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What is arbitration

Arbitration is the process of resolving disputes among parties privately instead of going to court. Most contracts usually contain an arbitration agreement (referred to as the Arbitration clause) within them, in order to resolve any dispute that arises during the time period of the contract. The process of arbitration is entirely consensual and the parties shall agree to the same. In case the arbitration clause has not been mentioned in the contract, the parties can still agree to arbitrate when a dispute arises.

The arbitration process is proceeded by either one or more arbitrators (usually three). The arbitrator performs the role of a judge in a court. Depending on the contract, the parties can jointly choose an arbitrator, in case they chose to have a tribunal each party can pick one arbitrator and both the arbitrators can pick the preceding arbitrator. The parties also have the choice to take the help of centres to allot arbitrators. The Centre has a large panel of arbitrators who cover the whole legal and technological spectrum from seasoned dispute-resolution generalists to highly specialized practitioners and experts. Parties also have the ability to select key elements such as the applicable law, language, and arbitration venue.

The arbitrator is responsible for ensuring that the proceedings take place smoothly and that each party has a reasonable chance to present their case. At the end of the proceedings, the arbitrator delivers an arbitrary award that is final and binding on the parties.

Indian law is largely influenced by English common law. The Arbitration and Conciliation Act of 1996 governs and regulates Indian arbitration, it is centered around the UNCITRAL Model on “International Commercial Arbitration of 1985” and the “UNCITRAL Arbitration Rules of 1976[1]“.

Ad hoc Arbitration: Ad hoc arbitration allows for more control over the arbitration process, as well as more freedom in determining the method and cost-effectiveness. The success of the ad hoc arbitration is only guaranteed if all parties agree.

Institutional Arbitration: it is the administration of arbitration in line with an institution’s rules of procedure. Important parts of arbitration, such as appointing arbitrators, managing the process of arbitration, and finding locations for holding hearings, are all covered by the same law. International arbitral institutions such as the “International Chamber of Commerce’s Court of Arbitration”, the “Singapore International Arbitration Centre”, and the “London Court of International Arbitration” oversee several Indian arbitrations.

In India, there are currently 35 arbitral institutions for international, domestic, city-specific chambers of commerce and industry, trade and merchant associations, public sector undertakings. Such institutions are controlled by their own rules or by UNCITRAL norms. This sort of arbitration aids in the development of a clear set of rules, a defined timeframe for conducting the arbitration, a panel of arbitrators, and assistance from highly qualified staff when parties lack sufficient knowledge of arbitral proceedings.

What is the seat of arbitration?

“The seat of arbitration refers to the jurisdiction whose national law governs an arbitration proceeding”, whereas the venue refers to the physical site where the arbitration proceedings take place. The seat of arbitration can be distinct from the venue of arbitration where the arbitral proceedings will take place. The seat is significant in arbitration since it is the seat’s courts that have supervisory jurisdiction over the arbitration proceedings. There is a prevalent misperception that the arbitration seat and venue are the same. This, however, is not the case.

In recent times arbitration has been the most used form of dispute resolution all around the world, it is considered as more economical and efficient. However, most parties struggle in deciding where the proceeding will take place. Despite the fact that most arbitration agreements include provisions for the seat and venue of arbitration, clarity on such crucial issues appears to be buried in large commercial contracts.

The Supreme Court recognized the difference between the seat and venue in “Enercon (India) Ltd. and Ors v. Enercon Gmbh and Anr[2]“, and finally sided more with seat of arbitration rather than the venue for resolving any issue in an appropriate court.

The controversy in this case concerned the non-delivery of supplies under an “Intellectual Property License Agreement” (IPLA) containing an arbitration clause. The arbitration clause specified that the IPLA’s governing law was Indian law, that the arbitration would be held in London, and that the rules of the Indian Arbitration and Conciliation Act, 1996 would apply. The arbitration clause specified that the IPLA’s governing law was Indian law, that the arbitration would be held in London, and that the rules of the “Indian Arbitration and Conciliation Act, 1996” would apply.

Although London was not the seat of arbitration in this case, the Bombay High Court held that because London was the venue of arbitration, the London courts would have concurrent jurisdiction. The issue before the Supreme Court was whether considering that the seat of arbitration was India, London courts would allow concurrent jurisdiction as the venue of arbitration in London? In response to this question, the Supreme Court retracted the Bombay High Court’s decision, stating that the agreement’s mention of London as the venue of arbitration does not imply that London was to be the seat because, despite the fact that London was mentioned as the venue, the substantive contract, the arbitration agreement, and the law governing the conduct of the arbitration were all chosen to be Indian law.

Once it is ascertained that the arbitration was held in India, Indian courts will have exclusive jurisdiction, and London courts will not be able to exercise concurrent jurisdiction. The Court used the “closest and most intimate relationship test” in this case, which means that the system having the closest link to the arbitration procedure or the legal system in which the arbitration is held is relevant. As a result, the arbitration venue and seat do not have to be the same. The designated seat of arbitration would remain untouched even if the hearings were held somewhere else. It is possible that the seat of arbitration will not be indicated and that simply the location of the arbitration will be disclosed. The issue presently is determining whether the location stated in an arbitration provision is a “juridical seat” or “venue.” In the case of “Union of India v. Hardy[3]” Exploration and Production (India) Inc.,” this issue was addressed. The arbitration agreement stipulated that Indian law would control the contract, the UNCITRAL Model Law would rule the arbitration, and the arbitration would take place in Kuala Lumpur. The court had to decide whether a place’s designation had the essence of a seat ipso facto. This question was addressed in the negative, with the conclusion that the agreed-upon location would only become a seat if “something else is added to it as a concomitant.”

The Supreme Court was implying that there should be some precedent conditions that must be met if the location is to be used as the seat. Some examples of such circumstances include:

If the legislation governing the arbitration agreement is the same as the law of the venue. For example, if the contract’s governing law is Malaysian law and the venue is Kuala Lumpur, the venue is regarded to be the seat.

If both parties agree to follow some Institutional Rules. For example, if the parties stipulated that the arbitration would be conducted under ICC rules in Paris and that the site of arbitration would be London, then London would become the seat of arbitration. As a result of the Hardy Case, the legal position is that the venue and seat of arbitration do not have to be the same. However, if something else is added to the site of arbitration as a concomitant, the venue may be regarded as the seat. Even while the Court did not clearly state the criteria under which ‘place’ can be understood as the seat, that can be determined by examining the facts and circumstances of each case, as well as the parties’ purpose. Finally, if the arbitration will take place somewhere other than the seat, the parties shall specify that the seat of arbitration will have exclusive supervisory jurisdiction over any challenges to the arbitral result. Many misunderstandings about the seat and venue of arbitration could be prevented in this fashion.

Which seats are preferred the most?

According to a survey conducted by “white & case” in 2015, the following seats were the most popular among respondents: “London (47%), Paris (38%), Hong Kong (30%), Singapore (24%), Geneva (17%), New York (12%), and Stockholm (12%) (11%). these cities continue to hold their ranking as the most preferred seat even till today. Furthermore, their percentages have gone up to London (64%), Paris (53%), Singapore (39%), Hong Kong (28%), Geneva (26%), New York (22%), and Stockholm (12%)[4]”.

As we can see, London’s continued presence at the top of the chart was quite predictable and UK’s withdrawal from the European union has not significantly affected its standing on the chart.” Later on, in 2018 Singapore (39%) had become the third most chosen seat while Hong Kong (28%) took fourth place. Here onwards the significant growth made by Singapore (54%) and Hong Kong (50%) when compared to previous statistics was amusing”. The presence of well-established arbitration institutions, such as SIAC in Singapore, is an additional element that people consider when picking a seat, according to the report. the year-on-year increase in popularity of seats in this region could represent a growing readiness by parties with commercial interests in the area to also handle conflicts ‘locally.’ It will be interesting to watch if large-scale commercial projects like the Belt and Road Initiative continue to have an impact in the future.

Future of arbitration

Arbitration is often used as a way of alternative dispute resolution. The UNCITRAL (United Nations Commission on International Trade Law) framework of laws was used to model the Arbitration and Conciliation Act 1996, With the goal of modernizing Indian arbitration law and bringing it in line with best worldwide standards, as well as making India a global hub for arbitration, a set of statutes was drafted. Although the amendments in law have put arbitration on a higher pedestal when compared to litigation, we must remember that arbitration in India is mainly ad hoc arbitration while a minor portion of it as institutional arbitration. Unfortunately, India does not have institutions at par with internationally reputed organizations like SIAC, LCIA, ICC, etc. this has resulted in international companies preferring foreign arbitration centers over the Indian one when they enter into an agreement with Indian companies.

It has been over a year since the COVID-19 pandemic broke out, halting legal processes. In retrospect, it’s surprising how soon courts reopened their doors, not physically, but electronically, via ‘remote’ sessions. Arbitrations have also continued in numerous cases, and the LCIA, for example, has just released a revised version of their regulations that fully incorporates the pandemic. Remote (or ‘virtual’) hearings present a number of practical and technological problems. These aren’t minor issues. It’s critical that documents can be accessible, video links function properly, and members of a legal team may speak freely and privately. The ICC and others have released various recommendations and checklists to assist with all of this. However, larger issues must be addressed as well. One is that virtual hearings necessitate a different approach to advocacy than traditional hearings. If the technology is working well, there is no need to be dominated, and there is no need to even speak up. Physical hearings have always served as a way to attract the tribunal’s attention towards the most relevant materials and arguments to consider, as well as to tell them what they can safely disregard. However, in a virtual hearing, it is difficult to achieve lack due to the lack of visual indications to indicate whether the tribunal is bored, irritated, or puzzled. As a result, tighter restrictions may be required, at least in arbitration, where the procedure is less regulated than in courts.

Some observers have compared what we’re experiencing now to a massive trial program for alternate dispute resolution methods, and some promising results have already surfaced. One of these is the semi-virtual hearing’s unexpected success. This is a hybrid setup in which a few people are physically present in a hearing center while the rest of the people participate through video links. It enables advocates, among other things, to respond to nonverbal feedback from arbitrators and to deal more effectively with the previously described problem of information overload.

The value of local locations (or ‘hubs’) that are equipped with advanced video equipment and a robust internet connection that may be used by witnesses to present their testimony. Individuals and enterprises in many underdeveloped nations may not have access to this technology on their own premises, so traveling to a local hub is far more convenient than flying to another country to present testimony in person. There are advantages to this system even in industrialized countries where the majority of people have a reliable internet connection. Local hubs also allow witnesses to be observed and coached on a practical level when delivering testimony, and they give the event a sense of solemnity.

COVID-19 may have come as a surprise, but arbitration was already under pressure from a number of factors, all of which pointed to a more streamlined and technologically advanced version of the process. There is a growing perception that international arbitration is frequently conducted in an environmentally unfriendly manner. Instead of flying around the world to attend meetings and hearings, lawyers, clients, and witnesses could connect online or correspond. Of course, this has financial repercussions for the parties, who must pay for all flights, hotel rooms, and other services.

Competition from the courts is another source of stress.

The judiciary in England is following arbitration’s request-led method to document production. As a result, disclosure in specialty courts should become significantly more efficient. Litigants are also beginning to profit from the Hague Convention on Court of Agreements 2005, which is slowly gaining traction, which makes it easier to enforce court rulings across borders. The simple enforceability of awards has been the USP of international arbitration up until now, but this appears to be less of a distinct advantage presently. In this setting, arbitration may need to return to its beginnings as a less formal, less expensive, and less formal means of conflict settlement than court processes. To put it another way, it needs to cease emulating litigation and instead pursue a new and more innovative method to settling disagreements, utilizing all available technology. When the Prague Rules were announced in December 2018, there was some incentive to do so, but it has not resulted in a widespread change in culture or practice. The COVID-19 pandemic, and the issues it has thrown up, may well be the spark needed to bring about drastic change.

[1] UNCITRAL Arbitration Rules, 1976

[2] Civil Appeal No. 2086 of 2014

[3] Civil Appeal No. 4628/2018

[4] White & case LLP, 2021 International Arbitration Survey: Adapting arbitration to a changing world, 2021 (06, May)

Author: K V Srujana, Symbiosis law school, Hyderabad

Editor: Kanishka VaishSenior Editor, LexLife India.

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