A look at party autonomy in international commercial arbitration from the Delocalization Theory [Article]

Introduction

One of the first methods of resolving disputes outside of typical judicial proceedings is arbitration. The Greek philosopher Aristotle said that “it is equitable to agree to arbitration rather than going to court because the umpire in an arbitration looks to equity while the juryman sees only the law. It is also equitable to be willing that a dispute be settled through discussion rather than force. In fact, arbitration was designed so that equity might have the final say.”

Justice William Douglas offered support for this school of thought when he said, “An important component of the rights underlying a cause of action is the nature of the tribunal where suits are tried. The final outcome could vary significantly if an arbitration panel replaces a court of law.”

Significantly, arbitration is another name for conflict resolution. Since the beginning of time, it has shown to be a successful substitute for litigation. But as alternative dispute resolution (ADR) has evolved into its modern form and techniques like mediation and negotiation have been introduced, arbitration has become more popular, particularly in commercial dispute resolution.

Delocalization theory argues that arbitration proceedings should be free from any intervention by local laws and courts of the seat of arbitration. Only domestic courts and laws that can intervene are the courts and laws of the place of enforcement.

However, the doctrine of party autonomy gives parties to an international commercial agreement the power to freely select the laws that will govern the tribunal and the law that will govern the parties’ conduct.

In light of the above, the aim of this article is to examine how domestic courts and laws interact with the doctrine of party autonomy in international commercial arbitration.

What is party autonomy?

First, according to Halsbury’s definition, arbitration is defined as “the preference of a dispute or difference between not less than two parties for determination by a person other than a court of competent jurisdiction, after hearing both sides in a judicial manner.” An agreement to accept and abide by the decision of a chosen group of people in a disputed matter rather than bringing the case before recognized justice tribunals is known as arbitration. Its purpose is to avoid the formalities, delays, costs, and frustrations associated with regular litigation.

In international commercial arbitration, party autonomy refers to the authority granted to the parties to choose the laws (both substantive and procedural) that will govern the proceedings. This independence improves the certainty and predictability.

It would guarantee the confidentiality of the arbitration procedures while acknowledging the autonomy of the parties in international arbitration. As a result, it would give the parties and the arbitral tribunal complete authority to decide how the proceedings should be carried out, with the caveat that all parties must be treated equally and have an equal opportunity to present their cases.
Origin of party autonomy

During the medieval period, lex mercatoria was the body of commercial law used by merchants throughout Europe to govern commercial transaction. Party autonomy is the most essential feature in lex mercatoria. In this commercial transaction, the parties’ agreement may constitute a contract to refer disputes which have arisen or may arise in the future between them to arbitration for resolution. In that case, the freedom of the parties to consensually execute the agreement in international commercial transaction to arbitration is what is referred to as the principle of party autonomy. “Subject to the provisions of this law, the parties are free to determine the procedure to be followed by the arbitral tribunal in conducting proceedings,” according to the UNCITRAL Model Law on International Commercial Arbitration.

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards is known as the New York Convention. The convention recognizes party autonomy in the agreement made in writing by the parties where they agree to submit to arbitration, whether the dispute arises presently or in the future. Therefore, the parties must voluntarily submit the arbitration agreement in writing and provide the original copy of the agreement in order for the arbitral awards to be recognized and enforced.

Party autonomy is the idea that gives the arbitral process flexibility. Prior to the choice of law in contracts and commercial agreements, the concept of party autonomy began to take shape in the 19th century. The written arbitration agreement gives the arbitral tribunal in international commercial arbitration the authority to freely select the law that will govern the tribunal and the law that will govern the parties’ conduct in the arbitration.

Section 49(1) of Act 798 states that “party autonomy is the most essential feature of arbitration.” Act 798 expands on the aforementioned provision by stating, among other things, that the parties are free to select the location and number of arbitrators for the arbitration. Furthermore, the language to be used in the arbitration proceedings may be agreed upon by the parties.

Intervention of Ghanaian laws

The principle of party autonomy in commercial arbitration although guarantees freedom of parties to choose the laws to determine the proceedings of the arbitral tribunal, however is not absolute. It should be noted that it is restricted by some domestic laws.

To begin with, article 181(5) of the Constitution provides that international business and economic transaction to which the Government of Ghana is a party, parliament must approve otherwise the transaction is a nullity. What this means is that where a contract violates article 181(5), regardless of the Government’s bad faith, the Government must be reimbursed and consequently, no remedies will be available from it.

Further, according to Act 798, a party dissatisfied with the arbitrator’s ruling on jurisdiction may on notice to the arbitrator and the other party apply to the appointing authority or the High Court for a determination of the arbitrator’s jurisdiction.

Also, the appointment of an arbitrator may be revoked by the High Court. And the High Court has the power to determine a question of law that arises in the course of proceedings.

The principle of party autonomy is impeded by the Court’s intervention with the arbitral tribunal. These restrictions could not only be detrimental to the proceedings, but may not ensure that the arbitration processes produce fair results.

Intervention of Ghanaian courts

In international commercial arbitration, the courts have had the chance to rule on party autonomy. I would like to move on to a discussion of those cases.

1. Attorney-General v Balkan Energy & 2 Ors [2012] 2 SCGLR

Government of Ghana entered into a Power Purchase Agreement (PPA) with Defendants. Subsequently, a dispute arose between the parties to this PPA. This dispute led to the first defendant, Balkan Energy (Ghana) Ltd, initiating an arbitration proceeding against the Government of Ghana at the Permanent Court of Arbitration in the Hague, The Netherland. At the proceedings, the Ghana government raised the point that the PPA needed parliamentary approval under article 181(5) of the 1992 Constitution, but that this approval had not been sought and therefore the PPA was invalid.

The Government of Ghana argued before the arbitration tribunal that non-compliance with the constitutional requirement does not only makes the PPA invalid but the arbitral tribunal had no jurisdiction over the dispute before it. However, the arbitral tribunal held its grounds of jurisdiction but expressed it willingness to take account of the Ghanaian Court interpretation of the constitutional provision. Later, upon application by Attorney-General to the Supreme Court to seek the interpretation and enforcement of article 181(5), the apex court set aside the arbitral award against the Government of Ghana. The court was of the opinion that even though Balkan Energy Ghana Ltd is incorporated in Ghana, the entire agreement leading to the arbitral award against Ghana is unconstitutional and unenforceable for breach of article 181(5).

The Supreme Court shielded the government, a part-taker in the illegality, from facing the consequences of its actions or inactions.

2. Republic v High Court Commercial Division Accra; Ex Parte GHACEM Limited (AJ Fanj Construction and Engineering Limited Interested Party)

In this case, GHACEM Limited was added to the arbitration as a non-signatory party, and the High Court’s decision to that effect was challenged through a certiorari application. Certiorari was granted by the Supreme Court in order to overturn the High Court’s ruling.

The Court held that:

The decision of the High Court contained patent errors of law on the face of the record, which went to jurisdiction on the basis of Section 40 of the Act 798. The court emphasized that its supervisory jurisdiction should only be invoked in cases where there are manifestly plain and obvious errors of law such as this case.

Hence, the decision of the High Court was quashed. To that extent, it can be said that the court somewhat respects party autonomy in arbitration.

3. Mining and Building Contractors Limited vs. Anglogold Ashanti Ghana Limited

The parties signed a “SEPARATION AGREEMENT,” which said that disagreements would be resolved through arbitration. However, the plaintiff argued that the agreement should be declared void and annulled.
The Court held that:

The Separation Agreement expressly states that arbitration will be used to settle any disagreement regarding the legality of either the arbitration agreement contained within or the agreement itself. The parties’ agreement to submit certain disputes to arbitration, as specified in section 20.2 of the Separation Agreement, was established at the time of the parties’ signature appendix.

Conclusion

The Ghanaian jurisdiction views party autonomy as essential to the success of international commercial arbitration. Estoppel demands parties that have signed a business agreement to submit any disagreement to arbitration shall follow through on it, barring vitiating circumstances. The law stipulates that an arbitration agreement must be in writing and that it must be voluntary. This highlights the sanctity of the agreement.

However, it is not certain that the Ghanaian courts will support the doctrine of party autonomy in international commercial disputes.

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