Arbitration: An Overview
Arbitration is justice blended with charity ~ Nachman of Bratslov June 8th, 2020
On day to day basis there are individuals and organizations that face legal issues and would prefer to use the court to get justice. By opting for court proceedings, both the parties lose time, money and towards the end one party always leaves empty handed and has lost more than what he/she was hoping to gain. To prevent most of it from happening, most elect to use arbitrators. Even though arbitration as a term has been around since the 18th century, many are not aware of its usefulness and purpose in the legal system.
WHAT IS ARBITRATION
Arbitration is a form of Alternative Dispute Resolution (ADR) which allows disagreements between two parties to resolve outside of the traditional court system. Parties can approach arbitration by “arbitration agreement”. Arbitration agreement means an agreement by the parties 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. In an arbitration case, parties to the dispute will refer to one or more people (in most cases 3 people), generally known as ‘arbitrators’ or an ‘arbitral tribunal’ – by whose award they agree to be bound. Arbitration is mostly preferred amongst the other alternative dispute resolution methods because it is legally binding to the parties which is similar to the decree passed by the civil courts. “Arbitration” means any arbitration whether or not administered by permanent arbitral institution;
TYPES OF ARBITRATION
1. Ad hoc arbitration
2. Institutional arbitration
Ad hoc arbitration: There are specific organizations and institutions which help an individual with the process of arbitration. Ad hoc is a form of arbitration which is not administered by any institution such as Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC) and the Asian International Arbitration Centre (AIAC) etc. The parties have to determine all the aspects of arbitration by themselves. For example, the number of arbitrators, appointment of arbitrators, the applicable law and procedure for conducting arbitration (party autonomy); including that the lawyers and arbitrators have to administrate the arbitration proceedings which makes the proceedings more hectic and time consuming, which are quite similar like the regular civil courts in India. Further, arbitrators are given the power of a civil court under the Arbitration and Conciliation Act, 1996(ACA) and can call for evidence during proceedings, much like the procedure followed in regular courts. These repeated calls of written evidence delays the court proceedings which violates the “speedy trial” principle of arbitration proceedings.
Institutional arbitration: It is a form of arbitration where the arbitration is administered by an established and recognized arbitral institution designated by the Supreme Court or High Court under this arbitration and conciliation Act,1996. The arbitration agreement itself provides for appointment of arbitral institutions. Each institution has its own set of rules and procedures for conducting and administrating arbitral proceedings which reduces the party autonomy. These institutions are permanent bodies with a highly qualified panel of arbitrators from which the parties can appoint the arbitrators. Institutional arbitration approach is usually preferred over the ad hoc approach if the institutional administrative charges are not a concern for the parties. A few parties specifically provide a clause in the agreement that in case of any dispute that arises in the future during the period of contract, the dispute would be solved through institutional arbitration. Similarly, the parties to the disputes can also approach institutional arbitration after the dispute has arisen by making a fresh arbitration agreement.
Ad- hoc arbitration vs Institutional arbitration
Which form of arbitration is better? Which form of arbitration must you choose? It is a highly debatable topic when it comes to talking about arbitration and there has been a lot of discussion done on it. When we talk about institutional arbitration, it actually offers the advantage of providing a clear set of provisional rules as well as its own procedural rules and a fixed timeline for the conduct of the arbitral proceedings. This makes arbitration more convenient for the parties as well as for the arbitrators. It is the trained members who work under the institution that administer the whole arbitration process making it more time efficient, and easy for the arbitrator and the lawyers because they now don’t have to manage everything by themselves,
On the other hand, ad hoc arbitration gives parties more control over the arbitration process. The parties are free and independent to choose their own set of provisional and procedural rules which is not the case when it comes to institutional arbitration. This gives the parties more flexibility and power. In short we can say in ad hoc arbitration, party autonomy is slightly higher than institutional arbitration.
However, when it comes to first time parties, they should avoid ad hoc arbitration. Reason being, in most of the cases the parties don’t have the expertise to decide which set of rules should experienced panel of arbitrators to choose for the arbitration, and in some case if needed the Arbitral Tribunal can scrutinize the awards passed by the tribunal itself which cannot be done in the case of ad- hoc arbitration. However, ad hoc arbitration may be cost-effective where the parties can avoid administration charges levied by an arbitral institution.
AD HOC IN REAL LIFE
When it comes to developing countries, ad hoc arbitration comes with its own share of problems. In India, for one, ad hoc arbitration tends to be protracted and costly. One of the main reasons for such delays is the fees of a professional arbitrator. The cost of hiring an arbitrator changes on a day to day basis which makes it costlier. On the other hand, the arbitrators are given the power of a civil court. Under the arbitration and conciliation act (1996), for example, arbitrators can call for evidence during proceedings, which is very similar to the court proceedings, which ultimately results in delay of the proceeding. While the act gives sufficient power to the arbitral tribunal to reduce delays, the arbitration proceedings are still long drawn and take years to conclude.
In this regard, few amendments were made by the 2015 amendment where the main issue that was addressed was the time limit that should be given for each arbitration proceeding. To be very specific a new provision was inserted, Section 29 A, which says that the tribunal shall ensure speedy completion of arbitration proceedings and pass the award within the periods of twelve months from the date when the arbitral tribunal enters upon the reference. However, Indian Arbitration in order to ensure a speedy and more attractive Arbitration made further amendments with 2019 Act including 29A that mandated that an award shall be passed in a matter within 12 months of the arbitral tribunal entering upon the reference and that the parties may, by consent, extend the time for making an award by another six month along with other major amendments such as introduction of Arbitral Institutions and their governing arrangement in terms of grading and ranking by the Arbitration Council of India.
The amendment bill has introduced certain amendments and certain new provisions to the act which have brought clarity on many aspects and has unfolded various aspects that were previously part of judicial interpretation but also at the same time has opened a box of questions to be determined only by virtue of practical demonstration and as to what extent it would be successful in attaining the goal for which the changes have been introduced.
INSTITUTIONAL ARBITRATION IN REAL LIFE:
Generally institutional arbitration is not practiced much in India due to lack of infrastructure (international institutions) that can provide quality international arbitration in a demeanour that is deemed professional. Also failure in enforcing an arbitral award in time, lack of government role in promoting institutional arbitration and misconception of institutional arbitration that it is not cost effective are some of the few reasons. Lack of statutory autonomous bodies like in Singapore – where SIAC is the default appointing authority for arbitrators under the international arbitration act (1994) which governs international arbitration, which all together makes it difficult to convenience a domestic and as well as international client to arbitrate in India by institutional arbitration.
There are over 30 arbitral institutions including domestic and international institutions. However, not many of these institutions are successful. This is due to lack of awareness in the society regarding international arbitration. Many of these arbitral institutions don’t have online websites and few of which do have websites are not updated. For example, the only international arbitral institution in India which is the International Centre for Alternative Dispute Resolution (ICADR), Delhi is not upto date and has failed to deliver its main objective. ICADR appears to have only received about 20 cases in the past 20 years. The London International Arbitration Centre India (LIACI) closed its operation in India due to the less number of cases filed. But now slowly things are starting to improve after the 2019 amendment in Arbitration and Conciliation Act, 1996
Arbitration is a solution to the problems faced by the civil court in the high pendency of the cases where it takes years to pass a decree. It is said that in some civil cases men die but before the court reaches a final judgement. Arbitration can only serve its objective effectively only if it works within strict timeline that needs to be followed sincerely. The excess judicial and government interference will never allow it to fulfil its objectives especially in case of institutional arbitration.
Secondly, there needs to be a change in India’s arbitration culture parties where they should approach and make use of the arbitral institution rather than opting and preferring the traditional ad hoc method. However, this does not imply that we should on the whole stop practicing ad hoc arbitration, but to encourage institutional arbitration. Promoting institutional arbitration at domestic level will increase the quality of arbitration in India, which will attract various International parties to arbitrate in India. Big international companies and MNCs arbitrating in India will increase the economy of the country. There have been heaps of changes which took place in the amendment of 2019 in the arbitration and conciliation act,1996 which unfolds the problems but still fails to resolve the judicial and government interference problem though on a prima facie annotation it gives a prospect towards India taking a step to be a nucleus of Arbitrations and the steps and changes have to be appreciated in order to bring further appropriate changes as and when required by law and mandate.
Kumar Girijesh Tripathy
Associate at Vidhiśāstras- Advocates & Solicitors