This article is written by Priyanka Bathla, pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

Arbitration, mediation or negotiation procedures are known as alternative dispute resolution since we can settle a dispute outside litigation through these. ADR procedures are usually less costly and more time effective.

The arbitration may be defined as an informal trial where a third party (arbitrator(s)) is appointed to hear both sides and reach an unbiased conclusion to resolve the dispute. Arbitration is governed by the Arbitration and Conciliation Act,1996.

Arbitration and mediation have different procedures to resolve the dispute, wherein mediation mainly focuses on negotiation; this skill can prove efficient and economical in the arbitration process as well. The parties and the arbitrators can leverage the negotiation skills in the arbitration process. We can follow the below-mentioned points for effective negotiation in the arbitration process.

Drafting the arbitration agreement and clause

The arbitration Clause must be drafted in a manner that is non-ambiguous and easily understood, it should cater to the needs of both parties. The essentials of drafting an arbitration clause are:

• Appointment of an arbitrator

According to Section 10 of the Arbitration and Conciliation Act, 1996 an odd number of arbitrators shall be appointed; this makes the adjudication easier. The parties are free to choose the arbitrators and specify their appointment procedure and qualifications. The time period of the appointment of the arbitrator(s) shall also be mentioned.

• Language

It is always better to specify the language for the arbitration process to avoid future conflicts.

• Governing law

Specially in the international commercial arbitration agreements, it is mandatory to mention the Law which will govern the arbitration process

• Jurisdiction

To avoid any confusion, it is advised to mention the seat and venue for the arbitral proceedings. The seat of an arbitration proceeding refers to the courts that would have exclusive jurisdiction over the arbitration proceedings. While the venue merely determines the place where such proceedings shall be conducted for the sake of the convenience of the parties.

Selection of arbitrator and chair

Of the many advantages of arbitration, the ability to choose a qualified person (arbitrator) to adjudicate the matter/dispute is of great benefit. However, if the parties cannot select an arbitrator unanimously, the choice often falls to the institution instead.

If the dispute arises and arbitration is invoked, negotiations are to be made for the appointment of arbitrator(s). The selection of a sole arbitrator or the tribunal chair arises comprehensive terms for negotiation. 

While choosing the arbitrator, the demands of both parties are to be kept in mind before finalizing any name. Also, the parties may review the expertise, subject matter knowledge, availability, cultural background, diverse characteristics, the experience of the person in consideration, together.

An arbitrator’s job is to make the arbitration process expeditious, fair and cost-effective. An arbitrator is also supposed to produce an award that is enforceable since there is little room for recourse and no right to appeal. In most of the contracts, it is mentioned that the arbitral award is binding in nature.

Planning the negotiation

Negotiations, aim at reaching an amicable settlement as a pre-arbitral step that may in turn help parties avoid legal proceedings and provide them with an opportunity to discuss and settle their disputes with a commercial mind. Such pre-arbitral negotiation clauses require the parties to meet and undertake friendly/good faith discussions in order to reach a compromise/settlement. Even though this procedure is informal and inexpensive in nature, there are hurdles faced by the parties in enforcing such negotiation clauses. Difficulties are also faced by the arbitrators or the courts in determining the nature of the parties’ obligations thereunder, and the parameters of sufficient compliance. Hence, parties have become mindful of the inclusion of such clauses in their agreements. 

Parties usually opt for the negotiation process, since it is informal in nature and parties can settle their claims without having to commence any legal or institutional proceedings. The intent of the parties in opting for the negotiation process is to reach an agreement that will put an end to their respective claims and resolve the dispute about the existing bargain and its performance. The parties in the negotiation process are required to have an honest approach and discuss their claims keeping in mind their commercial transaction. The entire purpose of such clauses providing for negotiation as a pre-arbitral step is to encourage business-like resolution of differences and disputes with a view to avoid the unwarranted wastage of time and expense involved in a legal process. 

If the parties are opting for the negotiation process, it is best to add the timeline for execution of the negotiation procedure otherwise any party can use the non-mentioning of the deadline to their particular benefit.

Contractual undertakings to negotiate are increasingly enforceable before the arbitrators. Even where there is no provision for negotiation, parties can choose to negotiate at any time.

Before declaring the award, the chair should hear the views for a solution, the concerns and opinions of both parties on the structure and substance of the process. It is important that the chair works in harmony with each other in negotiating the terms of arbitration and the manner in which party requests are granted or denied 

Even though arbitration is a formal process, it doesn’t mean that the gates to negotiation or settlement outside the process are closed. If parties opt for mediation outside the arbitration process, mediation will be favoured and resolution will be sought which is crafted by the parties rather than the arbitrators

If parties want to opt for negotiation, they will have to invest in the planning for the same. The parties need to plan the bargaining and the presentation beforehand in order to make their points clear and negotiate the terms of the arbitration.

For this reason;

1. The parties must have clarity of their requirements and goals and they need to reason out their demands 
2. Not only is it important to list out one’s demands but also it is important to listen to the other party and understand their perspective and their requirements.
3. Each party should strive to obtain the best deal with which they are comfortable in the future.

Parties can also indulge in negotiating a collective bargaining agreement by which, -they become aware of what is not mentioned and what is ambiguous in the agreement. Ruling out ambiguities helps in facilitating the agreement with ease. Collective bargaining is a continuing process and, in this process, it is mandatory that the parties negotiate their agreement in anticipation of arbitration. During the process of bargaining, each side knows what it has gained and what it has lost. Although each side may be willing to discuss a subject and even include some vague compromise in the agreement, an unequivocal statement concerning that subject may be unacceptable. 

When the parties are comfortable with the agreement, they should convey it clearly to avoid misinterpretation. 

To avoid any ambiguity or confusion in the provisions of the agreement, the parties shall define the particular terms in the contract. The defining of the terms will make the negotiating process smoother. The arbitrators can always interpret terms through the references but defining the terms aids in their decision-making powers. The use of definitions maximizes the probability that the document will be easily read and applied by the arbitrator if one side’s belief in the existence of a certain practice can be questioned by the other side.

The scope and nature of the arbitration process is also a point to focus upon when negotiating in the anticipation of arbitration. The parties can decide whether they want to limit the scope of the arbitration agreement or not i.e., limiting the powers of the arbitrator, they can also decide their terms of reward.

Conclusion

To resolve the dispute efficiently, the parties should specify the qualifications of an arbitrator, the procedure used for appointing an arbitrator, when the hearing will be conducted, and when the award must be issued. Parties should also take account of any factors that may affect the enforceability of the clause under applicable law. These include any mandatory requirements that may exist at the place of arbitration and the expected place or places of enforcement. To resolve the dispute fairly, the parties must explore the particulars of the arbitration procedure in their collective agreement. For a successful arbitration process, careful presentation of the issues, clear drafting and brief writing, and selection of a neutral arbitrator is needed, which will in turn help in the final analysis of the words of the contract. The focus needed to interpret the words of the contract helps in preparing for negotiation. The parties should work during negotiation time to make sure that their deal is interpreted and applied at arbitration time in accordance with their intentions at its creation.

Courts have not generalized the enforceability of such negotiation clauses, even though courts have been found to enforce negotiation clauses but it totally depends on case to case. For instance, the England and Wales High Court has held the pre-arbitral step of friendly discussions for a specified period of time as enforceable.

References

• http://arbitrationblog.kluwerarbitration.com/2019/07/29/negotiation-in-the-context-of-arbitration/
• https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/ 
• https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=3156&context=caselrev
• https://nlsblr.com/good-faith-or-bad-faith-analysing-the-enforceability-of-pre-arbitral-negotiation-clauses/

---

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: