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Constraints of arbitration
28/02/2006 The Star By BHAG SINGH
When the subject of litigation comes up in discussion, it is not unusual for
the word “arbitration” to pop up as if it is the solution to all delays and
obstacles that are often associated with litigation in courts.
As useful as arbitration may be to bring to a conclusion disputes, it is not
without its constraints and limitations.
Arbitration is a manner of dealing with a dispute whereby the antagonists
agree on a person appointed by them to make a decision by which they agree
to be bound.
In a way, when parties choose to resort to arbitration, they opt out of
their legal right to approach the courts to seek remedies. This is a right
which cannot ordinarily be taken away by contractual agreement for it is
provided by the Contract Acts 1950 in section 29.
However, the law makes an exception in the case of arbitration. If parties
have chosen to go to arbitration, then the court allows them to do so. But
such a choice has its own consequences. In order to create a binding
arrangement to refer a dispute to arbitration, the agreement must be in
writing. The Arbitration Act 1952 states an arbitration agreement means “a
written agreement to submit present or future differences to arbitration,
whether an arbitrator is named therein or not”. Once this choice has been
made, there may be no turning back.
Sometimes, parties who have agreed in writing to refer any dispute to
arbitration may have a change of heart. One party may later prefer to go to
the courts. This, however, may not be possible unless the other party
agrees.
If parties can agree to refer a dispute to arbitration, they can also agree
not to continue with it. But if only one party has a change of heart, then
of course, a direct resort to the courts will not be allowed unless
circumstances justify doing so even though the parties had earlier agreed to
arbitrate.
A more significant constraint with a more serious implication would be a
clause that requires the dispute to be referred to arbitration within a
specified period, for example, 12 months from the date the dispute arose.
Generally, a person in peninsular Malaysia has six years from the date of
the cause of action arising to file an action in court; the limitation
period in Sabah and Sarawak is shorter. The period varies depending on the
subject matter but, in the case of disputes based on contractual
obligations, it can generally said to be a period of three years.
However, a person who has overlooked, or delayed resorting to, arbitration
within the specified period may find himself facing obstacles, even though
within the time limit.
If arbitration is resorted to after the time limit, the opponent may object
to the proceedings because reference has not been made within the specified
time. On the other hand, if the party goes to court, the opponent may object
that arbitration should be resorted to.
Such a situation may cause injustice because of a delay in initiating the
arbitration. To provide for this, the Arbitration Act 1952 by section 28
gives the court the power to extend the time “if it is of (the) opinion that
in the circumstances of the case, undue hardship would otherwise be caused,
and notwithstanding that the time so fixed has expired, may, on such terms,
if any, as the justice of the case may require.”
In the past, the courts had been inclined to emphasise the word “undue”, and
if a man does not read the contract and is a day late, it is a “hardship” –
but not an “undue hardship” as it was his fault. Thus, it is not the length
of the delay alone which is considered in deciding whether to allow the time
to be extended. The emphasis is on “undue hardship”.
In Liberian Shipping Corporation v. A King & Sons Ltd, Denning LJ said: “In
order to avoid that injustice, the legislature intervened so as to enable
the courts to extend the time whenever ‘in the circumstances of the case
undue hardship would otherwise be caused’. ‘Undue’ there simply means
excessive. It means greater hardship than the circumstances warrant. Even
though a claimant has been at fault himself, it is an undue hardship on him
if the consequences are out of proportion to his fault.”
It involves the balancing of the hardship that is experienced by the parties
involved. There is no basis to impute into the requirement a justification
for the delay as a conclusive determining factor. As was said by Salmon L.J.
in the same case: “... the court comes to the conclusion that the hardship
imposed by the form of the arbitration clause on the claimant is greater
than that which, in justice, he should be called on to bear, the time within
which to appoint an arbitrator may be extended by the court.”
Thus, in Safety Insurance Co Sdn Bhd v. Chow Soon Tat, where more than three
years had passed since the time it should have been referred to arbitration,
the court allowed an extension.It took the view that the party objecting to
the arbitration had, by its conduct, contributed to, if not even induced,
the delay.
The party had taken advantage of the situation by delaying its response. The
Court took the view that under the circumstances, it was fair and reasonable
to grant the extension. |
