|The Bahamas Investor Magazine
January 21, 2010
January 21, 2010
Craig "Tony" Gomez
The commercial world is now seeing more contracts between business entities than ever before and, quite naturally, a by-product of contractual relationships is conflict, disputes and disagreement over the terms in, and meanings of, a contract.
Historically, the aggrieved party has sought redress through the courts. However, as the courts have become overburdened, contracting parties have sought to have their conflicts resolved outside the courts but under the auspices of the courts. This manner of resolution of disputes could provide a unique opportunity for The Bahamas.
The concept of alternative dispute resolution (ADR), as the name suggests, provides an alternative to going to court to settle disagreements. These alternative methods include arbitration, where disagreeing parties agree to be bound by the decision of an independent third party, and mediation, where a third party attempts to arrange a settlement between the two sides. Arbitration as a form of ADR is used in place of litigation with the hope of settling a dispute without the cost and time of going to court. Arbitration is designed for civil disputes and does not involve criminal matters.
Arbitration is generally initiated when parties to a contract have included an agreement in writing to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, to resolve their dispute outside of the court system, and without going to trial.
Arbitration is often confused with mediation, which is an informal process of bringing in a third party who goes between the disputing parties to help them settle a dispute. The mediation process is not binding on the parties, and the mediator does not hear evidence.
Nearly any type of dispute can be arbitrated, from commercial and employment disputes to automobile injury and almost anything in between.
In arbitration, the parties bring their dispute before a neutral third-party individual known as an arbitrator, who has been assigned to hear the case. Arbitrators are often former judges or experienced lawyers. However, arbitrators can also be seasoned dispute-resolution generalists or highly specialized practitioners and experts, such as engineers and accountants, covering the entire legal and technical spectrum.
Once both parties have presented all relevant evidence–documents, testimony, etc–the arbitrator considers the facts, applies the law, and issues a binding decision on the dispute. The disputing parties hand over their power to decide the dispute to the arbitrator(s). Arbitration is generally just as final and binding as a court action, although arbitration awards must be confirmed by a court and the losing party can also attempt to overturn the arbitration decision in court.
Some of the principal characteristics of the arbitration process are:
• Arbitration is consensual. Arbitration can only take place if both parties have agreed to it. An existing dispute can be referred to arbitration by means of a submission agreement between the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
• The parties choose the arbitrator(s). In most jurisdictions, where there are established arbitration rules, the parties can select either a sole arbitrator or three arbitrators. An arbitration hearing may involve the use of an individual arbitrator or a tribunal. A tribunal may consist of any number of arbitrators, though some legal systems insist on an odd number for obvious reasons of wishing to avoid a tie. One and three are the most common numbers of arbitrators. In instances where the parties select a sole arbitrator, they do so jointly. In instances where they choose to have a three-member arbitral tribunal, each party appoints one of the arbitrators; the two parties then agree on the third arbitrator.
• Arbitration is neutral. In addition to their selection of neutrals of appropriate nationality, parties are able to choose such important elements as the applicable law, language and venue of the arbitration. This allows them to ensure that no party enjoys a home-court advantage.
• Arbitration is a confidential procedure.
Arbitration and The Bahamas
So what does this mean for The Bahamas, and how will The Bahamas benefit from international arbitration legislation?
Arbitration, while being nicknamed the “businessman’s method of resolving disputes,” is governed by statute. In The Bahamas it is governed by the Arbitration Act, passed at the end of the 19th century. The Arbitration Clause (Protocol) 1931 was intended to update the Arbitration Act by giving effect to the Protocol signed at the League of Nations in 1923. The Arbitration (Foreign Awards) Act 1931 also updated the Arbitration Act by giving effect to the Geneva Convention.
The protocol and the Geneva Convention have now been superseded by the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards 1958. According to the United Nations, The Bahamas recently became the 141st country to be a party to the Convention. However, the provisions of the Convention are not presently incorporated into Bahamian law. There is presently a bill before parliament for an Act to Provide for the Implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards in the Laws of The Bahamas, which seeks to achieve this.
This bill, as so named, addresses matters of international arbitration. The significance of this is that arbitration legislation in many countries addresses both domestic and international arbitration.
For international arbitration to flourish, it is necessary for a legislative regime to be adopted that recognizes and upholds the integrity and the autonomy of the arbitration process.
Several countries have adopted a single Arbitration Act covering all arbitration, as has the US. Bermuda and Switzerland have adopted a separate statutory regime for domestic and international arbitration. If there are to be separate regimes, it may in theory be possible to retain existing legislation and identify and repeal only the parts that relate purely to international arbitration.
Under the bill, the act would apply to international commercial arbitration, subject to any agreement in force between The Bahamas and any other country, and defines international arbitration if:
• The parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different countries;
• The place of arbitration is outside The Bahamas;
• The place is where a substantial part of the obligations of the commercial relations is to be performed or the place with which the subject matter of the dispute is most closely connected;
• The parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
Clearly international arbitration means just that and, as an international financial services centre, this no doubt would enhance the level of services The Bahamas is able to provide to the international business community.
However, to successfully launch an international arbitration centre we must open our borders to the participants in the arbitration process. For example, the legal profession must be made aware of the likelihood of the involvement of foreign counsel, and we must seek to make their involvement seamless.
The Department of Immigration must also be in tune with the need for foreign counsel and expertise that would be coming to our shores. The department would be expected to play an integral role in ensuring that this process moves along without bureaucratic delay.
Clearly The Bahamas would benefit from the following:
• Specialist court divisions. This would showcase the specialist judicial expertise to be offered in arbitration and in other commercial matters.
• An arbitration center. A physical structure established principally for arbitration, where revenue is earned from its use. However, it is important to note that arbitration could also be held in a place as simple as a hotel room.
• Travel and accommodation. As a result of the significant cost of doing business in cities such as New York and London, The Bahamas might be seen as a reasonable place to settle disputes, thus enhancing air lift, restaurant and hotel businesses, particularly for high-net-worth individuals.
• Administrative. Further utilization of our administrative and court professionals.
This bill could prove exceptionally advantageous for The Bahamas and pave the way for the jurisdiction to become an international arbitration centre. Industry is in dire need of new services and this is a service where the private sector could play a vital role, with the maritime industry in particular benefitting greatly from developments in this field.
Craig “Tony” Gomez
Craig “Tony” Gomez holds a degree in accounting from Minnesota State University at Mankato and has worked at Price Waterhouse, and Ernst & Young and established Gomez & Gomez accounting firm before becoming managing partner with Baker Tilly Gomez in 2002. He currently serves as Bahamas Financial Services Board chairman.