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ARBITRATION AGREEMENT Introduction: In laymen terms an agreement means an arrangement between parties regarding a method of action.

Thus in ADR also agreement is considered. be inserted in all major contracts in common law agreement. The Arbitration Act 1996 makes an agreement to be mandatory as in section 6. Thus as provided in this section an Arbitration Agreement means an agreement to submit to present or future disputes whether they are contractual or not. In the Malaysian Arbitration Act 1952, in section 2, Arbitration Agreement is defined as a written agreement to submit present of future differences for arbitration. Thus in Malaysian law its compulsory for the agreements to be made in writing but not in common law as it can also be made verbally. In the case of Sebor (Sarawak) Marketing v SA Shee ( Sarawak), It was held that an agreements may be inferred from minutes and records of a meeting and other documents. Arbitration Agreement might also be called as an ad hoc submission, which means that there is an agreement for submission of a particular dispute to a specified arbitrator and arbitration clause by which the parties consent to refer future disputes to arbitration. In Arbitration Act 1889, submission was given reference as to arbitration agreement. Formalities of Arbitration Agreement: There is no specific form to be filled in order to enter into an arbitration agreement. What is essential is that, in the contract or the necessary document there must be a clause or a provision which give effect to an arbitration that in the case of a dispute so and such matter shall be referred to arbitration. If not there is no intention to create an arbitration agreement. An agreement between parties to refer future disputes to arbitration has become a usual clause to

By virtue of section 9 of Arbitration Act 1952, the only requisite of an arbitration agreement is that it must be in writing. That is no oral agreement for the purpose of the Act would suffice to constitute an arbitration agreement. Types of Arbitration Agreement: There are mainly two types. They are oral and written agreements. An oral agreement is valid and binding but part I of Arbitration Act doesnt apply to such agreements. Nevertheless, oral arbitration agreements may still be given some effect as section 81(1) (b) of the Act preserves any rules of common law as to the effect of an oral arbitration agreement. With respect to written agreements it can be found in section 5 and 6 of the 1996 Act. It defines the followings as arbitration agreements: Written signed agreement Written unsigned agreement Exchange of letters or other written communications Anything described above as written may be recorded by any other means; this means that it will also include fax, telex or e-mail. An agreement by telex is also considered as an agreement in writing as in Arab African Energy Corporation Ltd v Olieprodukten Nederland B.V. This general principle might also be applied to agreement by fax. Hence, tacit acceptance of a written quotation which contained an arbitration clause is sufficient to comply with the requirement of an agreement in writing as illustrated in the case of Zambia S & B Supplies ltd v James Clark and Eaton Ltd.

Requirement of signature: Neither of the Acts does not stipulate signature of the parties, as a condition for the validity of an arbitration agreement. The assent of the parties to the arbitration may be given orally or through conduct. As such arbitration clauses which are contained in an insurance policy or any other policy signed by one party would be valid. In case where there are no express statutory provision requiring signatures as in arbitration, it should not be regarded as essential. However, according to Russell,

the weight of authority appears to support the view that the arbitration agreement need not be signed by the parties charged, unless the contract itself is one which the law requires to be signed. The point is however, not settled. Matters that may be arbitrated As a general rule, any legal right which is enforceable by an award is capable of being arbitrated. In Malaysian Act, what is presumed is that those matters which are commonly arbitrated in common law jurisdiction would also be arbitral in Malaysia. The Act however, empowers the High Court to cease an agreement or can grant leave to revoke the authority of the arbitrator if the dispute involves fraud section 25(2) of the Malaysian Act. On the authority of past precedents, matters which can be arbitrated: Industrial disputes Building contract disputes Disputes between banker and customer Consumer disputes Trade disputes between private individuals, companies and nations Family disputes Joint venture disputes

Status of subsequent Agreement: Where parties by an agreement import the terms of some other document as part of their agreement, those terms must be imported in their entirety but if any of the imported terms in any way conflicts with the expressly agreed terms, the latter must prevail over what would otherwise be imported. In case where more than one contract is closely associated clauses from one may be incorporated in another. For example, in a building contract a subcontract may contain terms, from the main contract and similarly in cases of shipping the bill of lading issued to a shipper may incorporate terms from the charter party agreement between the ship owner and the charterer. However, applicability of arbitration clause in the bill of lading is still not well settled matter.

Where an arbitration clause was contained in the main lease agreement, then, when a subsequent agreement was signed in respect of the same premises containing no arbitration clause, it was held in Alagappa Chettiar v Palanivelpillai (1967), that the arbitration clause in the main lease does not cover disputes arising out of the subsequent agreement and an arbitrator appointed under the arbitration clause of the main lease would have no jurisdiction to deal with such disputes. Doctrine of Separability: An arbitration agreement which forms part of a contract containing the substance of the agreement between the parties is separable from the reminder of the contract in law by virtue of section 7 of 1996 Act. This means that if the primary contract doesnt come into force, then the arbitration agreement will survive and the parties may seek remedies under it not withstanding that the primary contract is invalid, ineffective or is brought to a premature end. Competency to refer to arbitration Generally every person who has right of which he can dispose is competent to

submit questions affecting that right to arbitration and any disabilities that affect the right of disposal will equally affect his right of submission. The following may be under a disability: Minors: a minors competency to refer to arbitration and his ability to bind others with the contract is same as in the law of contract, namely a minor could surely make a submission that is refer a matter to arbitration pursuant to an agreement to this effect, if it relates to the supply of necessities or to a reasonable contract of service or any other contract which is for his benefit. Other than that, the agreements are voidable at the option of the minor. Mentally Disordered Persons: a mentally disordered person may be bound by a submission to arbitration unless he is incapable of contracting to the knowledge of the other party. Bankrupt: a bankrupt is competent to submit to arbitration but he cannot thereby affect the right of his creditors.

Corporations: corporations have full capacity to contract but not necessarily bind their successors. The restrictions and requirements depend on the nature of the corporations and the laws and regulations governing them. Partners: Partners have no implied authority to refer disputes on behalf of other partners. The authority could be implied where the partners are present while the submissions is made or by being present in the arbitration proceedings without making any protest. Agents: an agent can enter into arbitration which may bind his principle but the circumstance where he can bind his principal depends very much on the extent of authority he is being conferred with.

Whether Mutuality essential in arbitration agreement? There are two views on this issue. According to Davis L.J: it is necessary in an arbitration clause that each party shall agree to refer disputes to arbitration and it is an essential ingredient of an arbitration clause that either party may, in the event of a dispute arising, refer it, in the provided manner, to arbitration. In other words, the clause must give bilateral rights of reference. Union of India v Bharat Engineering Corporation (1977), the High Court of Delhi agreed with the arguments of Davis L.J in the Barons case that arbitration clause was unilateral giving only the contractor an option to refer the dispute to arbitration, hence as such it was not an arbitration agreement. However according to Delhi court although there was no mutuality in the arbitration agreement yet it arises as soon as the party having the option to exercise this option exercise it, as both parties could then rely on it, making it mutual.

Russell: arbitration must be allowed at the suit of an individual party if arbitration is incorporated into an agreement. Russell favors this view. According to him English law has not really dealt with the problem of mutuality.

Ronaasens case: the court relied on Halsbury laws of England to support the proposition that unilateral arbitration clauses are possible.it is submitted that the Union of India clause is plainly an arbitration agreement, that it is valid, that it is completely unilateral, and that the only mutuality it confers on the non privileged party is the inevitable one that once the privileged party has chosen to arbitrate the non-privileged party can and must ipso facto arbitrate also..there is nothing to compel the conclusion that because the Union of India clause is an option therefore it cannot be an arbitration agreement. AMENDMENT OF ARBITRATION AGREEMENT

All most all the agreements are perfectly possible to amend by the parties to the agreement according to their convenience and mutual benefit. So the parties involved in the arbitration agreement can also amend or alter the agreement, with the consent of the parties involved in the agreement. Its base on mutual consent of the parties. As such if one of the partied refuses, no alteration can be made. Such alteration and amendments should be recorded in writing and signed by parties concerned.1 However the amendment or alteration should be done before the arbitrator makes his award where arbitration has already started under the existing agreement. A new case has been decided by the California courts regarding arbitration. Gilbert Street Developers, LLC v. La Quinta Homes, LLC, the case held that the inclusion of a clause in the arbitration rules that allowed for possibility of future amendments did not authorize arbitrators to determine their own jurisdiction where such determination was only authorized by amendment enacted after the parties signed the arbitration agreement. REVOCATION OR PURPORTED TERMINATION OF AGREEMENT

1 Syed Khalid Rashid, ADR in Malaysia, IIUM Kuala Lumpur, 2000, p. 171

Signing a contract in any transaction renders the contract obligatory on both parties and neither of them is entitled to revoke it unilaterally without the consent of the other party, but either party has the option to revoke the contract, as we think, if he finds a better alternative, if the two parties are still at the site where the contact has been made. As arbitration agreement is also a type of contract, parties to the agreement can revoke it. But such a revocation should be with the consents of both parties. So if one of the parties refuses to revoke the agreement, the revocation could be invalid. Under section 4(1) if the Arbitration Act 1952 the agreement would not discharge even by the death of a party of agreement. In such a situation the agreement shall be enforceable against the representative of deceased. The courts are also having the jurisdiction of revocation of arbitration agreement under Arbitration act 1952. On the application of any party to arbitration agreement and where arbitrator authority is revoked by court, the court may order that the agreement may cease to have any effect. 2 The court may also remove an arbitrator and order that arbitration agreement has no effect.3 In case of agreement refers to future dispute. And arise of such dispute by fraud of one party, the court may order that the agreement has no future effect.4 Normally if termination is due to factors outside the contract, it is effective, but not if the factors arise out of the contract itself. As similar to other contracts the arbitration agreement may also be terminated by Completion of the Contract Terms, by Agreement, by Inability to Perform, by Breach of Contract or by Fraud, Mistake, and Misrepresentation.


2 Section 26(2)(b) of Arbitration Act 1952 3 Section 26(2)(b) of Arbitration Act 1952 4 Section 26(2)(b) of Arbitration Act 1952

It is well established that an Arbitration clause survives the discharge of a

contract by acceptance of repudiation. This is because the arbitration agreement (or clause) is separable from the substantive agreement between the parties (Heyman v Darwins Limited5). In other words, if the contract between the parties comes to an end for (almost) any reason, the arbitration clause is unaffected and can still be relied upon in future arbitration actions. The rule in Heyman v Darwins6 is that an arbitration clause continues to remain valid even after the termination of the principal contract of which the arbitration clause is a part. However in Connex South Eastern Ltd. v MJ Building Services Group plc7, Judge Richard Havery QC heard submissions that adjudication provisions should not survive if a contract comes to an end because of the acceptance of repudiation.

It must, however, be noted that this may not be the case in instances where the principal contract is void ab initio. If one of the alleged contract is contending that it was void ab intio, the arbitration clause cannot operate, for on this view the clauses itself also void. In Forest Development Sdn. Bhd. v Syarikat Permodalan dan Perusahaan PahangBhd8, one of the parties to arbitration agreement purported to terminate the agreement in the ground that they are not ready and willing to submit to arbitration. It was held that the act of purporting to terminate the agreement does not, per se, equivalent to a expression of unwillingness on the part of Permodalan to have the disputes and differences between the parties arbitrated upon.


Repudiation of an agreement means a refusal to perform the duty or

obligation owed to the other party, where a party refuses to comply with a contract and this amounts to a breach of contract. Agreement frustrate due to unforeseen circumstances that prevent achievement of its objectives,

5 [1942] AC 356 6 [1942] AC 356 7 (25 June 2004) 8 [1981] 2 MLJ 285

render its performance illegal, or make it practically impossible to execute. In a situation like conduct (conduct which shows intention of party to repudiate the contract) to arbitration agreement show that he has no interest in thought of arbitration, the arbitration agreement may repudiate or frustrate. An agreement to arbitrate may stand discharged by frustration. However the frustration is by an act which was not foreseen by the parties at the time of entering into agreement which make performance of contract impossible. External event which bring about frustration are those which make it impossible for the parties to submit their dispute according to agreed procedure and destroy the very foundation of agreement.9 This issue was argued by House of Lord in many cases.

Paal Wilson v P.Hannah Bluementhal10: In 1969 the sellers agreed to sell and
the buyers agreed to buy a vessel under a contract, which contained no provision at all relating to the engine performance or speed of the ship in service, which was duly carried out and property in the ship transferred to the buyers. In 1972 the buyers informed the sellers that they had a claim against them in respect of the speed of the ship, and some months later commenced arbitration proceedings by appointing an arbitrator. The sellers also appointed an arbitrator, but no steps were taken by either party separately, or both parties together, then or at any later time, to effect the appointment of a third arbitrator. In 1980 the seller issued a writ seeking a declaration that the arbitration agreement has been discharged by repudiation or consensual rescission or frustration.

The Court of Appeal held that the long period of time and the nature of
dispute it involved would make it impossible to make fair trial and as such agreement has been frustrated.11 However the House of Lord reject this decision and held that arbitration agreement could not be frustrated as a result of delays because of both party were under obligation to direct tribunal. So the failure to do so will not amount to frustration.
9 Syed Khalid Rashid, ADR in Malaysia, IIUM Kuala Lumpur, 2000, p.176 10 [1982] 3 WLR 549 and 1149 11 Syed Khalid Rashid, ADR in Malaysia, IIUM Kuala Lumpur, 2000, p. 173

Lord Brandon considered that an actual abandonment, as opposed to an estoppel precluding an assertion of continuance, required proof of conduct of each party, as evinced to the other party and acted on by him, as "leads necessarily to the inference of an implied agreement" between them to abandon the contract. The agreement will be frustrated if there are some external factors which were not foreseen by the parties at the time of entering into agreement which make performance of contract impossible, or the outside event and its consequence should have taken place without fault of either party. Bremer Vulkan v South India Shipping Corporation12: The parties had referred their dispute to arbitration, but there had been inordinate delay, and the plaintiffs complained that the delay had prejudiced them, and sought an injunction to prevent further countenance of the arbitration, saying that the delay had discharged the arbitrating agreement and reference. The issue was whether the court has jurisdiction to restrain party from preceding with arbitration on the growing that it conducts render the contract repudiators. Court of Appeal held that the agreement was repudiated due to such delay as parties to an arbitration agreement are under duty not to delay their claim as it may amount frustration. But House of Lord held that a party aggrieved in this way must first make application to the arbitrator. The plaintiff could not rely upon the defendant's breach to give them the right to treat the agreement as terminated. Both the parties were under obligation to keep the arbitration moving. Since the plaintiff has done nothing to prevent delay in arbitration, both are responsible for delay.13 So plaintiff was not entitled to repudiate the contract. Food Corporation of India v Antclize Shipping Corporation14: the parties had referred their dispute to arbitration. The arbitration proceedings were not

12 [1981] AC 909 13 Syed Khalid Rashid, ADR in Malaysia, IIUM Kuala Lumpur, 2000, p. 173 14 [1988] WLR 603

with for as long as eight years. There was no communication between parties during all this time. It was held that there is no time limit for arbitration to proceed, no lap could be implied.

By Aminath Niuma Ibrahim Rasheed Rifath Hassan