This article has been written by Ms. Anchita Niranjan Chavan, a 3rd year BLS LLB student at Oriental College of Law, Navi Mumbai.
INTRODUCTION-
Arbitration is a form of alternative dispute resolution (ADR) that resolves disputes outside the judiciary courts. The dispute will be decided by one or more persons (the ‘arbitrators’, ‘arbiters’ or ‘arbitral tribunal‘), which renders the ‘arbitration award‘. An arbitration decision or award is legally binding on both sides and enforceable in the courts, unless all parties stipulate that the arbitration process and decision are non-binding.
The Legislative Council of India passed the Indian Arbitration Act in 1899. This act was India’s first comprehensive piece of law dealing with arbitration. It was only valid in presidential towns like Calcutta, Bombay, and Madras, though. This legislation expanded the scope of arbitration by defining “submission” as “a written agreement to submit current and future disagreements to arbitration, whether or not an arbitrator is designated therein.” Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. In the past few decades, arbitration has become a mainstay in resolving legal disputes.
The primary advantage is that the parties to arbitration have an almost free reign to determine the structure and procedure applicable to the proceedings. An arbitration is a private method of dispute resolution. The Arbitration Act imposes upon an arbitration tribunal a duty to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting their case and answering that of their opponent. The arbitration tribunal is permitted to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense and to provide a fair means for the resolution of the dispute.
TYPES OF ARBITRATION-
In India, Arbitration as a mode of resolution of disputes came to be adopted from the medieval times when trade and commerce between traders in India and outside started growing. The process of arbitration was used in the form of informal agreement when any misunderstanding or dispute may arise the parties would agree and listen to the decision of the respected elder.
The kinds of arbitration agreement may be categorized based on the territorial jurisdiction. Unlike civil or criminal cases, a dispute is sent to the arbitration tribunal. The tribunal resolves the dispute and the final decision cannot be appealed, making it binding on both parties. No judicial proceedings are involved to ensure the swift resolution of the disputes. The parties have the option to seek recourse to either of them depending on their choice and convenience.These are the basic two forms of arbitration followed in varying degrees in different nations across the globe.
- Ad Hoc Arbitration
- Institutional Arbitration
AD HOC ARBITRATION-
A form of arbitration where the parties and the arbitrators independently determine the procedure, without the involvement of an arbitral institution. Thus, it is an arbitration agreed to and arranged by the parties themselves without seeking the help of any arbitral institution. In Ad-hoc arbitration, if the parties are not able to nominate arbitrator/arbitrators by consent, the appointment of arbitrator is made by the High Court (in case of domestic arbitration) and by the Supreme Court(in case of international commercial arbitration). In India, still most of the arbitrations are Ad-Hoc Arbitrations.
An ad hoc arbitration agreement may just provide that: “Disputes between the parties shall be arbitrated in Mauritius”. Such an abbreviated arbitration agreement will only work if the jurisdiction selected has established arbitration law.
If the parties cooperate and facilitate the arbitration, ad hoc proceedings can be more flexible, cheaper and faster than an administered proceeding. It is a popular choice because the parties do not have to pay administrative fees to the arbitral institution
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 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.
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.
Usually, the contract between the parties will contain an arbitration clause that designates a particular institution as the arbitration administrator. Some common arbitral institutions are the Australian Centre for International Commercial Arbitration and the Resolution Institute.
Although parties are free to arbitrate without the assistance of an arbitral institution, institutional arbitration is often preferred because it relieves the parties of the complicated process of producing their own appropriate set of rules and procedures and enables them to rely instead on the time-tested rules developed by an arbitral institution.
Institutional arbitration is distinct from ad hoc arbitration.
COMPARISON OF AD HOC & INSITUTIONAL ARBITRATION
ADVANTAGES OF AD HOC ARBITRATION-
- Flexibility – One significant advantage of ad hoc arbitration is its flexibility. The parties will mutually determine the rules that will govern their arbitration proceedings.
- More responsibility with the arbitrator – Appointed by the parties themselves, more power is given to the arbitrator to organize and administer the arbitration (a role that would, in institutional arbitration, be managed by the institution).
- Cost-effective – Another important advantage of ad hoc arbitrations is that the parties will only have to assume the fees of the arbitrator and their attorneys. The fees that would normally go to the arbitration institution will be saved by the parties. This can also turn out to be cost-effective for small value claims since institutions have a minimum fee that they normally charge per case.
- Parties costs will include the arbitrator, their legal team, and the costs of the proceedings – There are no institutional fees to pay, meaning costs can be lower than institutional arbitrations.
- Control of the process- Parties are in control of the process. They can write their own rules, set their own timelines and move the arbitration along their own pace. The arbitral tribunal and to a lesser extent the parties have to shoulder the burden of organizing and administering the arbitration proceedings.
DISADVANTAGES OF AD HOC ARBITRATION-
- Procedural decisions rely on the cooperation of the parties – At a time when there may already be a dispute, key decisions, such as how evidence will be admitted, might prove difficult to agree on.
- Further expenditure through the courts might be necessary – Parties to the arbitration might have to approach the court in order to take the arbitration forward, particularly if certain parties are uncooperative, which could increase costs.
- Awards can lack credibility if not associated with a highly-regarded arbitral institution – This is of particular importance if enforcement will be sought internationally, or through foreign courts.
ADVANTAGES OF INSTITUTIONAL ARBITRATION-
- Reputation- One of the biggest advantages of opting for institutional arbitration is the reputation of the institution. Decisions given under the name of any prestigious institution is easier to enforce as it is accepted by a majority of other bodies.
- Increasing credibility- An arbitral institution can decide challenges to arbitrators in a transparent and impartial manner, thus increasing the credibility of the arbitration process. On the other hand, in an ad-hoc arbitration, any challenge to an arbitrator is decided by the arbitral tribunal itself, which may undermine the credibility of the arbitration process.
- Administrative support- An arbitral institution can provide useful administrative support, such as arranging a hearing venue, facilitating filings and fee payments, and scrutinizing draft awards for clerical errors or lacunae.
- Quick interim relief- An arbitral institution can facilitate quick interim relief through the emergency arbitration process, if provided for in its arbitration rules. Emergency arbitration allows parties to secure interim relief within days.
- Remuneration of the Tribunal- In the case of institutional arbitration, the remuneration to be paid to the arbitrators is already fixed. The disputing parties do not have to haggle with the arbitrators to decide the terms and amount of remuneration. The remuneration of the arbitrators in case of institutional arbitration is based on a fixed scale. The money is paid to the arbitrators without involving them directly.
DISADVANTAGES OF INSTITUTIONAL ARBITRATION-
- Bureaucratic- Some users tend to complain about an overly “bureaucratic” feeling to the process.
- Inflexible- Inflexible as it takes away the exclusive autonomy of the parties over arbitration proceeding.
- Fees- Institutional fees may be expensive, in particular where they reflect a percentage of the value of a significant amount in dispute.
CONCLUSION-
In sum, institutional arbitrations are becoming increasing popular in most parts of the world and are expected to continue doing so. For instance, India alone has thirty-six domestic and regional arbitration institutions.The growth of institutional arbitration mechanism is inevitable.
If you choose arbitration, consider the pros and cons of ah hoc and institutional arbitration.If you go for ad hoc, take your time to draft a good and complete clause. If you go for institutional, try to identify the best possible institution for your case. Every single contract might deserve a reflection on the right arbitral institution to be chosen, one fits for all is generally not a good solution.
Also, the support of the Courts to the institutional arbitration mechanism gives it a huge boost. It is must be said that it is hard to claim that institutional arbitration is superior to ad hoc proceedings or vice versa. Arbitration is a methodology; it can be the right choice for resolving a commercial dispute, but depending on the single case, it might not. Always keep the alternatives in mind.The Arbitration and Conciliation Act, 1996 is based on the UNCITRAL Model, which provides it with a lot of stability and uniformity, and it is at part with international standards of arbitration, which will surely be very beneficial for the institutional arbitration mechanism in the long run.
REFRENCES-
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