This article is written by Aradhya Gupta, pursuing B.A. LL.B.(Hons) from Teerthanker Mahaveer University. This is an exhaustive article which deals with the topic of Arbitration Mechanism. The detailed analysis of the process of choosing an arbitrator and various factors of selection of an arbitrator.
In India, due to the increasing burden over the judicial system, Arbitration is gaining significance substantially.
Today, it is required to have a genuine established arbitration mechanism in place for speedy resolution of matters in issue. Arbitration is often used to resolve the commercial disputes, particularly in the subjects of international commercial transactions.
Meaning of arbitration
Arbitration is outlined as a process through which a dispute between two or more persons is settled or resolved as to their mutual legal rights and liabilities by referring to and decided judicially with irrevocable effect by the appliance of law through an arbitral Tribunal rather than by the Court of law or we can say outside of the traditional court system.
Arbitration mechanism can be approached only if there is arbitration agreement between the parties. It expresses an agreement of the parties with mutual consent (consensus ad idem) that if at any time a dispute arises with regards to their obligations towards each other, then such a dispute shall be settled by an arbitral Tribunal.
The Arbitration and Reconciliation Act 1966 provides that an Arbitrator can be appointed at the choice of parties to an arbitration agreement in regards to their dispute.
Arbitration agreement must be in writing. The parties to a dispute can also refer to the arbitration method for resolution purposes even after the arising of dispute. Subject to the law of limitation, parties can refer their dispute to arbitration any time.
An arbitration clause is considered as the source of the authority or jurisdiction of the arbitrator. This clause is mainly a part of the contract which governs the parties of the dispute. It is distinguishable from other clauses in the contract. Although contracts are needed to be signed but there is not a compulsion for arbitration clauses to be signed.
An Arbitration clause is considered to be binding upon the parties if they have given their consent either express or implied to refer their disputes to arbitration.
Process for selection of an arbitrator
The great majority of International Arbitrations are decided by an arbitral panel of three members, where each party selects one arbitrator and the presiding arbitrator is appointed either with the agreement of the parties or by a neutral appointing authority.
Selection of an arbitrator is the most important and intricate act taken by the parties to dispute during the arbitration proceedings. The selection of arbitrator is made after sincere and comprehensive research by the counsel.
It is crucial that the parties nominate the arbitrator that is knowledgeable, competent and can work efficiently. The qualifications and the arbitral skills of the arbitrators can have considerable impact on the conduct of the arbitration and eventually on the award and its implementation. In the course of the arbitration proceedings, the arbitrator will have the power to determine both substantive and procedural issues in the dispute of the parties. The quality of the arbitrators is very essential for the success of every arbitration.
Forms of Process of Arbitration
There are two forms of process of arbitration as well as for selection of an arbitrator-
- Ad Hoc arbitration
- Institutional arbitration
Both of them have separate procedures for appointment of arbitrators. In Ad-Hoc arbitration, the parties select the arbitrator through their own system and they adopt their own instrumentation for the rules, procedures, applicable laws and administrative support. While in institutional arbitration, an institution manages and conducts the arbitral process and appoints the arbitrator as per its institutional rules on the payment of Management fees by the parties.
Process used for Ad-Hoc Arbitrations
Ad Hoc arbitration is mainly guided by the Arbitration and Conciliation Act 1996. It is a form of arbitration in which the parties are free to determine all the aspects of arbitration like appointment of arbitrators, manner of their appointment, conduct of proceedings, instrumentation for the rules, procedures, applicable laws and administrative support.
Ad-Hoc proceedings are more elastic, speedy and cost-effective than the institutional proceedings. However, its proceedings need not be kept entirely independent from institutional arbitration. The parties may plan at any time to engage an institution to conduct the arbitration.
Advantages of Ad Hoc Arbitration
- It is flexible in nature as it enables the parties to decide the dispute resolution procedure themselves.
- This involves minimum legal fees and other administrative fees than the institutional arbitration as the parties will only have to pay the fees for arbitrators and the costs incurred in the proceedings rather than paying fees to an institution of Arbitration.
- This process is speedy as parties under this need not to engage in any negotiating specific rules like The United Nations Commission on International Trade Laws (UNCITRAL) Arbitration Rules for beginning the proceedings.
Disadvantages of Ad-Hoc Arbitration
The proposition of Ad-Hoc arbitration may need handsome or great time, attention, expenses with no guarantee that the terms agreed with will direct and address all the outcomes and likelihoods.
Process used for Institutional Arbitrations
Institutional arbitration is a process of arbitration in which a specialised institution with a persistent character mediates and assumes the functions of governing or administering and assisting the arbitral process as per the rules of it. This institution only facilitates and manages the process whereas the Arbitral Tribunal is appointed either by the parties to the dispute or by the Institution. The institution imposes or levies administrative charges for conducting the administration proceedings. Every arbitration institution has its own set of rules or laws which lays out the structure and framework of the administration proceedings. There are around 1200 arbitration Institutions worldwide. Some of the examples are-
The London Court of International Arbitration (LCIA), The International Chamber of Commerce (ICC), The Dubai International Arbitration Centre (DIAC) etc.
Advantages of Institutional Arbitration
- The pre-established rules and procedures ensure speedy arbitration proceedings.
- This process provides a good choice of a list of eligible and professional arbitrators.
- Institutional arbitration liberates the parties and their lawyers from the efforts of deciding the arbitration procedure and of formulating the arbitration clause.
- It provides a final and binding irrevocable award which cannot be appealed.
- It maintains a board of competent and certified arbitrators who have expertise and proficiency in different commercial factors.
- It maintains an acknowledged format with manifested and proven records.
Disadvantages of Institutional Arbitration
- The administrative fees depend upon the amount of claim and it used to be high in disputes of large amounts.
- This form of arbitration is rigid in nature because of its pre-established rules and procedures which sometimes also lead to dissatisfaction with the parties.
- The parties may be required to acknowledge within the infeasible or unworkable timeframes.
- Institutional arbitration involves bureaucracy which often leads to delays and additional costs.
How to select an Arbitrator?
The method of appointment of arbitrator or arbitral Tribunal is generally available in the arbitration clause of the parties’ arbitration agreement. In most cases each party to the dispute appoints at least one arbitrator. The appointment of the presiding arbitrator as well as of the default arbitrators are often made by a neutral and objectionable appointing authority.
Who to select as an Arbitrator?
The parties and their lawyers spend considerable time and resources for the selection of arbitrators. Various distinct factors are considered extensively including their nationality, education, technical expertise and professional experience. Along with this, the selection parties also take into account several other aspects like the applicable law, forum, kind of dispute, location, nationality of the parties, etc.
Choosing of Arbitrator
The claimant in a case used to have the advantage to choose arbitrator first. Thus, he often used to have more time to spend in selection with extensive research of the most suitable arbitrator for the case.
The respondent’s selection of arbitrators is often complex and he generally gets less time for selection comparatively.
Factors to consider while selecting an arbitrator
The role of an arbitrator is not only to proclaim the enforceable award but also to make certain that the process is punctual, efficient, fair and cost-effective. In the whole course of arbitration choosing of the arbitrators is a pivotal phase of the process and therefore, while selection of the arbitrators the parties must take into consideration certain important factors which are as follows-
It is essential to look into availability of desired arbitrators while selecting whether the person can devote his time required to conduct the arbitration of the case meticulously, efficiently and speedily as possible within the time limits. The projection an arbitrator is making on his future professional schedule should be taken into consideration by the parties. The availability of desired arbitrators is considered as a crucial characteristic of an efficient International arbitrator. The Limited availability of an arbitrator has been seen many times as one of the factors which can make an arbitration inefficient.
Knowledge and Expertise in the matters involved in an arbitration
For the success of an arbitration, it is necessary to choose a decision maker with expertise which can reflect the nature of the dispute. It is not necessary for arbitration that an arbitrator should only be the one with formal legal education and legal experience, in certain circumstantial cases parties can appoint an arbitrator with the particular professional expertise matched with the nature of dispute. Like, the international investment disputes used to be intricate and requires deep understanding and affinity with the substance and procedural legal issues.
The magnificent knowledge of varied bodies of law is essential for a capable and efficient arbitrator for getting such expertise in arbitrator. The parties should investigate the different sources of the candidate like Resume, CVs, should conduct online research, do consultation with the colleagues etc.
Nationality of Arbitrator
The factor of Nationality is one of the essential one which needs to be considered by the parties in every case. The arbitral institutions like DIAC(Dubai International Arbitration Center) directs that in arbitrations when the parties belong to different nationalities, a sole arbitrator or a chairman of the arbitral Tribunal cannot belong to the same nationality as that of either of the parties. However, the parties are otherwise free to agree over the same in writing.
If the tribunal is of three member arbitrators then the parties can appoint the arbitrator with the same nationality as of them. If the party chooses an arbitrator of the same nationality then he gets the benefit of good understanding with at least one member of the Tribunal because of the same culture, customs and business practices of the same country.
Nationality is an important attribute of an arbitrator. Therefore, in most of the Rules of Institutions, it is strongly preferred not to choose an arbitrator who belongs to the nationality of the parties. The reasonability for the exclusion of such arbitrators is to avoid any bias and to have a fair and just arbitration procedure.
Relationship with parties to the arbitration
The qualities of impartiality and independence of an arbitrator is one of the basic requirements of any arbitration proceeding. Several International Tribunals have suggested that the requirement of independence and impartiality serves the purpose of protecting the parties against arbitrators being influenced by the factors other than those related to the merits of the case. Process of arbitration is a substitute for courts’ litigation which aims at the resolution of disputes of the parties. Thus, the legal relationship between the parties and arbitration arbitrator is of contractual nature.
Management skills of an arbitrator
The parties should choose an efficient and persuasive arbitrator who is capable of managing the people as well as the process. While inspecting and scrutinizing a candidate, in respect of the managerial skills, the parties should take into account the considerations like his good judicial attitude, his intimation with the arbitration process as well as his comfortability in considering the different cultures, legal system and issues within the dispute. The arbitrator should be able to manage the people in a good manner. Without managerial expertise, the system of arbitration cannot be associated with the essential elements of speed and cost-effectiveness which ensures the success of any arbitration.
Languages known by the arbitrator
The parties in a dispute are free to make an agreement with mutual consent in regards to the factor of language of the arbitration. They can choose the language or languages which will be used during the whole arbitration proceedings. This agreement shall apply upon any form of written statement by the parties, on any hearing and any decision or award by the arbitral Tribunal. But if the parties fail to make such an agreement, then the arbitral Tribunal shall decide the language to be used in the proceedings. Tribunal has to take into account both the practical and legal issues pertaining to the dispute while determining the language. In most of the international commercial arbitration, the controversial issue arises because of the parties belonging to different countries having different language. In such context, Article 17(1) of UNCITRAL Arbitration Rules provides that the arbitral Tribunal shall decide the language of the arbitration proceeding “promptly after its appointment”.
Arbitrator with manageable workload
While choosing an arbitrator the parties should inquire into their caseloads. They should, in the beginning only, ask the arbitrator whether they will be able to devote sufficient time in attentiveness to the dispute of the parties. The parties need to consider several aspects in advance like arbitrator selection procedure, impartiality of arbitrator, opting of arbitral institutions, etc. After that they should nominate an arbitrator only if his schedule and punctuality permits him to take on the case or whose schedule meets those needs.
Impartiality and Independence
The arbitrators should be impartial and independent. An impartial arbitrator is one who is not biased or partial, means who does not favour or oppose any party of the case. While an independent arbitrator is one who is not dependent or controlled personally, monetarily and professionally on either of the parties to the dispute. These both qualities are crucial for efficient arbitrators to perform their determining roles. These two essential attributes are distinct but interrelated qualifications which are required in every arbitrator.
Communication Proficiency and Juridical Open Mindedness
Arbitrator’s effective communication skills act as a primary tool for listening to the parties, incorporating their corresponding positions and obtaining the adequate reasonable results. Arbitrators must propose the arguments and put forth the questions which the parties may not want to answer openly and articulate the decisions in an effective and convincing manner. The arbitrators must also possess the excellent writing skills and ensure that award is expressed clearly and without any vagueness. Along with this critical reasoning, fairness and sound judgement are the distinctive characteristics of an effective arbitrator.
Difference Between Arbitration and Litigation
The major difference between arbitration and litigation is that the parties to arbitration participate in the selection of the Tribunal which is not available in the litigation system. This is usually considered as an advantage of arbitration over litigation.
Challenge to Arbitrators
An arbitrator may be challenged on two major grounds-
- If questions arise in reference to his attribute of impartiality in independence.
- If he does not possess the required qualification as per the agreement of the parties.
A challenge is required to be made within 15 days of the petitioner becoming aware of the Constitution of the arbitral Tribunal or of the circumstantial grounds for challenge towards the arbitrators. Further, subject to the agreement of the parties, the arbitral Tribunal shall decide the challenge. If the challenge is found unsuccessful then the Tribunal shall continue with arbitration proceedings and render the award. The award can further be challenged by the aggrieved party in the case at the time of its delivering.
Conduct of Arbitration Proceedings
The arbitrators are commander of their own procedure and subject to the agreement of the parties, they may conduct the proceedings “in the manner they consider appropriate.”
This power comprises- “the power to determine the reasonability, relevance, materiality and weightage of any evidence.”
But they should exercise their power by treating the parties with equality and by providing each party full opportunity to present his case, which includes sufficient advance notice of any hearing or meeting.
Unless the parties otherwise expressly provide in the agreement, the arbitral tribunal shall decide whether to hold oral hearings or to conduct proceedings on the basis of documents for the presentation of evidence or for the arguments.
Arbitrators have the power to decide the case ex-parte in circumstances where the respondent, without sufficient cause, fails to communicate his statement of defence or fails to appear for an oral hearing or produce evidence.
And If the claimant fails to communicate his statement of the claim, the arbitral tribunal shall be entitled to terminate the proceedings.
Arbitration is also known as Alternative dispute resolution mechanism. It is not a replacement of litigation, rather it was introduced with the objective to make the traditional courts system work more efficiently and effectively.
There is a problem of backlog of cases in the Judicial system which the government needs to consider and play an active role in its improvement with the aid to promote the mechanism of arbitration for dispute resolution. Also, if the arbitrators or the arbitral Tribunal possess the above discussed all the factors and characteristics, then the system of arbitration will definitely be off to a promising start.
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