International Commercial Arbitration

Chapter One: An Overview of Analysis on Procedural Laws Governing Commercial Arbitration and Practice in Tanzania

1.1. Introductory Remark

“International commercial arbitration is a way of solving disputes which the parties choose themselves, it is private, it is effective and, in most parts of the world, it is now the generally accepted method of solving international business dispute”[1]

The field of international commercial arbitration began on the continent of Europe in 1920s as compromise to the parties in a dispute in connection to the contract.[2] But later on various agreements such as the Geneva Protocol on arbitration[3] which was later adopted by the League of Nations came into force.

In 1923 the International Chamber of Commerce also was adopted as the first rules on institution on arbitration and establishes the institute of arbitration. In 1950s new developments took place whereby the New York Convention of 1958 also came into force and as well as other conventions concerning arbitration.

Since then to date, the field of commercial arbitration has been developing and expanding quickly almost all over the world. The most rapid changes have been noticed since the globalization regime in the twentieth century whereby greater integration of economies all the world has been taking place.

These changes have significantly involved a number of business transactions both domestic and cross border transactions. In the course of execution of contractual obligations, differences and misunderstanding between the parties are inevitable. It is for this reason that international commercial arbitration has become a preferred mode resolution of transactional in commercial disputes[4].

The other fundamental reason for commercial arbitration gaining great momentum is because it has been perceived as a means to obtain a truly neutral decision, confidential and to some extent more speedy and including lower costs than court litigation.

The increase of international agreements, treaties and conventions such as the New York Convention of 1958, UNCITRAL Model Law on International Commercial Arbitration of 1985, ICSID Convention of 1965 and other conventions has lead to great impact on the growth of commercial arbitration as a mechanism of dispute settlement almost in all parts of the world.

However, most of the survey conducted shows that the field of commercial arbitration in African countries is still not effectively utilized though there are number commercial cross border transactions between the parties.[5]

Most of the African countries have been left behind with this race[6], though the fact reveals since 1990s most of the African countries have been undergoing into a major economic reform which resulted into trade liberalization policies.

Tanzania in particular, before 1990s almost all means of economic such as industries, companies were owned by the government, so to speak those companies and other commercial undertakings were not operating on commercial basis, consequently most the companies collapsed.

The collapse of those companies necessitated the change in economic sector whereby private sector becomes a vital tool for trade liberalization. The trade liberalization policy pave the way to private and local investments in many fields such as banking, insurance, construction industry , mining information technology etc. More people have been involved in business and investment contracts which require each party to a contract to fulfill certain obligations.

The increase of business relating to transactions certainly created the room for more disputes between the parties for example non fulfillment of the obligation or breach of contract. Taking into account of this situation one has to look for quick and effective mechanism of dispute settlement which would also facilitate the development trend.

However, the use of arbitration as a mechanism of dispute resolution in Tanzania is very limited compared to other parts of the world though Tanzania is a signatory of the New York Convention of 1958 since 1964. Still most of the disputes are referred to normal courts for litigation.

The law of arbitration in Tanzania is mainly governed by the arbitration act originally known as the Arbitration Ordinance which was enacted in 1932 and was based on the English law[7]

The Arbitration Act of Tanzania of has largely remained unchanged for a long time, despite of the remarkable changes in economic policies which appealing to the change of laws which will facilitate and accommodate those changes. The fact shows that no changes have been made taking into account the UNCITRAL Model law of 1985[8].

Therefore, it is the aim of this dissertation to find out as to why the use of commercial arbitration as a mechanism of dispute resolution is not effectively utilized in Tanzania.

In discussing this paper analysis will be made of the laws governing commercial arbitration and the relevance of those laws in practice.

Apart from looking at the effectiveness of the use of commercial arbitration, this research is also going to look to what extent does the laws governing commercial arbitration in Tanzania comply with the laws governing international commercial arbitration. For the purpose of this study two international instruments will be discussed namely the UNCITRAL Model Law of 1985 and New York Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958. The advantages and disadvantage of arbitration over court litigation are analyzed. Review on the conduct of arbitral proceedings and arbitral awards will also be discussed in this paper.

1.2. Definition of Arbitration

The term arbitration has been defined by various authors in different era to reflect the purpose of arbitration. According to Martin Donke, arbitration is a process by which parties voluntarily refer their disputes to an impartial third person, an arbitrator, selected by them for a decision based on the evidence and arguments to be presented before the arbitration tribunal[9].

Mark Huleatt James and Nicholas Gould define arbitration as a private of solving disputes which commences with the agreement of the parties to an existing or potential, dispute to submit that dispute for decision by a tribunal of one or more arbitrators[10].

Avtar Singh defines arbitration as the submission by two or more parties of their dispute to the judgment of the third person called arbitrator and who is to decide the controversy in a judicial manner.[11]

In other words arbitration can be said to be amicable way of solving dispute between the parties whereby they parties agree in advance that the decision will be final and legally binding. Arbitration as opposed to court ligation is characterized by neutrality and confidentiality that is to say is a non state involvement process of solving dispute.

1.3. Background of the Study

The development of economic and trade activities between the states and foreign entities have been the driving force for development of domestic and international commercial arbitration.[12]

Commercial arbitration as alternative dispute resolution to court litigation has become a more popular way of solving many commercial disputes between local and foreign entities due to simplicity and flexibility of its procedure and enforceability of arbitral awards.

This is also due to the fact that the system based on party autonomy principle, that is to say parties have freedom of choice by virtue of the agreement between themselves to determine what are the main elements of arbitration are to be adopted in resolving the dispute[13].

However, the trend shows that the use of commercial arbitration is well established in developed countries like United States of America and other European countries compared to developing countries. Most of the developing countries particularly Africa the use of commercial arbitration is still limited despite the fact that most of these countries are signatories of the New York Convention of 1958.

In Tanzania, like in other African countries, the use of commercial arbitration is relatively limited. Most of the legal practitioners and parties are not aware of the use commercial arbitration as an effective mechanism of solving commercial disputes and thus still opt for court litigation.[14]

Since Tanzania is a signatory of the New York Convention of 1958, there is a need of promoting the field of commercial arbitration in order to have effective and efficient system of resolving commercial dispute which reflects with the current global development and may also attract business and investment.

1.4. Statement of the problem

The use of commercial arbitration in Tanzania is still limited. Most of the people are not aware of the use arbitration and thus opt for court litigation and certainly causes most of the courts to be congested. But arbitration is effective, neutral and confidential as a suitable means of solving commercial disputes in economic sector.

Therefore, it is the aim of this dissertation to find out as to why the use of commercial arbitration as a mechanism of dispute resolution is not effectively utilized in Tanzania despite of the country being a signatory of the New York Convention of 1958 since 1964.

1.5. Significance of the study

This research intends to explore on the laws governing commercial arbitration in Tanzania. In the course of exploring those laws, comparison will be made in line with the laws governing international commercial arbitration particularly the UNICTRAL Model law and the New York Convention on Enforcement of Foreign Arbitral Awards.

It is the aim of this study also to analyze as to what extent the use of arbitration as an alternative disputes resolution is utilized in Tanzania. In relation to this, the practice of commercial arbitration will be examined so as to see whether it is conducted according to the required laws.

It is also expected that this study will be useful to legal practitioners, arbitrators and professional association in promoting the development of commercial arbitration in Tanzania.

This study is important because will provide an input in the review and where necessary enactment of new legislation adopting the UNCITRAL Model Law.

1.6. Hypothesis

This research is based on the hypothesis that arbitration is the most effective mechanism of solving disputes in Tanzania in particular commercial disputes and thus there is a need of making special initiatives to ensure that the system is effectively utilized for the purposes of increasing economic activities also.

1.7. Objective of the study

The objective of the study is to raise awareness to legal practitioners, professional association and the public that arbitration is effective mechanism of solving commercial disputes.

To assist lawyers and arbitrators in advising the government and professional association on the review of the existing laws so as to reflect with the current development trend.

1.8. Scope

The scope of this study covers the laws governing commercial arbitration in international perspective and domestic laws of Tanzania. On international perspective, two international instruments will be discussed namely the UNCITRAL Model Law of 1985 and New York Convention of 1958.

The research also intends to find out whether Tanzania laws governing commercial arbitration are compatible to international stands particularly the UNCITRAL Model Law of 1985 and the New York Convention of 1958.

This study will not cover the area of investment arbitration though it is a part of commercial arbitration, the reason behind is that there is no accurate data regarding investment arbitration in Tanzania. Most of the disputes relating to investment arbitration are referred to international institutes such as ICSID.

This situation is apparently attributed with two factors; in the first place there is no specific law addressing on the settlement of investment arbitration, and secondly, the arbitral institutes are not well established to meet the needs of international standard.

1.9. Limitation of the study

The limitations of this study are: Primary data collection in Tanzania was mainly limited with time and thus a limited number of people were approached, mainly the arbitrators, practicing advocates, few High Court judges and University lectures. There are very few literatures on arbitration and no books were published regarding the system of arbitration in Tanzania.

1.10. Research Methodology

In the course of doing this research the following two methods were used namely;

1. Documentary review which involves the use of library research for relevant books, journals, legislation, various reports and other materials from the websites.

2. Field research in Tanzania for the purpose of collecting primary and secondary data which are not available in the library and on-line.

This involved the distribution of questionnaire and an oral interview to lawyers, academic’s in the legal field, arbitrators and judges so as to get their views on the laws and practice of commercial arbitration in Tanzania. A copy of questionnaire is attached as annex and marked as appendix “A” respectively.

Bibliography

BOOKS

Asouzu A. Amazu, International Commercial Arbitration and African States, (United Kingdom: Cambridge University Press, 2001)

Binder Peter, International Commercial Arbitration in UNCITRAL Model Law Jurisdiction, (London: Sweet & Maxwell, 2000).

Boyd .M.M. Stewart, Commercial Arbitration 2nd Edition, (Butterworth, London, 1989).

Born B. Gary, International Commercial Arbitration: Commentary & Materials 2nd Edition, (The Hague, Kluwer Law International, 2001).

Bruce Harris, Rowan Planterosse & Jonathan Tecks, The Arbitration Act 1996: A Commentary: (London, The Charted Institute of Arbitrators 1996).

De Berg Jan Van (Ed), New Horizons in International Commercial Arbitration & Beyond: ICCA International Arbitration Congress Series No. 12, (The Hague, Kluwer Law International, 2005)

De Berg Jan Van (Ed), 50 Years of the New York Convention – ICCA, International Arbitration Conference Series No.14 (The Hague, Kluwer Law International, 2009).

Dore Isaak, The UNCITRAL Framework for Arbitration in Contemporary Perspective: (United Kingdom, Graham & Trotman Limited, 1993).

Eugene Cotran &Austin Amissah, Arbitration in Africa, 2nd LCIA Series (The Hague, The Netherlands, 1996).

Grand Hanessian & Lawrance W.Newman (eds), International Arbitration Checklists, 2nd Edition, United States of America, 2004).

Huleatt Mark & Gould Nicholas, International Commercial Arbitration Handbook: (London, LLP Limited & Business Legal Publishing Division, 1996).

Jean – Francois Poudret Sebastien Besson, Comperative Law of International Arbitration, 2nd (London: Sweet and Maxwell, 2002).

Julian D.M Lew & Loukas A. Mistelis, (Eds) Arbitration Insights: Twenty Years of Annual Lecture of School of International Arbitration, (The Netherlands, Kluwer Law International, 2007).

Moses, M.L, Principles and Practice of International Commercial Arbitration, (New York, Cambridge University Press, 2008).

Mustill, M.J & Boyd S.G, Commercial Arbitration, 2nd Edition, (London: Butterworths, 1989).

Newman L.W&Hill R.D, (Editors) The Leading Arbitrators Guide to International Arbitration, (United States of America, Juris Publishing Limited, 2004).

Park, W.W, Arbitration and Mediation in International Business, 2nd Edition (The Netherlands: Kluwer Law International, 2006).

Petsche, Markus .A The Growing Autonomy of International Commercial Arbitration, (German: Seller European Publishers, 2005).

Redfurn and Hunter, Law and Practice of International Commercial Arbitration, 4rd Edition, (London: Sweet and Maxwell, 2004).

Tweeddale A. & Tweeddale,K, Arbitration of Commercial Disputes: International and English Practice, (United Kingdom: Oxford University Press, 2005).

Walton Anthony, Russell on Arbitration 7th Edition (London, Stevens &Sons Limited, 1963).

Sarcevic Petar (Ed) Essay on International Commercial Arbitration, (London: Graham & Trotman Limited, 1989).

Schafer, Verbist &Imhoos, ICC Arbitration in Practice, (The Hague: Kluwer Law International, 2005).

JOURNALS

The International Journal of Public and Private Arbitration “Arbitration in Tanzania” 2008

LEGISLATION

Arbitration Act, (Cap 15 of Laws of Tanzania (Revised Edition of 2002).

Tanzania Civil Procedure Code (Amendment of the Schedules) Rules, Government Notice No. 422 of 1994.

Proposed Bill of Arbitration Act, 2002.

Tanzania Arbitration Rules, 1957.

Tanzania Institute of Arbitrators Rules Revised in 2008

Arbitration Rules, National Construction Council Revised in 2001

UNCITRAL Model Law on International Commercial Arbitration, 1985. ( As amended 2006).

UNCITRAL Arbitration Rules, 1976.

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

Convention on the Settlement of Investment Dispute Between the States and Nationals of Other States of 1965.

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[1] Redfurn & Hunter, “Law and Practice of International Commercial Arbitration” (4rd Edition, London: Sweet & Maxwell, 2004. Pg1

[2] Paper presented in United Nations Conference in Geneva and New York 2005 “Dispute Settlement: International Commercial Arbitration “, pg 20 (www.unctad.org).

[3] Ibid pg 22

[4] Article on international Commercial Arbitration and Enforcement of foreign arbitral awards by Inaamul Hague & Naeem UllahKhan -www.scidb.com/doc/intrnational-commercial arbitration. Pg1

[5] E. Onyema in Egypt on “Empowering Africa in the 21st Century Through Arbitration and ADR” Workshop presentation Paper on Arbitration and ADR in Africa, (Egypt, July 2008)- www.soas.ac.uk

[6] Eugene Cotran &Austin Amissah, “Arbitration in Africa”, 2nd LCIA Series (The Hague, The Netherlands, 1996).pg4

[7] Article by Norton Rose Group “Arbitration in Africa”- www.nortonrose.com-june 2007. Pg.2

[8] Ibid

[9] Martin Donke “ The Law and Practice of Commercial arbitration “ pg 1

[10] Mark Huleatt James a& Nicholas Gould “Dispute Resolution Guides : International Commercial Arbitration Handbook pg 1

[11] Avtar Singh “Law of Arbitration and Conciliation 7th ed pg 12

[12] Berg De Van Jan Albert (ed) “ New Horizon in International Commercial Arbitration and Beyond ICCA International Arbitration Congress Series No. 12 – pg 9

[13] Mark Huleatt James &Nicholas Gould “ International Commercial Arbitration Handbook” pg.5

[14] Article by Norton Rose Group “ Arbitration in Africa” pg 2- www.norton rose.com, June 2007