What is Arbitration?
‘Arbitration is a process in which disputing parties by agreement decide to peacefully resolve their dispute by referring to an arbitrator or the arbitral tribunal. By choosing this mode, one eliminates the traditional Court Procedure and has opted for a way to resolve their dispute alternatively. In this modern world, where time is our priority, Arbitration is the best way to go forward rather than wasting an indefinite amount of time in the courtrooms. Arbitration provides a fair trial to both the parties through mutual agreement without any delay in the process and at the same time without any unnecessary expense. There does prevail a huge misconception that arbitration has replaced the judicial mechanism of litigation but in my opinion, it co-exists with it, arbitration has enhanced and has provided viable options to the parties in an alternative way to settle their disputes out of the court speedily and cost-effectively. The main objective of arbitration is to provide an unprejudiced and impartial settlement of disputes without causing delay or huge expenditure, with the parties willing to agree upon the mode in which their conflicts should be resolved.
Types of Arbitration
Two forms of arbitration are recognized all over the world, Ad hoc arbitration and Institutional Arbitration and when spoken specifically about India, Ad hoc arbitration has received tremendous amounts of recognition when compared to institutional arbitration. Ad hoc arbitration is the process in which the parties have the liberty to make decisions about the number of arbitrators, how they are appointed, place and seat of the arbitration, clauses of the agreement, the procedure for conducting the arbitration, etc. under the Arbitration and Conciliation Act, 1996 and hence the question whether an association can have their own arbitration rules and also be legal in nature under the arbitration act is in affirmative as the act provides the parties with such power.
All about Ad Hoc Arbitration
The parties who have agreed in a contract to seek ad hoc arbitration after a dispute, have the option to negotiate a completely new set of rules, and procedures as per their requirement and discretion. They can amend provisions for the administration. The parties can adopt a whole set of rules from an arbitral institution, these rules have been drafted specifically for ad hoc arbitral proceedings in the “UNCITRAL Rules” or the “CPR rules” which can be used in domestic as well as international cases. They can adopt these rules without even referring their disputes to that institution. The biggest advantage to parties in ad hoc arbitral proceedings is that they can block dates for hearing as per their schedule, saving their time if going through the normal court proceedings where trials and hearings can go up to years.
Furthermore, In ad hoc arbitrations, the fees can be negotiated directly between the parties and the arbitrators giving them the option to negotiate. Fees are generally fixed according to the status of the Arbitral Tribunal. An ad hoc arbitration process does not even charge the administration fees whereas charges levied by an arbitral institution constitute a hue portion of the overall costs. Hence we can conclude that ad hoc arbitration is an easier, cheaper, and speedy process.
This procedure gives parties greater control over the arbitration process, the flexibility to decide the procedure provided the parties decide to cooperate, it also requires effort and expertise from the parties to determine the arbitration rules. The arbitral mechanism is structured specifically for a particular agreement or a dispute. If the parties cannot agree on such an arbitral agreement which is laid down by the arbitral tribunal once the arbitration has begun, it will be resolved by the law of the seat of arbitration. Therefore, It is preferable at least to specify the place or ‘seat’ of the arbitration as well since this will have a significant impact on several vital issues such as the procedural laws governing the arbitration and the enforceability of the award. The Commercial Courts Act has set up commercial courts at the district level and commercial divisions in High Courts having ordinary original civil jurisdiction. These commercial courts/divisions hear arbitration matters involving commercial disputes amongst other commercial matters. Parties also have the liberty to initiate court proceedings before, after, or during the arbitral proceedings and can even enforce it at the stage of arbitral awards. One of the many reasons that parties are hesitant to opt for the arbitration process is because of the high pendency of litigation before Indian courts. The major benefit to agreeing to arbitrate after the dispute is because arbitration can be conducted under rules tailored to the dispute rather than under what may have been a ‘one size fits all’ set of rules.
All about Institutional Arbitration
In an institutional arbitration, the arbitration agreement designates an arbitral institution to administer the arbitration. The parties then submit their disputes to the institution that intervenes and administers the arbitral process as provided by the rules of that institution. It is pertinent to note that these institutions do not arbitrate the dispute, it is the arbitrators who arbitrate and only the rules of the institution apply. And arbitral institutions do not provide the same services. Some institutions of high reputation simply offer a set of rules and guidelines, and no other arbitral services. One such illustration is the London Maritime Arbitrators Association. There are other institutions, which provide rules and a roster of qualified arbitrators but are not involved in the appointment of arbitrators; Certain groups of institutions supervise the whole arbitration process from the notification to the defending party of the claimant’s request for arbitration to, and including, the notification of the arbitral award to the parties. For instance the International Court of Arbitration of The International Chamber of Commerce.
In Institutional arbitration, a well-tried and tested set of arbitral rules are set out in a booklet. Parties who agree to submit any dispute to arbitration in accordance with the rules of a named institution effectively incorporate that institution’s book of rules into their arbitration agreement. Automatic incorporation of a book of rules is one of the principal advantages of institutional arbitration.
Institutional arbitration refers to settlement of disputes through established institutions where in its rules of procedure are well defined. In other words, an institutional arbitration is the one in which a specialized institution intervenes and takes on the responsibility of administering the arbitration process. Such institutions’ when they come into existence for arbitrating the disputes, help in quickening the process by providing support in the form of appointment of arbitrators, case management services including oversight of the arbitral process, venues for holding hearings etc. Each institution has its own set of rules which provide a framework for the arbitration, and its own form of administration to assist in the process. The institutional arbitration is based on the UNCITRAL model of law.
The advantages of institutional arbitration are as follows: Firstly, efficient administration is of paramount element involved in institutional arbitration. Institutions established for the purpose of arbitration consist of experts as well as trained staff. And for the administration of the arbitration process, the parties are allotted such experts who with their expertise and adequate knowledge resolve the disputes adhering to the predefined rules or procedure of the concerned institutional arbitration. It is the duty of the administrative staff to frame rules, ensure that the time limits are being complied to, and the process is going ahead as smoothly as possible. Secondly, the rules and procedure are pre-determined and are fixed by the institution itself. As these institutions have experience of arbitrating numerous matters and are well versed with the eventualities, if any. Hence ambiguity is less likely to occur as procedures are laid down considering all the possibilities of any kind of disagreement during the process of settlement. Thirdly, parties have an autonomy to select an arbitrator possessing necessary skills, expertise and experience to provide a quick and effective dispute resolution process. Moreover, arbitral institutions hire such experts, who specialize in wide areas of law and possess necessary competence. Big institutions like ICC have a network of national committees for appointment of arbitrators to ensure that there is no bias towards the country to which the parties belong. Fourthly, the fee charged by the arbitrators is another vital advantage of this mode of arbitration. The fees or remuneration of the arbitrators under institutional arbitration is already fixed. It avoids disputing parties to quibble with the arbitrators to decide the terms and amount of remuneration. Hence, the terms relating to arbitrators’ fees and related thereto is decided with the disputing parties in the beginning itself. It eases the process of settlement by saving parties time and effort of determining the arbitration procedure. Another merit of institutional arbitration is that the parties and the arbitrators can seek assistance and advice from the institutional staff, responsible for administrating international commercial arbitrations under the institutional rules. Thus, doubts can be clarified or a deadlock can be resolved without court intervention. Whereas in ad hoc arbitration, the parties would be compelled to approach the Court, in order to take the arbitration forward and consequently, the perceived cost advantage of ad hoc arbitration would be negated by the litigation expenses. Also, the institutional staff constantly monitors the arbitration to ensure that the arbitration is completed and an award is made within reasonable time and without undue delay. Further the draft clause is that it is revised periodically by the institution, drawing on experience in conducting arbitrations regularly and approved by arbitration experts, taking account of the latest developments in arbitration practice. This ensures that there is no ambiguity in relation to the arbitration process. On the other hand, ambiguous arbitration clauses in ad hoc arbitration compel parties to seek court intervention in order to commence or continue the arbitration.
Many incredible organizations, world-wide, have the capability and the know-how to deliver this service. Within the boundaries of India, to name a few, some of the prominent arbitral institutions are the Indian Council of Arbitration (“ICA”), the Delhi International Arbitration Centre (“DIAC”), the Mumbai Centre for International Arbitration (“MCIA”) and the ICADR. These institutions have their own sets of arbitral rules, panels of arbitrators and offer venues for conducting arbitral proceedings. They offer varying degrees of administrative support for arbitrations. And when talking about international commercial disputes, institutional arbitrations like these mentioned above are more suitable since it provides established and up to date arbitration rules, support, supervision and monitoring of the arbitration, review of the awards and strengthens the awards’ credibility.