently, saving costs and headache