Arbitration
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This article is written by Devina Poonia, from Ansal University, Gurugram. This article deals with the nature of disputes that can be solved and processed by the said ADR mechanism of arbitration which in detail discusses the role of courts and the jurisdiction of the tribunals over civil and criminal disputes. This article is edited by Ilashri Gaur, a law student pursuing B.A. LLB (Hons.) from Teerthanker Mahaveer University (CLLS).

Introduction

Arbitration is a form of Alternative Dispute Resolution (ADR). It is a method to solve disputes as in recourse to the process of litigation, where a third-party is involved to solve the matter in dispute. It is cost-efficient, time-saving and reduces the burden on the courts. Arbitration is the way of dispensing justice at the earliest. Nowadays, arbitration clause is mentioned in the contract under Section 7 of the Indian law of Arbitration and Conciliation Act 1996, on the discretion of the parties if in the near future, a dispute arises it is to be solved through the process of arbitration. The Indian Council of Arbitration (ICA) is the leading authority established in the year 1965 by the Government of India in the commercial world to impart a system where arbitration is taught, learned and practised. It handles both domestic and international cases in Asia-Pacific.

Overview of the nature of disputes that can be settled using arbitrations

The one thing which is the most dreadful for the parties and a lawyer is to file a suit in the courts and wait for years for the settlement. Over the period of time, Courts have been congested with the pending litigation matters as the process of trial is tedious. To reduce the overburden of courts, the parties are advised to follow ADR methods as every small dispute cannot find its way to court.

Civil disputes

Every civil and commercial dispute is capable of being adjudicated by arbitration which is right in personam and is arbitrable whereas non-arbitrable disputes are right in rem and fall under the jurisdiction of the courts.  

Commercial disputes involving business disputes, consumer transactions, boundary disputes and tortious claims are arbitrable and fall under the jurisdiction of the arbitration. Other than this, under Section 8 of the Arbitration and Conciliation Act, 1996, the judicial courts have the authority to command the parties to refer back to arbitration if their contract has an arbitration clause and prove the contents of the agreement. Disputes regarding IPR matters are also arbitrable in nature, with respect to copyright and trademark infringement which involves passing off claims.

It has been settled by numerous decisions that the contract of tortious claims becomes the subject of arbitrability if, by the way of agreement, there is a possible close connection that the claims under the transaction are intimately, directly and interminably found a connection within the contract. In the case of Bharat Heavy Electricals Pvt. Ltd. v. Assam State Electricity,  the Court has given the following guidelines in respect of tortious arbitrable claims:

  1. Claims which are dependable on scope and subject related to the arbitration clause.
  2. A claim, which lies in tort, shall be arbitrable if it arises out of, or is related to, the contract or is consequential upon any breach thereof.
  3. If within a contract the claims are connected.
  4. The nature of claims depends on the arbitrability of claims.
  5. Claims arising out of the contract are still subject to an arbitration agreement if there is a close connection between claim and transaction. 
  6. The language of the arbitration clause is interpreted in every case to determine whether the claims are direct and interactable.

arbitration

Criminal disputes

While looking at the arbitrability of the matter in terms of dealing with criminal disputes is that these offences are right in rem, which means that this right can be exercised against the whole world at large. Criminal matters are always filed against the state whereas, in civil disputes, the right in personam is exercised which is against an individual. The Supreme Court of India has listed certain disputes non-arbitrable namely:

  • Disputes relating to rights and liabilities which arise out of or give rise to criminal offences.
  • Matters of guardianship.
  • Matrimonial disputes such as divorce, judicial separation, restitution of conjugal rights and child custody.
  • Winding up and insolvency.
  • Matters of testamentary like grant of probate, letters of administration and succession of certificates.
  • Disputes regarding trust deeds involving trust, trustees and beneficiaries. 
  • Matters of tenancy and eviction which are dealt with within the special provisions of a particular statute and have exclusive jurisdiction.

Arbitration and criminal offences are two parallel lines that can never intersect at a point. Criminal provisions are dealt with statute law of Indian Penal Code of 1862 offences like murder, dacoity, rape and suicide and are fighting against the state and not individuals. They are high degree felonies committed by individuals which arbitration cannot deal with. It requires cross-examination, medical shreds of evidence, trial; it goes through a long process; these types of high-grade offences affect the society at large and need deterrent measures to inflict strong punishments against the perpetrators. The arbitral award does not render punishments for criminal offence; these punishments are more civil in nature which involves interim measures, injunctions, and compensations.

Arbitration, therefore, mostly deals with private disputes which do not need to be filed in the courts where the nature and scope of the matter in hand becomes important to be interpreted to test the arbitrability of a matter. In the historic case of A. Ayyasamy v. A. Paramasivam, the parties (brothers) were subjected under the partnership deed which specifically mentioned that if in the near future a dispute arises, it will be subjected to be solved through arbitration. The claims of the respondent showed that the appellant has committed fraud and has been taking the earnings from the hotel business and transferring them into his current account and failed to adhere to the provisions of the deed. Respondents moved to the court appealing that fraud is a criminal offence and an arbitrator may not be a suitable expert to deal with the same so a fresh suit must be filed in the civil courts.

Further, it was shown that the appellant kept the books of accounts to himself and did not show the respondents for the examination. It was held by the competent court that the allegation of fraud and malpractices, which are grievous in nature, are not to be dealt by the way of arbitration and an arbitral award may be set aside by the courts if it finds appropriate that the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.

Difference of perspective in different countries

Arbitration in the United States

The mechanism that deals with the criminal attribute of the dispute is only subjected to the state and federal system of courts in the US. If crimes like fraud and forgery are committed, they are dealt with by the state courts and can appeal in the higher courts once a judgment is passed. When a felony is committed, it goes through the rigorous procedure of the trial courts where they have the jurisdiction to pass the judgment and are not arbitrable in nature. The mechanism to deal with civil disputes in the USA is explained in the following content of the article. The law of arbitration in the United States is governed by the historic Federal Arbitration Act of 1925 (FAA) which extends to the whole state and federal level enacted by Congress. The following act is divided into three broad chapters where:

  • Chapter 1 deals with the enforcement of awards and arbitration agreements,
  • Chapter 2 deals with the implementation of the New York Convention and, 
  • Chapter 3 deals with the Panama Convention, both Chapter 2 and 3 are international FAA. 

The FAA does not deal with the procedural aspect of arbitration nor does it define any jurisdiction on any courts; it is just a measure where the contractual obligations of a contract with respect to arbitration are defined. 

The New York Convention of 1958 was approved and enacted under Chapter 2 of the FAA by the United States which was unanimously adopted on June 10, 1958. It is a private international treaty which is adhered by 160 contracting nations. The enforcement and recognition of foreign awards to be rendered depends on the admission of the arbitration agreement and arbitral award to the courts against the party who seeks to enforce the foreign award in their favour. The scope of the convention is limited to the fact that it also fails to provide the conduct of proceeding during arbitration. Its validity is based on the subjects and clause of the arbitration agreement.

The Panama Convention 1990, was adopted by the United States for the smooth arbitral proceedings of commercial disputes. The convention tried to bring in some uniformity in the procedural aspect but the effect of the New York Convention was accepted even in cases where the resort to the Panama Convention was applicable. This convention tends to commercial transactions and the parties can, therefore, apply for the Panama Convention if they do not mutually consent to the specific rules of arbitration. If a series of conflicts arise between the two conventions, the Panama Convention automatically advises the courts to apply the New York Convention for the enforcement of arbitral awards. The courts keep on reverting back to the New York Convention for the applicability and enforceability of foreign awards even if the provisions in the Panama convention specify for the same to apply in a dispute a three-way test suggested by the Courts, the provisions of the FAA and New York Convention are the supreme power of this convention to render a decision on foreign awards. 

To bring in a more reformable system of arbitration, the year 1996 saw the merger of the Arbitration Society of America and Arbitration Foundation which established the American Arbitration Association to promote disputes through arbitration rather than filing a suit in civil courts it is a non-profit organization which aims to provide ADR services and establishes a uniform conduct of arbitral proceedings where one can appoint an arbitrator and mediators deals with publications, a worldwide solution to dispute settlement and also a centre for education and training of the dispute resolutions. Parties can easily insert a clause where they agree to solve their disputes by the authority of AAA.

Arbitration in the United Kingdom

The United Kingdom broadly accepts the legislation of the Arbitration Act of 1996 having territorial extent to England, Wales and Northern Ireland. The commercial disputes are resolved largely by the institutions of the International Chamber of Commerce (ICC), London Maritime Arbitrators Association and London Court of International Arbitration (LCIA). 

The English law does not talk in detail about the matters of arbitration in comparison to the European law. London holds the preferred seat of arbitration in most cases even if the contracting parties and the nature of the subject agreement are not in relation to England. It deals with matters of arbitration broadly in two categories namely “subjective arbitration” and “objective arbitration”. Where subjective arbitration involves claims pursuant to the agreement can be claimed by the assignee but not the parent, subsidiary, or group of companies under the mentioned clause of Section 82(2) of the Arbitration Act 1996 where “any person claiming under or through a party to the agreement”. Objective arbitration will see whether the matter lacks jurisdiction in the arbitral courts or the invalidity of the arbitration agreement but extensive debates suggest that the act does not contain any provision that the issues covered by the agreement must all be arbitrable in order to be a valid agreement.

The arbitral tribunal does not have the jurisdiction to convict a person but through the outcomings of arbitration, the ability to find the nature of the criminal offence can be interpreted from. This was decided in the case of The London Steamship Owners Mutual Insurance Association Ltd. v. The Kingdom Of Spain and The French State. The case involves France and Spain where oil spills on the coast off and both the countries sought for legal redress through arbitration. The insurers to the party wanted to render the enforcement of an arbitral award in England before the decision of the Spanish Penal Code (SPC). The contentions raised by Spain were the cases involving the attributes of crime and the tribunal cannot criminally convict the insurers under Article 117 of the SPC as arbitral proceedings will not be able to render the suitable outcome. It was held that the claimant can claim an arbitration proceeding and it won’t be a barrier because the provisions of the case are civil in nature. 

Arbitration in Singapore

Singapore is the hub of settling disputes through arbitration, having expertise in the field and imparting knowledge globally. According to the International Chambers of Commerce, Singapore has been referred to as the number one seat for arbitration in Asia and among five of the seats ranked globally. The three types of legislation that governs both domestic and international disputes are: 

  • International Arbitration Act (IAA) incorporates the provision of the New York Convention which involves cross-border elements and particularly deals with international arbitration. If it is mentioned in the arbitration agreement that the matter is not international, then the parties may agree and impart IAA to apply for arbitration.
  • Arbitration Act (AA) deals with the matters relating to domestic arbitration and is a supervisor over the courts of Singapore and adopted many provisions of the UNCITRAL Model Arbitration Law.
  • The arbitration (International Investment Disputes) Act adopted the modern conventions of law and deals with settlement of corporate disputes between States and Nationals of other States. 

All disputes in Singapore are not of arbitral nature and was decided in the landmark judgment of Tomolugen Holdings Ltd v. Silica Investors Ltd. in which it was rendered by the Court of Appeal that certain matters are non-arbitrable namely:

  • Administration of estates
  • Bankruptcy of debtors
  • Winding-up of companies
  • Matrimonial disputes
  • Copyrights
  • Registration of trademarks and patents 
  • Grant of statutory license
  • Matters involving citizenship 

The regulatory body of arbitration SIAC (Singapore International Arbitration Centre) which keeps up to date with modern progressive law and constantly amend their rules for the systematic functioning of the arbitration in Singapore and ensures the confidentiality of the proceedings, the minimization in the intervention of the courts, parties are free to appoint arbitrators for their proceedings and the system is governed flexibly. It was established to solve the commercial disputes at large which could not be sought by the ordinary courts. The amendments in the SIAC arbitrable process are:

  1. Publication of redacted awards (Rule 28.10).
  2. Challenges to the jurisdiction of the tribunal prior to its Constitution (Rule 12 and 13).
  3. Consideration of issues not specifically raised in the pleadings ( Rule 24[n]).
  4. The ability of the tribunal to award post-award interest in line with the latest legal developments in Singapore (Rule 28.7).
  5. Clarification on extension of time limit (Rule 2.5), the commencement of arbitration (Rule 3.3) and challenges to arbitrators (Rule 12). 

The amendments in the SIAC are done to provide a world-class arbitration process and the professional arbitrators who impart and set an example in the legal forefront by resolving disputes through higher resolution and a knowledge base. It responds to the development and continuously amend the foregoing provisions to strengthen this international institution. It resolves the expanding load on the courts and a dedicated team of members ensures safeguarding the rights of the parties and arbitrators by defining the relationship between the Singapore courts and the arbitration in Singapore and by interpreting the modern reform system of UNCITRAL adopted which helps in ensuring the legal validity of the international arbitration.

Types of disputes which can be resolved by arbitration

Employer-employee disputes in India

The industrial sector in India goes through dynamic changes and to decide the future recourse of solving the disputes becomes necessary and vital in the corporates. The provisions of Section 10A of the Industrial Disputes Act 1947 (ID), mentions the clause that the employers and workmen can voluntarily agree to enter into the arbitration agreement to solve their disputes through the process of arbitration. However, if any employee does not fall under the category of workmen, then he can, through the agreement of arbitration, can refer to the arbitral proceeding between employer and employees.

A case in which the arbitrability of the matter first arose was of Kingfisher Airlines v. Captain Prithvi Malhotra & Ors. The case was first instituted in the labour courts where the pilot and other ground staff members initiated the suit for the recovery of their wages and bonuses against the Kingfisher Airlines. Section 8 of the Arbitration and Conciliation Act, 1996 was invoked as the agreement allowed it to refer to arbitration in case of dispute but the said contention was revoked by the labour court and retained jurisdiction over the proceedings. The airlines then moved to the Bombay High Court for the above-mentioned contention and the decision was quashed again as it was held that the specific clause of the ID Act 1947, decides whether the said matter will refer to arbitration or not as labour courts and tribunals are more competent to solve the given matter at hand. Private arbitration can disrupt the proceeding on the grounds that the employer can influence the suit by appointing an arbitrator of his choice and the neutral aspect of the proceeding will no longer be present, the outcome will be biased. 

It is advisable that in cases where employer-employee disputes arise, the case should be referred to either mediation or tribunals (labour courts) as the employer has a strong footing over the employee which affects the balance of the natural justice and harms the arbitral proceeding. The discretion of the ID Act 1947 is relevant in determining the nature and scope of the dispute but in cases where the dispute is still unresolved by mediation then the employee can refer to the ordinary recourse of litigation process and can file a civil suit in the court of law. In cases involving non-workmen, it shall be governed by the arbitration agreement.

Neighbour disputes 

It is always advisable that it is of grave importance to understand the nature of the matter which is giving rise to initiating a suit and most importantly to understand the nature of the act. What to do in cases involving a dispute with a neighbour? “Neighbor Disputes” requires one to take considerable steps towards settling the issue through way of arbitration rather than pushing the dispute in the trajectory of litigation. The first step to be taken is to open discussions with your neighbour regarding the issue which can be best resolved through a way of agreement. Often there is a misunderstanding which can be cleared as running to the courts is always not the best option. If the first step does not give the desired results, one can always hire an attorney and do proper research on the title of the land, appraisal value, or whether the property deeds have been assigned to the other party.

Before initiating a suit in the court, the last alternative can be sending a demand letter to your neighbour through the attorney where one can settle the dispute by way of sharing the title to the property or can request a monetary payment if the law is in favour and one has gathered all the necessary evidence pertaining to the land as it can save both the parties from incurring huge costs. If the demand letter still does not give the results, one can prepare themselves to go for a court settlement. It will involve a great deal of time, effort and a lot of research work and filing of the documents to decide and argue before the court to establish who will legally own the land and in whose favour the judgment will be pronounced.

Settlement is possible if both the parties agree to derive and settle through mutual consultation and if not, then one should prepare for the trial stage after consideration of the value of the land which is in dispute, the amount of costs that will be incurred and deciding whether the financial constraints of a party can pay the hefty amounts. If both the parties believe that the trial suits their best of interests, then they should proceed with the formalities of the legal recourse of action and not because they think that the only way of winning the title is to go through a trial, one must know the all the legal implications of a suit and what can be expected off from both the parties to the dispute.

IPR disputes

Whether IPR disputes can be solved through methodology using arbitration or not is still in question various aspects of the law. It has been decided in several cases that where there is an infringement of the right of copyright and trademark and involves a passing off, claim can be adjudicated by the process of arbitration. It is argued by many that the arbitration tribunals are not competent enough and do not have the jurisdiction for the trial of IPR matters while on the other hand, people have submitted a strong view that IPR matters can be dealt with by arbitration and there is no hindrance. 

In the famous Booz Allen’s case, it is interpreted by the Courts that where a question arises pertaining to the right of the parties involving IPR, it must be referred to arbitration. Similarly, in Eros’s International case, it was held by the Bombay High Court that categorized the commercialization of disputes involving IPR  into two categories namely right in rem and right in personam, where the private disputes consisting of the rights of the parties are arbitrable.

The attribute of each case depends on the fact and circumstances which must be followed through in order to determine the arbitrability of the case, describing the current position in India there is no bar on the arbitrability of the IP regime disputes involving contractual obligations and agreements can be completely dealt by arbitration. However, if a case involves technical facts related to patents, trademarks and copyrights, it is to be dealt with in the jurisdiction of public court and administration. In a recent judgment passed by the Supreme Court in the case of Common Cause v. UOI, it was held that matters involving patent, trademark and copyrights are right in rem and the remedy against violation can be adjudicated by the Civil Courts in India and not before an arbitrator. The Claims where infringement involves statutory provisions are not to be dealt with by arbitration whereas claims involving contractual parts of the agreement are arbitrable. 

Although the IP laws are now categorically referred to right in rem, there are certain exceptions and test of arbitrability is done to ensure that arbitration is efficient, cost-effective, and flexible while also maintaining the effective communication between business professionals. The process of arbitration ensures that the subject matter if a case is not adjudicated upon if they have no jurisdiction over the IP dispute and does not an arbitral award which is to be set aside in the future. The latest trend showcases how arbitration is being encouraged to solve the disputes of IP laws and promote the smooth functioning of the process. Therefore, the Courts must practice extreme causation on the powers of their delegation of authority and to what extent the power can be delegated to the tribunals keeping in mind the statutory provisions of law and the test of arbitrability decided by the courts while adjudicating upon a matter in litigation.

Conclusion

The growing trend of arbitration, while dealing with disputes, has made the judicial authorities realize that it is essential for the governance of law to follow a systematic approach and well-structured reforms in order to ensure the functioning and implementation of laws in the country. With the commercialization of business and industry, it is very important to follow a flexible approach while dealing with private as well as civil suits maintaining the balance between the statutory and contractual provisions in an agreement. Every matter cannot be given a straightjacket solution, every aspect and clause of the case must be scrutinized to tailor fit the arbitral provisions of law.

“Modern times bring modern solutions” is now the approach followed by the interpreters of law for the quick disposal of a dispute while ensuring the effective and efficient working of the said tribunals and courts. The uniformity of the arbitral laws in the judicial functioning has set afoot to the cultural and judicial changes over the period of time. There have been some decisions that are not in tune or the spirit of the act but it was expressly addressed by the judiciary and the continuing popularity of the ADR mechanisms.

References 


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