This article is written by Alan V. Avanesh, pursuing 6-Month Growth Camp: Preparation for LLM Abroad from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).
Introduction and origin of arbitration
Arbitration is a type of Alternate Dispute Resolution mechanism, which helps in solving disputes between parties outside the courts of law. Arbitration is usually conducted in an arbitration tribunal. In arbitration, an independent third party will make the final decision regarding the dispute faced by the parties. This independent third party is called the arbitrator or arbiter. The decision made by the arbitrator is known as an arbitration award. An arbitration award will be legally binding on both sides and can be enforceable in the courts of law. However, it needs to be noted that arbitration awards are not directly enforceable as a party may need to approach the court of law in order to confirm the award. Hence, arbitration is a consensual and confidential procedure consisting of an arbitrator who is neutral and the decision made in the arbitration tribunal is final. Arbitration helps to reduce the load on courts of law and it provides an easy, less time-consuming procedure to obtain justice.
Arbitration initially originated in Greece, in the sixth century BCE during which it was used to settle disputes related to ownership of land, assessment of damages etc. It was later adopted in various Roman cities where it was called “compromissum” which means compromise. From there arbitration was adopted by various European countries like England. From England, arbitration was later adopted by various English Colonies like America, Australia and India.
Classification of arbitration
With the passage of time arbitration has been used in different fields of law. Arbitration can be classified differently based on different factors On the basis of procedure and rules, arbitration can be divided into the following three types:
- Institutional arbitration: An arbitration that is conducted in an arbitral institution is called institutional arbitration. In institutional arbitration, the parties have the opportunity of choosing their desired arbitral institute to settle their dispute.
- Ad-hoc arbitration: An Ad-hoc arbitration is when the parties themselves agree to arbitration and such arbitration does not have any kind of institutional proceedings. It can be domestic, international or foreign arbitration. The expression ‘Ad Hoc’, as in ‘Ad Hoc Arbitration’ or ‘Ad Hoc Submission’ is used in two quite different senses: an agreement to refer to an existing dispute, and/or an agreement to refer either future or existing disputes to arbitration without an arbitration institution being specified to supervise the proceedings, or at least to supply the procedural rules for the arbitration. This second sense is more common in international arbitration. In an Ad-hoc arbitration, the parties do not need to comply with the rules of the arbitral institute.
- Fast track arbitration: While other methods of arbitration are quite a time consuming, fast track arbitration is comparatively way quicker. It abandons all methods that are too time-consuming and only focus on the main goal of arbitration.
Arbitration can be divided into three types based on jurisdiction
- International Arbitration: Arbitration that occurs outside India is called International Arbitration. Both Indian and foreign law can be applied in cases of international arbitration. In order for an International Arbitration to take place, any one of the parties should be domiciled in a foreign country or the subject matter of the dispute is abroad.
- Domestic Arbitration: It refers to the type of arbitration that occurs in India. Domestic Arbitration is subject to the laws of the native country. In this type of arbitration, both parties must be domiciled in the native country. In the case of India, with reference to Section 2 subclause (2) and subclause (7) of the Arbitration and Conciliation Act 1996, domestic arbitration is the type of arbitration in which the arbitral proceedings must necessarily be held in India, and according to Indian substantive and procedural law and the cause of action for the dispute has completely arisen in India.
- International Commercial Arbitration: It is a type of international arbitration that is used to settle commercial disputes. In International Commercial Arbitration, the arbitral tribunal is bound to decide the conflict based on the laws chosen by the parties as applicable to the substance of the dispute.
Arbitration in Asia
Asia is home to various densely populated countries like India, Singapore and South Korea. All of these countries have their own separate legal systems and have a huge number of legal cases which is a burden to the courts of law. India is considered to be the country with the most pending legal cases and despite arbitration being established in the country for more than 20 years with the help of laws like the Arbitration and Conciliation Act 1996, arbitration is still not very popular in the country.
Resistance to arbitration in Asia
There are many reasons why arbitration is not a popular option to seek justice in Asia. A few of them are as follows:
- Underdeveloped Institutions: Countries in Asia have very few well defined, developed arbitration institutions when compared to their western counterparts. Many countries do not even have proper laws and regulations for arbitration. These underdeveloped institutions even prevent the growth of international arbitration. The lack of properly functioning institutions makes it an unpopular choice for the general public to seek justice.
- Lack of knowledge: Since arbitration is a European concept, a lot of countries in Asia that have not had any influence from Europe would find the concept of arbitration to be quite foreign. These countries do not have a clue as to how arbitration works and what are the necessary arbitration proceedings.
- Weak legal systems: Asia is home to the most number of developing countries. However, few of the countries in Asia such as Cambodia and Afghanistan have one of the weakest legal systems in the world. The laws in these countries barely have any power which may help to maintain public order. So, the settlement of disputes using the laws of these countries may not have much significance.
- False perceptions: The general public has a rather false perception of Arbitration. People believe that arbitration to be costly, time-consuming and have complex procedures. However, the truth is that arbitration provides an easier and comparatively more flexible platform to seek justice.
- Lack of recognition in most countries: Many countries do not recognize arbitration to be an alternate dispute resolution mechanism thereby not allowing arbitration with the opportunity to develop in the country.
- Lack of support from the government: In order for arbitration to develop, governments need to support in forming a proper framework for its functioning. The lack of support from the government in the development of arbitration does not help to increase the popularity of arbitration as a means to seek justice.
Development of arbitration in Asia
Despite all the drawbacks that affect the popularity of arbitration, there have been few recent developments that provide an opportunity for arbitration to grow in Asia. Several Asian countries are experiencing rapid growth in their economies. The increase in cross border transactions by various leading companies have led to various international commercial disputes for which arbitration was very useful. There have also been a few well-developed institutions such as the Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre and KCAB International that have helped to settle disputes that come under the ambit of international arbitration. Several countries like Singapore, India, China and South Korea have provided opportunities for the growth of arbitration. Singapore is also known as one of the main global arbitration hubs in the world.
Although there have been recent developments in Asia that may support the development of arbitration. These developments are only in a few countries like Singapore, China, India and South Korea as the concept of arbitration is still foreign to a lot of Asian countries. Asia is the most populous continent in the world, a continent like this would have an enormous number of legal cases which would be a huge burden on the judiciary. Arbitration in Asian countries would help to reduce the backlog of pending cases and would thereby help the people in having an easier and relatively more flexible way to seek justice. Arbitration would also help to settle various commercial disputes between Asian countries in a relatively easier and less time-consuming manner than a court of law thereby helping to maintain efficiency in trade. If actions are taken for the development of arbitration, then the legal system of these Asian countries would become more efficient.
Hence, efforts need to be made to spread awareness about the advantages of arbitration and also debunk all of the false perceptions towards this concept. This can be done by conducting seminars, workshops and conferences. Governments of different countries also need to take initiative with regards to framing rules and establishing arbitration institutions. Hence, it can be concluded that Asian countries would benefit a lot from arbitration and these countries need to take efforts to develop the same.
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