It’s increasingly common to use arbitration as a way of determining complex shipping and other commercial disputes – not just in the Bahamas but across the globe. We’ve suggested previously that the popularity of arbitration could be down to obstacles put in the path of court-based litigation by the Covid pandemic. We’ve also explored the advantages arbitration sometimes has over litigation, including the degree of autonomy parties to a commercial agreement have to devise their own arbitration procedures. A word of warning however: arbitration clauses must be drafted with great care. Uncertainty over what has been agreed in relation to arbitration may well make disputes more, not less intractable.
The 2021 English High Court case of NWA & FSA v NVF that we discuss below is a case in point. It shows precisely what can happen when parties disagree over the interpretation of an arbitration clause. At ParrisWhittaker, a leading law firm in the Bahamas, our specialist arbitration lawyers are highly experienced in both domestic and international disputes, including arbitrations.
What’s In An Arbitration Agreement?
The arbitration agreement usually forms part of the contract as a whole between the parties. Typical arbitration clauses include:
Choice of governing law of the contract and of the arbitration
The location of any arbitration
The number of arbitrators: up to three may be required
Language to be used: this can save or avoid the cost of translators
Procedural steps: parties are free to create their own or follow procedures of a recognised body like the London Court of International Arbitration LCIA
Circumstances in which the parties can resort to arbitration
Type of dispute that can be referred to arbitration
As we’ve said each clause must be clear – ambiguity will only increase the possibility of disputes further down the line.
Am I Obliged To Follow The Terms Of The Arbitration Agreement?
The courts will rarely permit one side to ignore the terms of an arbitration agreement that has been freely entered into. The 2021 case of NWA&FSAv NVF clearly illustrates this. It’s an English High Court case but has strong persuasive authority here in the Bahamas.
What Happened InNWA&FSA v NVF?
The parties had worked together commercially for a number of years dealing with various patents. When they decided to change the way they did business
together they entered a new contract. It contained the following provisions relating to arbitration in the event of a dispute:
Parties agreed in the first place to seek settlement of disputes by mediation in accordance with the LCIA mediation procedure
If there was no resolution after 30 days of mediation beginning the dispute would be referred to an arbitrator
When a dispute arose, NVF wrote to NWA & FSA asking that the matter be referred to arbitration. In the same communication NVF also requested that arbitration be postponed for 30 days to enable the mediation (envisaged by the provisions set out above) to take place.
NWA&FSA did not respond to the request sent by NVF and the dispute proceeded to arbitration with the arbitrator deciding he had the power to hear the case under the terms of the arbitration provisions in the contract.
At this point NWA&FSA complained that NVF had not followed the terms of the arbitration agreement because they had requested arbitration and mediation at the same time. NWA&FSA’s case essentially boiled down to an argument that NVF had not first sought mediation in isolation as required.
Court Defends Integrity Of Arbitration Agreement
In a boost to the enforceability of arbitration agreements generally the court did not accept NWA&FSA’s case. In the court’s opinion, to allow NWA&FSA’s argument would in practice mean any party to an arbitration agreement that didn’t wish to arbitrate could simply frustrate the arbitration entirely by refusing to follow the procedures set out in the agreement.
NWA&FSA v NVF is an important case. It shows that the courts in England will step in to protect arbitration agreements even where, on the face of it, it may appear that not all procedures have been complied with to the letter.
Contact Us
In the Bahamas the International Commercial Arbitration Bill is heading toward the statute book. It’s modern, forward thinking approach shows a desire on the part of the authorities here to position the Bahamas as a recognised centre for international arbitration. So you should always think of arbitration and ADR as a possible way to resolve your legal disputes. To discuss how we might be able to advise you on arbitration or other forms of ADR please schedule a meeting with a lawyer at ParrisWhittaker today.
