Business Review

Concrete action on dispute resolution

“The Expedited Rules of the Arbitration Centre of the Institute for the Development of Commercial Law and Practice (ICLP)”

Walter Laduwahetty, Financial Ombudsman of Sri Lanka

Justice R. S. Patak, a former Chief Justice of India and a former judge of the International Court of Justice in his Foreword to Kwatra’s The New Arbitration and Conciliation Law of India makes the pertinent observation that the Indian Arbitration Act of 1940 enacted in pre-independence India was “Consonant with imperial designs and severely curtailed the expansion of India’s external commerce.”

He says the law was shaped in the classical mode with freedom to the courts of exercise substantial supervision over the course of the arbitral process.

In contrast he sees the post independence Arbitration and Conciliation Act of 1996 as embodying the ‘nature wisdom of a modern nation’. He says “it is a product of conceptual thinking and of much debate and consultation. It provides not only for domestic arbitration, but spreads its sweep, to International Commercial Arbitration.

It consolidates and modernises the Indian Law relating to the enforcement of foreign arbitral awards. It provides for greater autonomy in the arbitral process and limits judicial intervention.

Transparency is a statutory feature of the arbitral process. The disclosure of circumstances which may throw doubt on an arbitrator’s independence or impartiality is an integral part of that process.

The element of accountability is reflected in the requirement that the award must state the reasons, unless parties dispense with it.”

These observations are equally pertinent to the arbitral process that prevailed earlier in Sri Lanka also and the changes brought about by Act 11 of 1995. (Hereinafter the Act)

The Supreme Court of India in the State of Kerala vs Joseph Auchilose AIR 1990 Ker. 101, 106-7 observed as follows “Interminable, time-consuming, complex and expensive court procedures impelled jurists to search for an alternative forum less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap”.

Even under the Indian Arbitration Act of 1940 it was observed that the way in which the proceedings were conducted and without exception challenged in courts “made lawyers laugh and legal philosophers weep”.

These comments are pertinent when one examines the local scene. The earlier law relating to Arbitration and the provisions of the Civil Procedure Code would have proved wholly inappropriate in today’s context, for those laws were cast in ‘Classical Mode’ and would have proved a serious deterrent to expanded commerce and trade in the post independence era.

In fact the present Arbitration Act of 1995 pre-dates even the Indian Act by one year and is generally regarded as embodying all that one can expect of a modern law of Arbitration.

Nevertheless it should be observed that all the developments in this field of dispute resolution are not in keeping with the expectations of both legal practitioners and arbitrators themselves not to speak of concerned members of the public.

Among these concerns one can note in passing Court procedures and practices infiltrating into the arbitral process. One of the important imperatives was to break away from the linkage to the courts, except when essential, as provided for the new law, Act 11 of 1995, where the parties can even agree to exclude the jurisdiction of the Courts. Similarly speed in the disposal of a dispute was widely regarded as an attribute of the arbitral process and it is this aspect to which attention is drawn to the subsequent section of this paper.

A perusal of the Act shows that the element of ‘time’ is dealt with in the following sections.

Section 7 (2) (b) - If a party fails to appoint an arbitrator within sixty (60) days of receipt of a request to so, or if two arbitrators appointed by the parties fail to agree on the third arbitrator within sixty days, the appointment will be made by the High Court.

8 (1) The mandate of a Arbitrator shall terminate if the Arbitrator fails to act without undue delay.

10 (3) A challenge to an Arbitrator must be made within thirty (30) days of a party becoming aware of circumstances throwing doubt on the Arbitrators impartiality or independence.

(4) If a party is dissatisfied with the order of the tribunal such challenge being made may appeal to the High Court within 30 days.

27 (1) Correction of an award should be within 14 days and the correction should be done within 14 days of the receipt of the request - 27 (2) (3) and (4).

31 Party may apply for enforcement of the award within one year after 14 days have expired from the making of the award. (The 14 days allowance being for correction of the award if any under 27 (1) ).

15 Contains the general guideline that the Arbitral Tribunal shall deal with the dispute in an impartial, practical and expeditious manner.

While the time period within which some action has to be taken is salutary and leads early disposal of a matter in an ‘expeditious manner’, it should be noted that sometimes inquiries tend to get long drawn out. This sadly is contrary to the spirit of arbitration.

Apart from the provisions of the Arbitration Act, the ICLP has drafted its own rules setting out precise time limits for compliance by parties. These rules are designed, for the further expeditious disposal of inquiries. The following time limits may be noted.

Rule 2 - Within three working days of the submission of the request to the ICLP the request for Arbitration shall be submitted by the Secretary General to the Chairman of the Board.

5.1 - If the request is entertained, the Secretary General is required within a week to require the respondent to reply.

7.1 - Each party shall appoint an equal number of arbitrators who shall appoint a Chairman of the Tribunal.

If the arbitrators are unable to appoint a Chairman in such an event the Chairman is appointed by the Board, and if there is a Sole Arbitrator and the parties concerned cannot agree on the Sole Arbitrator, the appointment is by the Board. If a party fails to appear at the inquiry without a valid cause, such failure does not prevent the Tribunal from proceeding with the case. This is similar to section 15 (3) of the Act.

25 - The award has to be delivered not later than one year after the case has been referred to the Tribunal. This is the general rule. In an appropriate situation the Tribunal can request and the Board may extend this period.

It will thus be seen that the restrictions on the time limits are highly satisfactory for the expeditious disposal of Arbitration inquiries where the parties have agreed to act under the ICLP rules.

In addition to the above the ICLP also has its expedited rules which came into force on the March 8, 2006. These rules can be seen as another attempt to speed up the arbitral process still further in a limited category of cases. While the provisions of the Arbitration Act are a very significant departure from the regime that prevailed under the earlier Arbitration law and the provisions of the Civil Procedure Code, the expedited rules can be seen as another attempt in the same direction.

While the Act applies to ad hoc arbitration, where parties choose to have their inquiry under the institutional provisions viz, the rules of the ICLP, these rules will apply. The expedited rules may be summarised as follows:

(1) They are primarily recommended for minor disputes where parties desire a speedy and inexpensive procedure. These expedited rules could be followed on a request being made by either party with the consent of the other.

Comment:

(a) This presupposes both parties consenting to the application of the expedited rules. What is noted above is only a recommendation.

(b) The expression “minor dispute” has not been defined; there is an element of vagueness. A million rupees may be minor in some cases but not in all cases.

The positive aspect is that the absence of a definition gives the parties to the dispute a measure of latitude whether they should be guided by the expedited rules, the normal rules of the ICLP or under neither but under the provisions of the Act as in the case of ad hoc arbitration.

The expedited rules are only an alternative to the regular rules of the ICLP, the choice of rules being with the parties. The choice of rules could be either in the arbitration agreement or in a separate agreement once the dispute has arisen.

One may however not be unmindful of the fact that once a dispute has in fact arisen, parties or at least one party may not be as conciliating and accommodating as at the beginning of the Contractual relationship. It would be better therefore if the choice is exercised at the time of entering into the contract or when the arbitration clause is drafted.

(2) Article 1 of the Expedited Rules refers to the Request for Expedited Arbitration. This is done by the claimant making a request for Arbitration together with his statement of claim together with a copy of the Arbitration agreement.

A new provision to be noted is that this request for Arbitration must be accompanied by a preliminary statement of evidence on which the claimant intends to rely.

This provision could be seen as particularly important because it will give an indication of the strength or weakness of the claimant’s case and will be important in processing the request for Arbitration by the Board of the ICLP Arbitration Centre. If the Board takes the view that it lacks jurisdiction the request will be dismissed.

(3) Article 5 - If the claimant’s request is entertained by the Board, the request is communicated to the Respondent and within a period of 14 days the Respondent shall reply forwarding inter alia a preliminary statement of evidence on which he relies (Article 5 (1) (d))

The Respondent’s reply is then sent to the Claimant for his comments which must be sent within 10 days (Article 5 (2) (b)). It may be noted that after the lapse of these 10 days, the Claimant cannot amend his claim or adduce additional facts or evidence, unless the Tribunal sees special reasons for doing so. All these provisions are seen as attempts to cut down time and promote the expeditious disposal of the matter in dispute.

(5) Article 11 (3) is a further illustration of the need for expedition. The Arbitral Tribunal has to be appointed within 21 days of the Commencement of the Arbitration, while Article 4 stipulates that Arbitration shall be deemed to have commenced on the date on which the Request for Arbitration was received by the ICLP Centre.

The Claimant is required to nominate his Arbitrator when filing his statement of claim and the respondent is required to nominate his Arbitrator when filing his response.

If the two parties have nominated two Arbitrators they (the arbitrators) are required to nominate the chairman (Article 11) (2)). Of course there could be only a single arbitrator if the parties so agree and if the agreement says so. All this has to be done within 21 days as provided for in Article 11 (3).

(6) Article 13, 14 & 15 deal with the need for impartiality, independence of the arbitrators, provision for challenging an arbitrator and removal.

It is to be noted that under the expedited rules, removal is by the Board of the ICLP after considering the comments of both parties and the arbitrator concerned (article 14). Also if an arbitrator fails to perform his function in an impartial manner, it is the Board that is empowered to remove the arbitrator after an inquiry.

(7) Article 16 deals with the procedure before the arbitral tribunal. The tribunal is required to maintain confidentiality and conduct the case in an impartial, practical and expeditious manner.

Article 16 (3) is a novel feature where the Arbitral Tribunal shall prepare and distribute to the parties a time schedule for the proceeding at the outset in consultation with the parties.

This could be seen as a further attempt to see that the matter is disposed of expeditiously.

(8) Another similar provision is Article 17. Oral evidence can be given if requested by a party but only if the tribunal deems that a hearing is necessary. This again will cut down the length of time to dispose of the matter not forgetting the fact that both parties were required to state the material facts and circumstances in the statement of claim (Article 1 (b) and under Article 5 (d) in the case of the respondent.

A further provision is a hearing is allowed, the hearing, may not exceed three days, except in exceptional circumstance. The hearing itself if kept brief under the provisions of Article 18 & 19.

Article 20 is similar to Section 15 (3) of the Act i.e. The failure if a party to appear at a hearing does not prevent the tribunal from proceeding with the case.

This obviates a situation where a party deliberately and without reasonable cause keeps away from hearing. This will not result in the hearing being postponed, nor will it delay the delivery of the award.

The award itself is in summary form and shall give the reasons for the award. The award must be rendered not later than three months from the date on which the matters are referred to the arbitral tribunal. The time limited however can be extended in exceptional circumstances. (Article 23)

A passing reference may be made to payments to be made to arbitrators. Such payments are referred to as “fees” in one place and as “compensation” in another place (in Article 26) I see no difference in the nomenclature.

In either case such payment would constitute earned income and be taxable by whatever name such earnings are called! However article 26 (2) states fees of the arbitrators are decided by the ICLP, considering the quantum of the claim. This again is a salutary provision considering the fact that the expedited rules are for small claims.

An overview of these changes shows that over the years, arbitration as a dispute resolution methodology has undergone significant changes. No longer would one say arbitration is cast in a “classical mode”.

It has now freed itself from the shackles of supervision by Court (even to the extent of parties agreeing to an exclusion agreement) and gives the parties themselves maximum possible freedom under the concept of party autonomy.

Not that there are no problems at all. But these problems are more due to practices that arbitrators themselves and lawyers adopt rather than the deficiencies in the law.

Shorn of these shortcomings arbitration has become a potent weapon in the speedy resolution of commercial disputes.