—Contributed by  Deepak Miglani (Legal Buddy)

Arbitration for settling disputes has been followed since time immemorial. Even today, people settle disputes by approaching the head of the family or a respected person in the locality.   Today, arbitration is a very popular mode of alternate dispute resolution in the commercial world and one can find an arbitration clause incorporated in the majority of business contracts.

Arbitration may be defined as "the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of law by one or more persons (the arbitral tribunal) instead of by a court of law" . Arbitration is only an alternative to litigation and it does not replace the judicial machinery in all aspects, rather it co-exists with it.

While most of our laws deal with the settlement of disputes with the help of the courts, our Parliament has enacted a law which has provided a way to settle disputes out of court. This Act is the Arbitration & Conciliation Act, 1996 based on the Model Law of International Commercial Arbitration and the Conciliation Rules put forward by the United Nations Commission on International Trade Law (UNCITRAL).  

Arbitration can be institutional or ad hoc. Ad hoc arbitration is arbitration agreed to and arranged by the parties themselves without recourse to an Institution. Institutional arbitration is conducted under the auspices of an arbitral institution, and will result from the parties' agreement to apply the rules of a particular institution.

 Ad hoc arbitration

Ad hoc arbitration is arbitration agreed to and arranged by the parties themselves without recourse to an Institution. The proceedings are conducted by the arbitrator(s) as per the agreement between the 'parties' or with concurrence of the parties. It can be domestic, international or foreign arbitration. In this arbitration   , the parties are required to determine all aspects of the arbitration like the number of arbitrators, manner of their appointment, procedure for conducting the arbitration, etc. It is a proceeding that is not administered by others and requires the parties to make their own arrangements for selection of arbitrators and for designation of rules, applicable law, procedures and administrative support. Provided the parties approach the arbitration in a spirit of cooperation, ad hoc proceedings can be more flexible, cheaper and faster than an administered proceeding. The absence of administrative fees alone makes this a popular choice.

When selecting arbitration provisions at the time of contract, the parties may, of course, choose not to proceed under the auspices of any arbitral institution and opt instead for an "ad hoc" arbitration but   the parties can agree to designate an institutional provider as the appointing authority and the parties can at any time in the course of an ad hoc proceeding decide to engage an institutional provider to administer the arbitration. The ad hoc proceeding need not be entirely diverted from its institutional counterpart.

Parties wishing to include an ad hoc arbitration clause in the underlying contract between them, or seeking to arrive at terms of arbitration after a dispute has arisen, have the option of negotiating a complete set of rules, establishing procedures which fit precisely in  their particular needs. Experience has shown that this approach can require considerable time, attention and expense without providing assurance that the terms agreed will address all eventualities.

Properly structured, ad hoc arbitration should be less expensive than institutional arbitration and, thus, better suit smaller claims and less affluent parties. Ad hoc arbitration places more of a burden on the arbitrator(s), and to a lesser extent upon the parties, to organize and administer the arbitration in an effective manner. A distinct disadvantage of the ad hoc approach is that its effectiveness may be dependent upon the willingness of the parties to agree upon procedures at a time when they are already in dispute. Failure of one or both of the parties to cooperate in facilitating the arbitration can result in an undue expenditure of time in resolving the issues. The savings contemplated by use of the ad hoc arbitral process may be somewhat illusory if delays precipitated by a recalcitrant party necessitate repeated recourse to the courts in the course of the proceedings.

Institutional arbitration

An institutional arbitration is one in which a specialized institution with a permanent character intervenes and assumes the functions of aiding and administering 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 so the term arbitration institution is inappropriate and only the rules of the institution apply.

In institutional arbitration, the first issue arising for agreement of the parties is choice of the institution, appropriate for the resolution of disputes, arising out of their contract. Whilst selecting the institution , there are following  factors  which should to be considered :

•   Nature & commercial value of the dispute
•  Rules of the institution, as these rules of various institutions differ
• Past record and reputation of the institution
• The institutional rules which  should be  in tune with the latest developments in international commercial arbitration practice.

There are many institutional arbitration administrators, some of which are associated with a trade association and many of which are independent. The London Court of International Arbitration, The Chartered Institute of Arbitrators (UK), The National Arbitration Forum (USA) and The International Court of Arbitration (Paris) are four of many.

We should carefully select the arbitral institution while making a agreement or putting a arbitration clause in the agreement.

 Arbitral award is termed as the decision of arbitrator or arbitral tribunal in a dispute referred to them by the parties. It must state the reasons for the award unless the parties have agreed that no reason for the award is to be given. The award should be dated and place where it is made should be mentioned. Copy of award should be given to each party.

No review or appeal lies against an arbitral award . This involves an inherent risk that mistakes committed by the arbitrator cannot be corrected, whereby one party would inevitably suffer. However, some institutional rules provide for scrutiny of the draft award before the final award is issued and some provide for a review procedure. The latter entitles the dissatisfied party to appeal to an arbitral tribunal of second instance, which can confirm, vary, amend or set aside the first award and such decision in appeal is considered to be final and binding upon the parties. Contrary to ad hoc arbitration where there is no opportunity for appeal or review and the parties have to be prepared to suffer for the mistakes of the arbitrators, this is a redeeming feature of institutional arbitration as it allows the parties a second chance of presenting their case and also permits the rectification of mistakes made by the tribunal of first instance. It also serves as a check on the actions of the arbitrators and restrains them from making arbitrary awards.

One may argue that institutional arbitration is more suitable than ad hoc arbitration or vice versa . We can not say that institutional arbitration is superior to ad hoc proceedings or vice versa.

 References:-

1. Halsbury's Laws of England (Butterworths, 4th edition, 1991) para 601,332.
2. http://www.proskauerguide.com/arbitration/19/III
3. http://www.jurisint.org/doc/html/reg/en/2003/2003jiregen31.html
4. http://www.practicallaw.com/7-107-3855
5. http://findarticles.com/p/articles/mi_qa3923/is_200208/ai_n9136167
6. http://www.mckennalong.com/practices-225.html
7. http://www.rickweiler.com/adhocarb.html
8. http://www.manupatra.com/asp/newsletter%20194.asp
9. http://demotemp279.nic.in/aboutus/aboutus_organisational.asp

 
For any legal query:-

Legal Buddy

legalbuddy@milagrow.in