Commercial Contract and Arbitration

In USA, arbitration existed as a kind of dispute resolution since colonial times. Arbitration has been always viewed with hostility and skepticism. This is generally due to the reality that arbitral agreements are falling outside the purview of jurisdiction of courts. According to Vynior’s case which was delivered in sixteenth century, an arbitration agreement can be revocable at any time before the award is pronounced by either of the party and this conception acted as a serious limitation for the widespread usage of arbitration then.

Further, other historical distrust about arbitration are that it will result in misconception of justice and the state should maintain a monopoly over the dispute resolution than an arbitrator. The first step to legalize arbitration was initiated in 1920 by introduction of New York Arbitration Act which authorized not only pre-dispute arbitration agreements but also stayed court proceeding pending arbitration and also proscribed revocation of agreements to arbitrate. In 1925, Federal Arbitration Act was promulgated which authorized arbitration agreements as valid, enforceable and irrevocable.

This act facilitates a party to petition a federal district court to implement an arbitration, to appoint an arbitrator if party fails to achieve and to enforce an award. Whenever a commercial contract is drafted, it is wise to have arbitration clause as it will minimize the legal expenses when there is a dispute between parties. An arbitration process may help to resolve the dispute in a speedy manner without intervention of a court or lawyers and thereby not only saving of money and also saving of precious time is assured.

An arbitration clause in any commercial contracts will secure the following benefits to the parties of dispute. ? The inbuilt arbitration clause in a commercial contract require that any dispute arising out of contract shall be reviewed and decided by an independent arbitrator as defined under the present commercial arbitrational rules. ? Each party to the dispute will meet the legal expenses personally. ? The judgment made by the arbitrator will be absolute and obligatory and parties have no legal recourse relating to the arbitrator’s decision.

[ allbusiness. com]. In case, the arbitration clause in a commercial contract does not elaborate the provisions of arbitration, then in such cases, the provisions contained in Federal Arbitration Act [FAA] will be applicable. The FAA was enacted in 1925, it was substantially overhauled in 2000 under the Revised Uniform Arbitration Act [RUAA] as a ways to minimize the number of court cases involving commercial contract disputes. Arbitration process does have some drawbacks.

As the arbitration involves speedy process, parties may not have enough time for unearthing of truth in the form of producing evidence to support one’s case and if arbitrator is predisposed, the affected party may have no legal recourse. Every state in USA has adopted an arbitration act which has been designed either on the basis of FAA or the Uniform Arbitration Act. In Prima Paint v. Flood & Conklin Manufacturing Company, Supreme Court did not agree the claim of plaintiff that contract with an arbitration clause was fraudulently induced.

It is to be noted that an arbitration agreement, though the part of the contract, is a distinct and autonomous agreement . The separability doctrine, which provides that an arbitration agreement, though part of the contract, is an autonomous and separate agreement and arbitration agreement still has its applicability even though the underlying contract has become invalid or expired. However, under section 10 of the FAA, an arbitral award can be annulled by a court on the following five grounds only;

? If the award has been procured by fraud, corruption or undue influences. ? If there is a sufficient or partial evidence of corruption by the arbitrators. ? Misconduct on the part of arbitrator to hear pertinent evidence or any misbehavior that infringes the rights of a party. ? If an arbitrator acts in excess of his authority. ? If an award has been delivered before its deadline in a hasty manner. In Mitsubishi Motors Corp v. Soler Chrysler-Plymouth Inc, U. S.

Supreme Court held that agreement to arbitrate is valid unless it is secured by fraud and by holding so, the Supreme Court refused twenty years of precedent for not enforcing arbitration agreement in antitrust claims. For arbitration in a commercial contract which is having transnational effect, the same will be governed by the United Nations Conventions on the Recognition and Enforcement of Foreign Arbitral Awards which ratified under the New York Convention which was held in 1958 and it was the successor of Geneva Protocol.

The New York convention compels the national courts to recognize and enforce foreign arbitration awards. Currently, there are about 115 signatories to the New York convention and members can restrict its applicability to commercial matters only and its application will be on a basis of reciprocity. The three salient features of the arbitration clause in a commercial contract offers savings in cost, time savings and control over the outcome. Considering the various advantages and benefits of arbitration process, I wish to do my research on the “Commercial contract & Arbitration”.

[Fulkerson, 2001, p. 537]. AIM OF THE STUDY: According to the survey conducted by PricewaterhouseCoopers LLP, about 75% of business prefers arbitration to resolve commercial disputes. Arbitration can be used as a substitute to contentious mail ballots, overriding on G-56 facility applications, disputes in custom processing and any other commercial disputes. The main focus of this research study is to signify the advantages of arbitration and to differentiate it from conventional court system to redress the grievances of parties in a commercial contract.