In this article, Aditi Nandanwar of Hidayatullah National Law University discusses Strategies for Conducting Arbitration Expeditiously and At Minimal Cost.
Arbitration is a contract based Alternative Dispute Resolution process, which initially started as a substitute for the more lengthy, costly and rigorous litigation. It’s supposedly quicker and cost efficient way of resolving disputes has however in the recent times been resembling the litigation process, which the disputed parties were trying to avoid. In a nutshell, the overall benefit one is expecting from arbitration is enforceability, flexibility as well as time- and cost efficiency. Unfortunately, in practice, the latter are not always found to be true. This has become a major problem for solving disputes through arbitration these days. Hence, the government and the International Chamber of Commerce are trying to come up with measures to fix this problem.
The key reason for the failure of this effective, dispute resolving technique is that the arbitration process has become too much like litigation. What is troubling is the sometimes lengthy period of time that it takes to complete the arbitration process following a substantive hearing, and for the Tribunal to publish its award.
In recent years, to be sure, much effort has been devoted to providing guidance for arbitrators, business users and advocates. In addition, leading dispute resolution provider institutions have spent considerable time and effort developing and revising arbitration procedures. Despite all of this, the problems—perceived and real—remain.
The Solutions, Measures, and Strategies for Change
The following measures and details can help in a faster, more cost-efficient arbitration process.
Making a suitable and detailed arbitration clause.
The arbitration clause is the most essential part of arbitration. The parties can sit for arbitration to resolve their disputes only when there exists an arbitration clause in their agreement or contract. Unlike litigation, arbitration can be made party-specific. The parties to the contracts have the liberty to choose the way their arbitration procedure will work, the basic cost involved and issues to be discussed during the said process. Drafting a proper arbitration contract will hence reduce a lot of time taken and money lost in the process. Courts have a set rule of procedure to govern their proceedings; however, arbitration is a contract made on the will of the parties involved in a business together hence enabling the parties to tailor the process to fit their needs and bypass litigation procedures. Therefore the parties must take advantage of this critical distinction and make their arbitration proceeding more efficient.
How to make an effective arbitration clause or agreement?
It is important to have an arbitration clause in an agreement but what does a precise and good arbitration clause contain is the question. Just adding an arbitration clause isn’t enough. It should be consice and serve the purpose of the disputed parties. Following are a few things that a good arbitration clause may contain:-
Why is enforceability essential? If the clause is not enforceable, there can be no option of resolving a dispute through arbitration at all. Enforceability ensures the certainity of enforcing the award of the arbitration. If the other party has assets in several jurisdictions, then it is a good idea to have the seat of the arbitration in a neutral jurisdiction that is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). As there are 156 signatories to the New York Convention, having the seat in a neutral jurisdiction which is itself a signatory will ensure maximum flexibility when it comes to enforcement. For example, a Chinese company entering into a contract with a UK company that has assets in the UK, Malaysia and Australia might want to choose Hong Kong or Singapore as the seat of the arbitration as this will mean the award will be able to be enforced in each of those three jurisdictions as a foreign award under the New York Convention.
Cost of the procedure has to be considered while making the clause because one of the reasons of the disputed parties choosing this form of dispute resolution is to save their money that is required for proceedings in the court.
Arbitration is a party-specific document in comparison to the court proceedings. To make it fair for the both the parties so as to get justice is important. Ensuring that the arbitrator is not inclined toward one of the parties helps in efficient arbitration procedure.
Stepped arbitration clauses
Stepped arbitration clauses, which provide for “amicable negotiations” and/or mediation before a dispute is referred to arbitration, are quite popular these days. However, they can cause problems if they are loosely drafted with no clear deadlines or procedures for the settlement discussions. A well framed and drafted arbitration laying down all the essential things of arbitration such as its commencement, costs, etc.
When drafting an arbitration clause, it is important to distinguish between the rules of the arbitration and the governing law . The rules of the arbitration related to the procedural aspects of the arbitration such as the appointment of the tribunal, the exchange of pleadings and evidence and the issuing of the award. The governing law is the substantive law that is to be applied to determine the underlying legal issues in dispute. Many general counsel consider the governing law clause to be of primary importance in a contract.
Scope of dispute for arbitration
The clause must contain a specific scope of dispute that can be resolved by arbitration. The scope must be carefully drafted and must be unambiguous. Any vagueness could render the arbitral award unenforceable and may result in litigation.
Confidentiality and trade secrets
One of the main reasons why arbitration is preferred over litigation is because of the confidentiality of proceedings and the award. It maintains the autonomy of the parties and prevents them from unwanted publicity. Hence, a confidentiality clause must be exist in the agreement so as to enforce the confidentiality of the proceedings and the information shared by both the parties.
One of the best and most effective ways of reducing the cost of Arbitration processes is to form a set budget that is regulated frequently by the attorneys and lawyers of the parties involved. The budget must include detailed expenditure of the complete proceeding. This will help the parties to review the money involved and cut down the unnecessary or unwanted expenditures during the complete arbitration process.
Choosing the right arbitrator
As with other aspects of the international arbitral process, a dominant feature of the selection of arbitrators is party autonomy. As stated in the Hague Convention of 1907, arbitration affords the parties the freedom to have their disputes resolved by ‘judges of their own choice’.
An Arbitrator decides the costs, claims and orders. Hence, in order to make the arbitration proceeding efficient, it is must to select a suitable and an experienced arbitrator. It is one of the most vital and decisive steps in an arbitration. It has rightfully been said that arbitration is only as good as the arbitrators. Choosing the right Arbitrator also includes reviewing their qualifications so as to match the compatibility with both the parties and the dispute. He should be selected on the basis of reviewing his earlier decisions in similar disputes between other parties.
Limiting the production and discovery of documents
Every time a new document is introduced during the proceeding outside the specified time of production, the party would have to pay a certain cost for such production. This extra money spent can be saved by either producing the document within the said time or reducing the documents to be shared after the said time has elapsed.
In case of failure of the witness to be present in the proceeding, under Section 27(5) of the Arbitration and Conciliation Act, 1996, a contempt action against them shall be taken which would include penalties or fines. Such spendings can also be minimised by minimising the defaults on the witness’s part.
Limiting the motions raised during the process
Discussing irrelevant and out-of-the-context motions only result in more time consumption and stretching the arbitration to a greater length. The parties should only include those motions that are actually related to the dispute. However, motions that are vital for production of evidences and documents must be discussed thoroughly without any compromise.
Trying to settle the matter in the arbitration and limiting the appeals
The parties usually, eventually move on to courts even after the arbitration procedure is either in progress or has passed an order or a settlement. This leads to further lengthening of the process of arbitration and increasing the cost involved in resolving the disputes. Hence, an effort should be made to curb such unnecessary delay in dispute resolution which negates the complete idea of arbitration in the first place.
Amendments to the Arbitration and Conciliation Bill, 2015 to make the arbitration process expeditions and cost-efficient
In order to correct the lacunas in the process of arbitration, the law commission has suggested a few amendments for a more speedy and less costly process. These amendments ensure that every arbitration process is completed within a period of 12 months which maybe extended to another 6 months but not beyond that. Any such extension would be granted by the court only on any satisfactory/sufficient grounds. Also, such an extension will lead to the reduction in the fees of the arbitrator if it is found to be a fault or delay on his part.
The government has also amended Section 11 by adding a new subsection to it to the effect that an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court as expeditiously as possible and an endeavour should be made to dispose of the matter within 60 days. To ensure a faster system of dispute resolution, such provisions are added that, if the parties to the dispute may agree to a fast-track dispute resolution procedure, awards may, in such cases, be granted within a six months period.
Section 31A has been added for a more cost effective arbitration. It has provisions for both, the arbitrator and related litigation in courts. The section relates to the regime of costs and provides that the Court or arbitral tribunal shall have the discretion to determine costs. This will help in curbing the frivolous and meritless arbitration and litigation.
Arbitration is a very effective dispute resolution method and can be used efficiently if its process, rather than leaning towards a litigation base is brought back to its original form i.e, a concise contractual form. It is supposed to be an ‘alternative’ dispute resolution system for the disputed parted. The lengthy process and more expenditure is taking away its ‘alternative’ character. To preserve this element of the process it is high time the government and other regulating authorities bring about changes in its nature so as to be compatible with the fast moving commercial and business industries and companies.