The Different Position of the Respondent in Arbitration
A respondent during the process of arbitration is under the different position from the creditor whose debtors does not possibly has the money. Despite the fact one regularly hears, the process of arbitration is considered as expensive. If the debtor has less amount of assets, the creditors might choose not to sue the debtor which in this case the creditor will at least not throw a good amount of money after incurring bad amount[1]. By contrast the respondent under this case Massive Resorts Ltd is sued during the process of arbitration by a claimant who does not has money to lose in any circumstances. If the respondent Massive Resort Ltd ignores the claim in the arbitration process, it is probable that an unfavourable award may be made. Such kind of award may be made enforceable across the world in pursuant to the Scottish Law. However, it is worth mentioning that if the respondent under this case decides to defend an action this will turn out to be entirely expensive. Hence, without the help of “security for cost” the cost involved in defending the action may not be considered as recoverable.
The claimant is on the edge of bankruptcy and wishes to sue in arbitration. The claimant wants to capitalize its claim against the respondent in the form of assets on its balance sheet in order to prevent deposit in its balance sheet. There is a circumstance of in-built incentive to commence arbitration[2]. To re-establish the balance under such situations, security for cost forms a noteworthy solution in favour of the respondent. Against ordering the cost the defence often cited that granting security for cost puts the respondent’s potential creditor for cost at an advantage in contrast to other creditor. The policy laid down under the bankruptcy law is aimed at setting the creditors at least in same category on equal footing.
This is especially not convincing since the claim laid down by the creditor during the arbitration process will have an outcome. Upon being successful an increase in the asset of the claimant will work in favour of the creditor, particularly if the claimant has only few assets. It is not regarded as unfair since all the potential creditors can secure the cost associated with this potential benefit. In addition to this, the commercial creditors Nightingale being a bankruptcy party have endowed their trust in the bankruptcy in such a way that the respondent did not[3]. The respondent upon the commencement of arbitration does not has choice but either lose or become an award debtor or turn out to be unsecured creditor of the bankruptcy for cost.
Importance of Security for Cost for Respondent
According to the international applications for security for costs, one of the best practices concerning the commercial arbitration is that matters, which are important in the considerations of an application for security of cost, should be considered in conjunction with the guidelines. For the purpose of security for cost, any costs incurred in arbitration should be considered in the form of legal cost of the parties along with the arbitration expenses at the time of instituting arbitration. Based on the terms of the appointment the governing laws states that the parties to the agreement may be ordered by the arbitrator to reimburse the reasonable amount of legal cost and expenses, which is incurred by the winning parties. Such kind of cost shifting by the winning parties to the party losing can turn out to be an effectual instrument for dispiriting the concerned parties from advancing the weak claims or defences. However, it is noteworthy to denote that the perils of an unfavourable cost order does not holds any consequences if the party against whom it is likely to made and does not has the funds to reimburse for expenses or no assets against which the order can be made. For that reason, arbitrators may under the “interim measurement” require a party to bring a claim or counter to offer security for goods. The counter claims arise when the claiming party does not pay the costs awarded against it.
The rules stated under most of the arbitral institution are based on the common law jurisdiction and a large number of those is based on the national laws. Referring to the current case study, the payment of securities on cost in regard to the “Article 10 paragraph 3” the arbitral tribunal may make a request on the additional securities on cost during any time of arbitral proceedings. The arbitrator can make the continuation of the arbitral proceedings, which is subjected to payment of additional advances. Both Massive Resort Ltd and Nightingale Ltd are jointly and severally is responsible to the arbitral tribunal relating to the cost of tribunal along with the payment of the securities on costs. It is noteworthy to denote that a party within the fixed period of time limit pays its entire share equally relating to the security for cost as requested from the parties by the arbitral tribunal about article 10 paragraph 3.
As stated under “article 25 paragraph (2) C” the party to the contract loses its right to pay back the costs incurred for its lawful depiction. The arbitral tribunal under the case of Massive Ltd and Nightingale Ltd may take into the consideration the account at the time of rendering its decision based on cost in pursuant to the “article 25 paragraph 5”[4]. Under this case, the party is required to pay the unpaid amount of share of security cost within thirty days of the receipt of notification from the arbitral tribunal. However, it should be noted that on the termination of the arbitration, the arbitral tribunal is responsible for the cost arbitral proceedings. The arbitral tribunal makes the use of paid securities on cost in order to pay for the cost incurred during the process of arbitration. It pays back the amounts, which is not spent by the parties.
Policy Aimed at Setting Creditors on Equal Footing
As laid down under the international arbitration, at the time of evaluating the fiscal situations of the claimant, the arbitration tribunal should take into the consideration that the parties have decided on certain point of time to submit the disagreements which arises amid them for arbitration[5]. Because of this, it might not be sufficient that funded claimant is probably unable to pay the potential costs, which are awarded, to them. Instead the tribunal under the case of Massive Resort Ltd and Nightingale will have to consider the monetary conditions of Nightingale has substantially and unforeseeably changed since the closure of the arbitration agreement. The defendant knows that the claimant is struggling when complying to the arbitrate dispute with the claimant is unable to obtain the security for costs.
The likelihood that the credit standing of occupational partner fluctuates over the period of time however it forms the part of commercial risk. Under the current case of Massive and Nightingale, the arbitrator is faced with application for security for cost in relation to the counterclaim[6]. The arbitrator is under the obligation to determine the nature of counter claim and must assess the merits of such kind of counterclaims. However, it is noteworthy to denote that if the counter claim brings forward the matter, which is different from the claim or significantly goes beyond the claim then the security can be ordered for cost the cost of defending the counterclaim. Therefore, specific security must not be ordered in those areas where inseparable from is associated with the original claim.
Upon considering the issues of Massive Ltd and Nightingale Ltd the arbitrators must be extremely careful of not prejudging and predetermining the merits of the case. The threats possessed is that if the arbitrators takes into the considerations the merits pertaining to this case before the substantive hearing they may compromise their impartiality and might prohibit themselves from proceedings. Arbitrator should not taking into the consecrations the merits in detail as it is not likely that there will be sufficient materials to do so as it would be expensive and time consuming[7]. As an alternative, the arbitrator in the case of Massive should limit their assessment in determining whether it is a prima facia claim made in the good sense of the prima facia defence made in the form of good faith.
If the opinion of the tribunal is based on preliminary view that a claim has reasonably good prospect of succeeding which in this case is Nightingale the arbitrators might conclude this factor in the form of security. Conversely, if the arbitrator holds a preliminary opinion that the defence has reasonably has better chances of succeeding, and then they can conclude it is that such factors is favouring the order for security. However, if the arbitrator concludes that parties to the case have reasonable amount of good arguable case, then they may take into the consideration that these factor is not helpful in determining the order for security. In majority of the cases, considerations of this factor is not determinative and it is necessary in determining out the supplementary factors laid down in the claimant ability to satisfy the cost of adverse cost award.
Best Practices Concerning Security for Cost
At the time of evaluating the consequences of this case, it seems significant in avoiding the confusion of security order with respect to the defendant appointed arbitrator in assenting the objective since it does not forms the part of the order. The purpose behind the order is to protect the right of the claimant in recuperating the lawful cost against the respondent, which has admitted that it would not be able to pay[8]. This forms the conclusive fact in determining the outcome of the case since the tribunal could view the claimant’s past conduct in the form of satisfactory indication of bad faith. The case study additional sets down that the tribunal viewed the past conduct of the respondent in the form of sufficient evidence of bad faith. The tribunal furthermore lays down that the third party funding cannot ease the concerns that the applicant will again default on the payment. This is because the responsibly of the fund provider was not certain. Unlike what is alleged on numerous occasions, nothing in the verdict supports the notion of ordering security imbursement whenever the third party funding is existence.
As laid down in “Article 17”, the arbitral tribunal might perform the process of arbitration in such a manner, which it deems suitable. The tribunal assures that the parties to the contract are treated in equal manner so that an appropriate stage of proceedings is carried out for each of the party by providing judicious prospect of awarding its case. The arbitral tribunal at the time of exercising its discretion shall conduct the proceedings in order to avoid the unnecessary delay and expenditure. “Article 17” of the general provision states down that a fair and efficient procedure should be adopted in resolving the dispute concerning the parties.
As far as feasible after its constitution, the parties will be invited to voice their views by stating that the tribunal will institute the temporary schedule of the adjudication. The arbitral tribunal may invite the parties to articulate their views, expand or shorten during any period the prescribe rules upon agreement[9]. Hence, it was decided that Massive failure in dealing with the expenses did not render an award, which is reducible because the submission was yet to get exhausted. It is viewed that there is no sound basis of proposition is available to imply over the power to deal with the claimant cost of security and can only be implemented after the end of the process of arbitration. It is opinion that the arbitrator has implied the authority to deal with the cost of security and Massive is liable to pay for the amount which is withheld by him.
Application of Security for Cost in Commercial Arbitration
Pursuant to the aforesaid case of Massive and Nightingale the appeal was placed for hearing regarding the matters concerning withholding of payment of 3,000,000. As the matter raised in the orientation is pristinely lawful, however it is not essential to refer to the facts of the appeal. The issue notices the very essential facts, which leads to the filing of the appeal. The contract was performed amid the plaintiff and the defendant under which the complainant was to install fountains at Kubla Park. The agreement also included arbitration clause for dispute resolution ascending out of the agreement. The arbitration clause consisted of “Article 17 and 22 where article 17.1” stated that any kind of dispute or claim arising out of the agreement shall initially be settled amicably by negotiation between the two parties. However, if the parties fails to reach a settlement then they shall be entitled to arbitration in regard to Scottish arbitration law.
In the current as “article 17.2” lay down that the arbitration proceedings should be executed out by two arbitrators one appointed by Massive and the other being appointed by Nightingale. The findings and award as laid by the court of Arbitration shall be ultimate and it will be obligatory upon the parties[10]. The aforementioned clause highlights by the reason that an agreement was formed amid the parties, which governs the rule of contract prevailing at the time of formation of contract. However, the settlement process between the parties for settlement of rights and duties under the contract was through the arbitration. The main cause of dispute the parties were with respect to the presentation of the agreement. The claimant was made by plaintiff for return of its venture for the installation of fountains. The respondent under this case made the claim for unclaimed instalment along with the interest and compensations for the breach of the intellectual property rights.
Negotiations to reach a certain payment of the disagreements amid the parties were considered as ineffective and the respondent issued a written notice containing a appeal for arbitration to the appellant[11]. The main reason, which led to dispute, was that the respondent submitted the request for statement for defence beyond the time limit, which the tribunal should reject. The financial conditions of the claimant did not unexpectedly deteriorated ever since Massive and Nightingale entered into the agreement. The claimant low amount of financial situation was due to the participation in the project of Kubla Park. A large extent of the blame was on the tight situation of the current cash flow. The financial statement of the claimant’s reflects total assets of around $35,000,000 and there could still be enough to satisfy the any cost of adverse award[12].
Assessment of Merits in Security for Cost
The issue that has been emanated in the current case for considerations consist of appeal obtained through factual matrix, particularly in the nature of the arbitration clause. Subject to the agreement formed between the parties, the arbitral tribunal after the appointment of the arbitrator regulates the application of statement of claim and the statement of defence. The arbitral tribunal may order for the statement of financial statement of Nightingale in order to assess the total assets occupied to the “statement of claim” or “statement of defence”. It is noteworthy to denote that the parties to determine arbitral proceedings shall accompany any kind of supplementary documents.
The claimant in this case is under the obligation to communicate the arbitral tribunal should determine its statement of claim in written form to the respondent within the stipulated period of time, which is[13]. The claimant shall further attach the copy of agreement or other lawful instrument in association with the disagreement along with the arbitration agreement with the statement of claim. It is noteworthy to denote that the statement of claim for Massive Ltd should consist of the all documents and other kind of evidence depended upon the claim in context to the arbitration reference. Therefore, the claimant shall accompany a copy of contract along with the other lawful instrument arising out of or in course of the argument and of the arbitration, agreement should be occupied to the statement of claim.
The defendant shall be liable to communicate its statement of defence in writing to the applicant and to all the arbitrators inside the period by the arbitral tribunal. As stated under article 4 of the statement of defence the respondent should designate to treat its response in the notice of arbitration[14]. It should be noted that the reply to the notice of arbitration is in agreement with the requirement of “paragraph 2 of the article”.
The statement of defence will act as reply to the statement of claim. The statement of defence should be as far as conceivable be escorted with the all documents and other evidences relied upon the defendant reference to claim. In the statement of defence, or during the later stages of tribunal minutes if the tribunal thinks that the cause of delay was justified then under the situation the plaintiff has the opportunity of making counterclaim. In addition to this, a claim for the purpose of set-off can be availed if the arbitral tribunal has jurisdiction over it[15]. Under the given case of Massive resort Ltd and Nightingale Ltd will not be able to avail the statement of claim since there was no sufficient cause of delay. Thus, the respondent submitted the request of introducing the statement of claim for more than one month after the prescribed delay, therefore tribunal should reject the request by stating it as belated request.
Avoiding Confusion with Defendant Appointed Arbitrator
As stated under the “Article 22 Amendments” to the claim or defence can be made during the process of arbitration. The party may alter or complement its claim or defence by taking into the considerations for setting off except the arbitral tribunal deems inappropriate which can facilitate amendments or supplement in relation to the postponement in making decision or prejudice to other parties[16]. However, it is noteworthy to denote that the claim or defence also involves counterclaim or entitlement with the objective of setting of might not be amended in such manner that falls outside the jurisdiction of the arbitral tribunal.
As stated under the article 36 if before an award is made, the parties decide on settlement of dispute, the arbitral tribunal may moreover issue an order for the cessation of the arbitral events. It may also make a request to concerned parties to accept the arbitral tribunal in the form of an arbitral award based on the agreed terms[17]. The arbitral tribunal is not indebted to provide explanations for making an award. Referring to the case of Massive Resort Ltd and Nightingale Ltd before making an arbitral award the continuation of arbitral proceedings becomes necessary. The arbitral tribunal in the current case shall inform the concerned parties to the disagreement of its purpose to issue an order for the cessation of the proceedings. The tribunal also has the power of issuing an order except there are outstanding matters, which may be needed to decide by the arbitral tribunal in the current case.
It appears accordingly that if one party to proceedings calls upon arbitration agreement the court does not has the discretion to refuse the cause since the agreement raised by Nightingale is valid. The issue stated that it is not discretionary and it is capable of being performed. In order to recall and revive the litigation under these situations it would involve the court not only revising the previous decision but also nullifying the agreement to arbitrate[18]. Prima facia to the case it is noteworthy to denote that the court has the duty of not only acting upon the agreement by maintaining the litigation until the arbitration. If the claimant has failed to play their part in initiating the process of arbitration with the time for arbitration has run out then would hold no meaning. It would only represent that the claimant has elected not to pursue the method of dispute resolution, which it had to oblige themselves exclusively to employ.
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