Commercial Arbitration notes

Commercial Arbitration

  • Meaning of commercial arbitration
  • Importance of arbitration in an organisation
  • Awards given in arbitration


Alternative dispute resolution (ADR) includes dispute  resolution processes and techniques  that act as a means for disagreeing parties to come to an agreement short of litigation. It is a collective term for the ways that parties can settle disputes, with the help of a third party.


The following principles shall apply in Alternative Dispute Resolution (ADR) implemented for contested cases:

  1. Voluntary

The parties usually must agree to submit their dispute  to mediation or early neutral evaluation. an alj, however, may require parties to attend facilitated workshops, settlement conferences, or meet with a neutral to explore the feasibility of mediation.

  1. Timeliness

ADR should shorten, not prolong, proceedings. but even if a negotiated settlement takes longer, the result may be more beneficial to all.

  1. Good faith

Those who engage in adr should do so in an attempt to reach agreement–not to delay or secure tactical advantage.

  1. Confidentiality

Most ADR processes require confidentiality so that the parties’ fundamental interests can be explored.

Benefits and disadvantages

ADR has several advantages over litigation:

  • Suitable for multi-party disputes
  • Lower costs
  • Likelihood and speed of settlements
  • Flexibility of process
  • Parties’ control of process
  • Parties’ choice of forum
  • Practical solutions
  • Wider range of issues can be considered
  • Shared future interests may be protected
  • Confidentiality
  • Risk management

However, ADR less suitable than litigation when there is:

  • A need for precedent
  • A need for court orders
  • A need for interim orders
  • A need for evidential rules
  • A need for enforcement
  • Power imbalance between parties
  • Quasi-criminal allegations
  • Complexity in the case

There are three main types of dispute resolution currently in use:

  1. Arbitration
  2. Mediation
  3. Negotiation

Advantages of resolving commercial disputes

  1. Resolving a commercial dispute provides an opportunity to:
  2. Remedy an unwanted commercial situation
  3. Present your side of the argument
  4. Remedy an injustice
  5. Learn lessons about the way your business is run
  6. Appear strong, principled and

Disadvantages of resolving commercial disputes

There are few drawbacks to actually resolving disputes, but during the process some or all of the following problems might arise:

  1. Financial expense
  2. Increased stress and pressure
  3. Senior executives’ time being taken up by the dispute
  4. Bad publicity

Options for resolving your dispute ARBITRATION

This is an out of court method of settlement of civil disputes by arbitral tribunals which make arbitral awards as opposed to judgments.

The law relating to arbitration in Kenya is contained in the Arbitration Act2,. Under the Act, an arbitration agreement is an agreement between parties to refer to arbitration all or certain disputes arising between them.

Principles of Natural Justice in Relation to Arbitration proceedings are a fundamental requirement of justice in deciding a dispute between two or more parties.

Firstly, that the arbitrator or the tribunal must be and must be seen to be disinterested and unbiased. Secondly, every party must be given a fair opportunity to present his case and to answer the case of his opponent.

The first principle is embodied in Section 13 of the Arbitration Act which provides that  when a person is approached for appointment as an arbitrator he must disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. That duty on the part of the arbitrator is a continuing duty right from the time that he is approached through to the time he accepts appointment, conducts the reference, and renders his award.

So under Section 13(2) the arbitrator is obliged through the arbitral proceedings to disclose without delay such circumstances.

The arbitrator must be on his guard with respect to connections with a party or connections  in the subject matter of dispute or connections with the nature of the dispute. And the test  that the arbitrator must always bear in mind is whether a reasonable person not being a    party to the dispute would think that the connection was close enough to cause the arbitrator to be biased.

An arbitration agreement must be written, it may take the form of a detailed agreement or a clause in the agreement.

The Arbitration Act governs national and international disputes.

Methods of reference to arbitration

 A dispute may be referred to arbitration by:

  1. The parties to the agreement
  2. An Act of Parliament
  3. A court of law with consent of the parties to the

Arbitrators may be appointed by:

  1. The parties to the dispute
  2. A third party as agreed to by the parties
  3. The High Court on application

Under section 12 (1) of the arbitration Act, the High Court may appoint an Arbitrator on application if:

  1. The parties cannot agree as to who the single arbitrator shall be
  2. In the case of two arbitrators, either party has failed to appoint an arbitrator within 30 days of receipt of the parties notice to do
  3. The two arbitrators fail to appoint a 3rd arbitrator within 30 days of their appointment.

Powers of the arbitrator

  1. To determine whether it has jurisdiction to hear the
  2. To provide interim relief or remedies where necessary
  3. To demand security from either party
  4. To determine the admissibility of evidence
  5. To administer oaths
  6. To examine persons on

Duties of the arbitrator

  1. Once the arbitrator is pointed, he must enter upon his duties without undue delay. And if the terms of appointment dictate he must make an interim award, however, at the conclusion of the process he is bound to make a final
  2. The decision of the arbitrator is known as an award. It must be written setting out the reasons for the decisions. It must be by majority and must be signed by all It must specify the date and the place at which it was made.

Recourse to the high court

Under section 35 (1) of the Arbitration Act, the High Court has jurisdiction to set aside an arbitral award an application by either of the parties.

The award will be set aside if the court is satisfied that:

  1. One of the parties to the arbitration agreement had no capacity to enter into it.
  2. The arbitration agreement was invalid in
  3. The party was not offered sufficient notice for the appointment of a arbitral tribunal.
  4. The arbitral tribunal was not constituted in accordance with the terms of the agreement.
  5. The award relates to a dispute not contemplated by the
  6. The award is contrary to public policy of
  7. The dispute is incapable of resolution by

Once the award is set aside, the parties are free to file the dispute in a court of law. Arbitral proceedings may be terminated in the following ways:

  1. The making of the final award
  2. Withdrawal of the complaint
  3. Mutual consent of the

Advantages of arbitration

  1. Cheap: It is relatively to see a dispute through arbitration hence a saving on cost on the part of the
  2. Speed: It is a faster method of dispute resolution in that the diaries of arbitrators are generally
  3. Convenience: Arbitral proceedings are conducted at the convenience of the parties in terms of venue, time, the law and language
  4. Informality: Arbitral tribunals are generally free from technicalities which characterize ordinary
  5. Expertise, knowledge and specialization: Parties are free to refer their dispute to the most specialized arbitrator in that
  6. Privacy / confidentiality: Arbitral proceedings are conducted in private free from public scrutiny. The parties enjoy the requisite
  7. Flexibility: Arbitral tribunals are not bound by previous decisions. This affords them the necessary room to
  8. It tunes down acrimony: Arbitral proceedings are less acrimonious and parties generally leave the proceedings closer than they would have been in the case of a court of law.

Disadvantages of arbitration

  1. Likelihood of miscarriage of justice: Arbitral proceedings may at times not guarantee justice, particularly if the question is complex and the arbitrator is not well versed in law.
  2. Arbitral awards have no precedential value e. cannot be relied upon in other disputes.
  3. Arbitral tribunals exercise unregulated


Mediation is an informal and confidential way for people to resolve disputes with the help of a neutral mediator who is trained to help people discuss their differences. The mediator does not decide who is right or wrong or issue a decision. Instead, the mediator helps the parties work out their own solutions to problems.

Benefits of mediation

1. Cost

While a mediator may charge a fee comparable to that of an attorney, the mediation process generally takes much less time than moving a case through standard legal channels. While a case in the hands of a lawyer or a court may take months or years to resolve, mediation usually achieves a resolution in a matter of hours. Taking less time means expending less money on hourly fees and costs.

2.      Confidentiality

While court hearings are public, mediation remains strictly confidential. No one but the parties to the dispute and the mediator or mediators know what happened. Confidentiality in mediation has such importance that in most cases the legal system cannot force a mediator   to testify in court as to the content or progress of mediation. Many mediators destroy their notes taken during a mediation once that mediation has finished. The only exceptions to   such strict confidentiality usually involve child abuse or actual or threatened criminal acts.

3.      Control

Mediation increases the control the parties have over the resolution. In a court case, the parties obtain a resolution, but control resides with the judge or jury. Often, a judge or jury cannot legally provide solutions that emerge in mediation. Thus, mediation is more likely to produce a result that is mutually agreeable for the parties.


4.      Compliance

Because the result is attained by the parties working together and is mutually agreeable, compliance with the mediated agreement is usually high. This further reduces costs, because the parties do not have to employ an attorney to force compliance with the agreement. The mediated agreement is, however, fully enforceable in a court of law.

5.      Mutuality

Parties to a mediation are typically ready to work mutually toward a resolution. In most circumstances the mere fact that parties are willing to mediate means that they are ready to “move” their position. The parties thus are more amenable to understanding the other party’s side and work on underlying issues to the dispute. This has the added benefit of often preserving the relationship the parties had before the dispute.

6.      Support

Mediators are trained in working with difficult situations. The mediator acts as a neutral facilitator and guides the parties through the process. The mediator helps the parties think “outside of the box” for possible solutions to the dispute, broadening the range of possible solutions


Qualities of the Mediation Process

Voluntary – You can leave at any time for any reason, or no reason.

Collaborative – As no participant in mediation can impose anything on anyone, everyone is motivated to work together to solve the issues and reach best agreements.

Controlled – Each participant has complete decision-making power and a veto over each and every provision of any mediated agreement. Nothing can be imposed on you.

Confidential – Mediation is generally confidential, as you desire and agree, be that by  statute, contract, rules of evidence and/or privilege. Mediation discussions and all materials developed for a mediation are generally not admissible in any subsequent court or other contested proceeding, except for a finalized and signed mediated agreement. Your mediator is obligated to describe the extent of mediation confidentiality and exceptions to that confidentiality. The extent of confidentiality for any “caucus meetings” (meetings between the mediator and individual parties) should also be defined.

Informed – The mediation process offers a full opportunity to obtain and incorporate legal and other expert information and advice. Individual or mutually acceptable experts can be retained. Expert advice is never determinative in mediation. The participants always retain decision-making power. Mediators are bound to encourage parties to obtain legal counsel and to advise them to have any mediated agreement involving legal issues reviewed by independent legal counsel prior to signing. Whether legal advice is sought is, ultimately, a decision of each mediation participant.

Impartial, Neutral, Balanced and Safe – The mediator has an equal and balanced responsibility to assist each mediating party and cannot favor the interests of any one party over another, nor should the mediator favor a particular result in the mediation. Your mediator is ethically obligated to acknowledge any substantive bias on issues in discussion. The mediator’s role is to ensure that parties reach agreements in a voluntarily and informed manner, and not as a result of coercion or intimidation.

Self-Responsible and Satisfying – Based upon having actively participated in voluntarily resolving issues, participant satisfaction and the likelihood of compliance are found to be elevated through mediation compared to court options.


Negotiation has been defined as any form of direct or indirect communication whereby parties who have opposing interests discuss the form of any joint action which they might take to manage and ultimately resolve the dispute between them. Negotiations may be used to resolve an already-existing problem or to lay the groundwork for a future relationship between two or more parties.

Negotiation has also been characterized as the “preeminent mode of dispute resolution”, which is hardly surprising given its presence in virtually all aspects of everyday life,   whether at the individual, institutional, national or global levels. Each negotiation is unique, differing from one another in terms of subject matter, the number of participants and the process used.

Given the presence of negotiation in daily life, it is not surprising to find that negotiation can also be applied within the context of other dispute resolution processes, such as mediation and litigation settlement conferences.

Characteristics of a negotiation

Negotiation is:

Voluntary: No party is forced to participate in a negotiation. The parties are free to accept or reject the outcome of negotiations and can withdraw at any point during the process. Parties may participate directly in the negotiations or they may choose to be represented by someone else, such as a family member, friend, a lawyer or other professional.

Bilateral/Multilateral: Negotiations can involve two, three or dozens of parties. They can range from two individuals seeking to agree on the sale of a house to negotiations involving diplomats from dozens of States (e.g., World Trade Organization (WTO)).

Non-adjudicative: Negotiation involves only the parties. The outcome of a negotiation is reached by the parties together without recourse to a third-party neutral.

Informal: There are no prescribed rules in negotiation. The parties are free to adopt whatever rules they choose, if any. Generally they will agree on issues such as the subject matter, timing and location of negotiations. Further matters such as confidentiality, the number of negotiating sessions the parties commit to, and which documents may be used, can also be

Confidential: The parties have the option of negotiating publicly or privately. In the government context, negotiations would be subject to the criteria governing disclosure as specified in the Access to Information Act and the Privacy Act (see confidentiality section). For general information on the privileged nature of communications between solicitor and client during the course of negotiations, please refer to the Department of Justice Civil Litigation

Flexible: The scope of a negotiation depends on the choice of the parties. The parties can determine not only the topic or the topics that will be the subject of the negotiations, but also whether they will adopt a  positional-based  bargaining approach or an interest-based

Advantages of negotiation

  1. In procedural terms, negotiationis probably the most flexible form of dispute resolution as it involves only those parties with an interest in the matter and their representatives, if any. The parties are free to shape the negotiations in accordance with their own needs, for example, setting the agenda, selecting the forum (public or private) and identifying the participants. By ensuring that all those who have an interest in the dispute have been consulted regarding their willingness to participate and that adequate safeguards exist to prevent inequities in the bargaining process (i.e., an imbalance in power between the parties), the chances of reaching an agreement satisfactory to all are
  2. Like any method of dispute resolution, negotiation cannot guarantee that a party will be successful. However, many commentators feel that negotiations have a greater possibility of a successful outcome when the parties adopt an interest-based  approach as opposed to a positional-based approach. By focusing on their mutual needs and interests and the use of mechanisms such as objective standards, there is a greater chance of reaching an agreement that meets the needs of the parties. This is sometimes referred to as a “win-win”
  3. Negotiation is a voluntary process. No one is required to participate in negotiations should they not wish to do
  4. There is no need for recourse to a third-party neutral. This is important when none of the parties wants to involve outside parties in the process, e.g., the matter to be discussed or the dispute to be resolved may be highly sensitive in
  5. Unlike the outcomes of certain adjudicative processes, e.g., the courts, the outcome of a negotiation only binds those parties who were involved in the negotiation. The agreement must not, of course, be contrary to Canadian law (e.g., an agreement to commit a crime would be illegal and thus void for public policy reasons).
  6. Assuming that the parties are negotiating in good faith, negotiation will provide the parties with the opportunity to design an agreement which reflects their
  7. Negotiations may preserve and in some cases even enhance the relationship between the parties once an agreement has been reached between
  8. Opting for negotiation instead of litigation may be less expensive for the parties and may reduce

Disadvantages of negotiation

  1. A particular negotiation may have a successful outcome. However, parties may be of unequal power and the weaker party(ies) may be placed at a disadvantage. Where a party with an interest in the matter in dispute is excluded or inadequately represented in the negotiations, the agreement’s value is diminished, thereby making it subject to future challenge. In the absence of safeguards in the negotiating process, the agreement could be viewed by a participant or others outside the process as being inequitable, even though the substance of the agreement may be beyond
  2. A successful negotiation requires each party to have a clear understanding of its negotiating mandate. If uncertainty exists regarding the limits of a party’s negotiating authority, the party will not be able to participate effectively in the bargaining
  3. The absence of a neutral third party can result in parties being unable to reach agreement as they be may be incapable of defining the issues at stake, let alone making any progress towards a
  4. The absence of a neutral third party may encourage one party to attempt to take advantage of the
  5. No party can be compelled to continue negotiating. Anyone who chooses to terminate negotiations may do so at any time in the process, notwithstanding the time, effort and money that may have been invested by the other party or
  6. Some issues or questions are simply not amenable to negotiation. There will be virtually no chance of an agreement where the parties are divided by opposing ideologies or beliefs which leave little or no room for mutual concessions and there is no willingness to make any such
  7. The negotiation process cannot guarantee the good faith or trustworthiness of any of the
  8. Negotiation may be used as a stalling tactic to prevent another party from asserting its rights (e.g., through litigation or arbitration).

Objective of a Negotiation

Negotiations allow the parties to agree to an outcome which is mutually satisfactory. The actual terms of the agreement must be concluded by the parties and can be as broad or as specific as the parties desire. A negotiated settlement can be recorded in the form of an agreement. Once signed, has the force of a contract between the parties. If the settlement is negotiated in the context of a litigious dispute, then the parties may wish to register the settlement with the court in conformity with the applicable rules of practice.

Negotiating Styles

Generally speaking, although the labels may vary from one commentator to the next, negotiating styles can be divided into two categories:

1.      Competitive/Positional-Based Negotiation

In the competitive model, the parties try to maximize their returns at the expense of one another, will use a variety of methods to do so and view the interests of the opposing party or parties as not being relevant, except insofar as they advance one’s own goal of maximizing returns. Competitive bargaining has been criticized for its focus on specific positions rather than attempting to discern the true interests of the parties. Among the criticisms which have been levelled at the competitive model are its tendency to promote brinkmanship and to discourage the mutual trust which is necessary for joint gain.

2.      Cooperative/Interest-Based Negotiation

Cooperative or problem-solving negotiation starts from the premise that the negotiations need not be seen as a ““zero-sum”” situation, i.e., the gains of one party in the negotiation  are not necessarily at the expense of the other party. Common interests and values are stressed, as is the use of an objective approach, and the goal of the negotiations is a solution that is fair and mutually agreeable.

In recent years, the form of cooperative negotiating  style known as principled bargaining   has won widespread acceptance. The proponents of principled bargaining believe that bargaining over fixed positions can lead to situations where parties will either be stubborn (“hard bargaining”) or accept unilateral losses (““soft bargaining””) in order to reach agreement Principled bargaining, which attempts to reconcile the interests underlying these positions, helps the parties to reach agreement and circumvent the problems of hard and soft bargaining. It is this form of negotiation which is seeing increasing use.

Other methods of resolving disputes include:


An ombudsman is a person who investigates complaints and attempts to assist the   disputants to reach a decision. Usually this is an independent officer of the government or a public or quasi-public body. An ombudsman can be classified as an alternative dispute resolution mechanism.

Ombudsmanship is practiced in Sweden. In Kenya we have a Complaints Commission.


 This is where the parties to the dispute consult a 3rd party with regard to the dispute. The   3rd party then advises them on the likely outcome of the conflict should it be referred either to the Courts or to other formal means of dispute resolution. Most Advocates usually carry out ENE.


This can either be judicial or private, and is similar to ENE above.

In a Judicial Mini Trial, the parties are already in Court and they go before a Judge. The synopses of their cases are presented and the judge advises on the likely outcome if the matter was to go to trial.

Private Mini Trials mostly occur in large organizations where the members (Senior Managers of the Enterprise) receive a summary of the dispute and essentially suggest ways of resolving them.


This is where the parties to the dispute appoint a third party who makes a binding decision upon hearing the parties. He must be an expert and makes his decision based on such expertise. His decision is binding.



This is where an adjudicator is appointed to settle disputes. He is appointed as a neutral third party entrusted to take initiative in ascertaining the facts and the law relating to the subject matter in question.

His decision is binding and should be made within a short time. He should also be suitably qualified to deal with the subject matter.


Each Community has its own e.g. Njuri Nceke of the Ameru, Abagaka B’egesaku of the Kisii, Kiama of the Kikuyu and Luo Council of Elders for Luo

They are recognized by Kenyan Courts just as African Customary Law. The Bomas Draft Constitution recognized them.

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