This article has been written by Raina Jain pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. This article has been edited by Aatima Bhatia (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).
The advent of the Coronavirus (COVID-19) outbreak has led to global disruption in almost every facet of life. The Indian legal system and Arbitration world are no exception to it. Further, the necessary measures to curb the rapid spread of Covid-19 which included strict travelling bans and complete lockdown in several countries led to the shut down of courts and also had detrimental effects on the field of arbitration. Undeniably, such instabilities and uncertainties in the financial markets due to weakened world economy and frustration of countless contracts (because of impossibility to perform contractual obligations) gave rise to a host of commercial disputes.
Besides, it is to be noted that arbitration has always been an attractive tool of dispute resolution in the commercial world and thereby it is evident to say that the present scenario will accelerate the growth of Arbitration in this ongoing crisis. Moreover, the above-mentioned turmoil will also give birth to Covid-induced disputes that will lead to a burst of litigation in an already overburdened Indian Judiciary. In the given situation, it has been logically predicted that the exceptional delays of courts should steer the parties towards ADR Mechanisms that will result in an increased demand and need of Arbitration. Hence, it becomes important to address the impact of Pandemic in the field of arbitration.
The present article will analyze whether COVID-19 may have a broader impact on the approach of resolving disputes by arbitration in the future and explore whether pandemic crises can increase the need and demand of arbitration to handle the load of cases in the Indian scenario. It will also delve into the various challenges the National courts involvement in arbitration proceedings has brought in these dispute resolution mechanisms in these COVID times.
Why is arbitration a preferred choice in the times of crisis ?
A. NATURE OF CLAIMS THAT AROSE DUE TO COVID (COVID INDUCED CASES)
The repercussions of coronavirus have caused unrest in every business domain; leading to several natures of claims especially insurance claims. Further, these claims include force majeure (Act of God) claims, MAC claims, supply chain disputes, consumer claims and enforcement of consumer protection laws. These would be on account of issues such as business closures, transport delays and inadequacy of staff. The commercial field is also severely impacted, as a consequence of which, contractual claims will arise that would include the doctrine of frustration, impossibility of performance and hardship clauses with reference to quarantines and travel restrictions. Travel and tourism industries have substantially closed down and are facing immense difficulties with refund claims for cancelled flights and events.
Global transportation network is also facing tremendous losses as aviation and automotive industries were halted during the lockdown phase. Also, various construction and manufacturing projects have been delayed, disturbed or cancelled. The destabilization in energy markets with dropping oil prices is worrisome and insolvency disputes also seem to be increasing at an exceptionally high rate. With that being said, it can be clearly seen that this economic disruption is here to stay longer, and has already brought destruction that will certainly distress corporate and impact the financial institutions deeper.
In view of the above discussion, it is also necessary to consider the psychological impact that will influence the decision-making and the approach to resolve issues which is the stress and anxiety to recover from the losses and to resolve the disputes faster. The stress would further be coupled with financial strains and pressure of delayed timelines that would discourage parties and corporates to opt for litigation as with the heavy backlog of cases and the time-taking process of the Indian Judiciary would not be considered as an ideal choice in the present scenario.
However, arbitration would surely emerge as a preferred choice over litigation with its inherent flexibility, speedy resolution mechanism, cost savings and technological know-how that will give an extra edge in this tense situation and will have a crucial role to play in tackling the aftermath of pandemic for years in the upcoming future.
B. BOONS OF ARBITRATION’S FLEXIBLE TECHNIQUES AND TECHNOLOGICALLY ADVANCED/ALTERNATIVE METHODS TO RESOLVE DISPUTES.
In the light of the pandemic, many arbitral bodies took necessary steps for example to work remotely, to ensure the safety and wellness of the parties and staff members. The flexible and convenient approach of arbitration was already popular and the common features like virtual hearings for procedural matters, electronic submission of documents and witnesses giving evidence by telephone or video-conference were already being used very often.
It is also pertinent to mention that the above-mentioned features have also got legislative backing from Section 19 of the Arbitration and Conciliation Act, 1996 which explicitly states that the Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872 for the procedure to be followed in the arbitral proceedings. It has been left to the parties or the Arbitral Tribunal to decide on the procedure in the conduct of arbitral proceedings. Though the Arbitration and Conciliation Act, 1996 is silent on the expressed consent of the term ‘virtual hearings’ but the interpretation that it is an implied consent can be drawn very evidently as Section 19 clearly broadens the scope of authority that empowers the Arbitral Tribunal to decide on its own.
Therefore, it is true to say that the long-established dependency on these technologies for procedural hearings has set the arbitration well to plunge into the deep tip of fully-remote proceedings.
Thus, Arbitral institutions have moved really quickly to minimize the disturbance; for instance the LCIA has set up a virtual platform to file applications and Article 19.2 of the LCIA Rules expressly give tribunals the power to conduct hearings remotely, ICC has digitized requests for arbitration, the parties governed by ICSID rules are urged to file submissions electronically. Furthermore, many institutions have clearly dismissed the need for hard copy submissions. It has allowed requests for arbitration and evidentiary submissions to be made via email. Also, many arbitral bodies have now published guidelines on how to use these technologies effectively for online hearings and the best practices to ensure fairness: notably, Silicon Valley Arbitration & Mediation Centre, the ICC Guidance Note and the KCAB’s Seoul Protocol on Video Conferencing. The Arbitration experts anticipate that this flexibility will increase arbitration’s relative attractiveness over national courts as parties reflect on the ability of different dispute resolution forums to adapt to rapid changes in circumstances.
C. SOLUTIONS TO URGENT MATTERS AND ALTERNATIVES TO IN-PERSON HEARINGS
- Emergency Arbitrator
Several arbitral institutions in recent times have incorporated provisions for emergency arbitrators that are to be applied in the urgent matters where speedy and effective relief can be given in emergencies. Resorting to these regulations is gaining more significance during the pandemic crisis where companies need quick resolution to the conflicts which can permit them to bounce back to the business promptly. Emergency reliefs are usually utilized for primary determination on the applicability of termination, default clauses and in securing the deposit amount in money recovery cases. Some arbitral bodies have also digitized the process of registering applications to seek relief under provisions of emergency arbitrators.
- Alternatives to in-person hearings
The greatest challenge while complying with the social distancing norms and lockdown phases is to the in-person hearings of the parties. Again, the benefit of technological know-how through the use of virtual hearings has helped to curb the unprecedented delays to the final arbitral award being obtained by the parties. It helps to reduce time and costs specifically of travel and accommodation.
Another proven method that is alternative to in-person hearings is to have the case decided on written submission only. Being arbitration a party autonomous mechanism, it is often seen that parties choose to resolve disputes on written submission only. However, certain drawbacks attached to it would include the art of advocacy and the significance of cross-examination that will be lost in this method. But these drawbacks can be overcome by choosing a mid-way solution i.e. the adoption of partial written submissions approach, wherein the parties can have the case decided partially on written submissions and the flexibility of arbitration may allow the parties further to reach an agreement for the remaining case.
Challenges to arbitration in the present times
The arbitral process has come to a standstill in the current pandemic and is facing challenges due to the litigation proceedings that are arising out of the Arbitration & Conciliation Act, 1996 as the physical courts were not functioning or were only hearing urgent matters. Therefore, the situation is alarming as it is defeating the whole purpose of providing speedy resolution thereby causing tremendous loss to the parties or award-holders (in cases of enforcement) and is going absolutely against the spirit of the Arbitration & Conciliation Act, 1996. Some major judicial role in the arbitral process includes Section 36 wherein the enforcement of a domestic arbitral award is to be done by the courts and Section 34 which provides for challenging of an arbitral award in the courts of law or under Section 27 where an arbitral tribunal is mandated to seek assistance for evidence from the courts.
From the above-mentioned challenges faced, it is clear that the pandemic has substantially impacted the arbitration, especially the enforcement of arbitral awards. It has truly drawn the attention towards the need of a proactive enforcement mechanism for the arbitration community. A speedy, cautiously planned and effective enforcement strategy should be introduced that can be at par with the other advanced system of arbitration and can withstand the sudden crisis like COVID-19 so as to uphold the spirit and intention of the legislature behind commencing the Arbitration and conciliation Act, 1996. As the mere dependency of arbitration proceedings on the conventional physical courts is not aligning with the true intention of the legislature and is not serving the purpose of the statute well.
Some things will eventually come to normality but some changes will outlive the current pandemic wherein it would not be wrong to assert that COVID-19 may have a broader impact on the approach of resolving disputes by arbitration in the future after the people have been driven forward in the use of advance technologies as it is difficult to picture parties going back to the conventional methods after being experienced the better alternatives. Consequently, it can rightly be said that the turbulence caused by COVID-19 has provided a unique opportunity that can boost the future of arbitration like never before!
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