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  • Writer's pictureRitik Agrawal

DIVINATION INTO ARBITRATION PRUDENCE

Madhav Puri,

Panjab University

DIVINATION INTO ARBITRATION PRUDENCE

Preface:

Arbitration, as a substitutive dispute resolution mechanism, has garnered substantial attention in recent years due to its efficacy, adaptability, and confidentiality. However, its effectiveness not solely hinges on procedural regulations but also the prudence demonstrated by arbitrators and involved parties. This exposition delves into the notion of "Arbitration Prudence" and elucidates its prominence in certifying equitable and efficacious dispute resolution.

Arbitration is a formal method of alternative dispute resolution (ADR) involving a neutral third party who makes a binding decision. 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.[1]

To a matter of fact, for the purpose of defining and discerning Arbitration and thereafter its procedure, it may be explicitly elucidated as “It is a binding procedure where a dispute is submitted for adjudication by an arbitral tribunal consisting of a sole or an odd number of arbitrators, which gives its decision in the form of an award that finally settles the dispute and is binding on the parties”[2]

Genesis into Contemporary Embodiment:

One of arbitration’s earliest family law decisions is King Solomon’s infamous “judgment” in the Old Testament. Two mothers each claimed a child as her own and King Solomon asked for a sword to split the child in half. One woman protested that she would rather the other woman raise the living child while the second woman preferred the sword so that neither woman could raise the child. King Solomon’s judgment was to give the child to the woman who was concerned for the child’s best interest and would rather the child live with another than be divided.[3] 

Greek mythology even references arbitration. When Juno, Pallas Athene, and Venus dispute who is the most beautiful, the parties agreed to name Paris, the royal Shepherd, as arbitrator when all other methods of dispute resolution have failed.[4]

Arbitration to resolve property disputes has roots in Philip the II of Macedonia, father of Alexander the Great who often used arbitration in Ancient Greece, to resolve territorial disputes based on a peace treaty.[5]

It was first used in the Jay Treaty of 1795 negotiated by John Jay, and played a major role in the Alabama Claims case of 1872 whereby major tensions regarding British support for the Confederacy during the American Civil War were resolved. At the First International Conference of American States in 1890, a plan for systematic arbitration was developed, but not accepted. The Hague Peace Conference of 1899 saw the major world powers agree to a system of arbitration and the creation of a Permanent Court of Arbitration. Arbitration was widely discussed among diplomats and elites in the 1890–1914 era. The 1895 dispute between the United States and Britain over Venezuela was peacefully resolved through arbitration. Both nations realized that a mechanism was desirable to avoid possible future conflicts. The Olney-Pauncefote Treaty of 1897 was a proposed treaty between the United States and Britain in 1897 that required arbitration of major disputes. The treaty was rejected by the U.S. Senate and never went into effect.[6]

Consequently, in 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, thereof was ratified in New York among these lines. This Convention obligates signatory states to acknowledge and execute international arbitration agreements and foreign arbitral awards rendered in other contracting states. Furthermore, the United Nations Commission on International Trade Law (UNCITRAL) established the UNCITRAL Model Law on International Commercial Arbitration in 1985, serving as a template for member states to incorporate into their domestic legislation. UNCITRAL also promulgated Arbitration Rules, which parties may utilize both prior to and following the emergence of a dispute, to administer the arbitration process.

Judicial Dispositions Related to Arbitration:

As far as the English law is concerned, it has long since recognized the use of arbitration as a dispute resolution mechanism, permitting the issuance of penal bonds to ensure compliance with arbitration agreements and adherence to decisions of arbitrators and to a matter of reference, a case analysis shall be made vide the infamous case of Kulukundis Shipping Co., S.A. v. Amtorg Trading Corp.[7]

French courts seemed to grapple with some of the same concerns. As early as 1790, the Constituent Assembly called arbitration “the most reasonable method for terminating disputes between citizens.”12 Indeed, the French Civil Code had provisions recognizing and enforcing arbitration provisions in international trade disputes so long as certain safeguards prescribed by the legislature were adhered to. L’Alliance v. Prunier, Cour de cassation, Chambre civile, 10 July 1843. While France was quick to embrace on an international level, it was slower in the domestic context.[8] Nonetheless, a commentator has observed that the French jurisprudence was particularly important in developing consistency with respect to arbitration on the international level.[9]

In the United States, the roots of arbitration can be traced back before colonization as Native Americans used arbitration to settle disputes within and between tribes. As early as 1632, the Commonwealth of Massachusetts had passed laws in support of arbitration.[10]

In India, the first clear statutory enactment on Arbitration was the Indian Arbitration Act, 1899 which was modelled on the English Arbitration Law, 1889. Arbitration, as a dispute resolution mechanism, was recognized in as early as 1879 and found its place in the Codes of Civil Procedure of 1879, 1882 and 1908. The Code of Civil Procedure, 1908 contained elaborate provisions pertaining to Arbitration in Section 89, 104 and the Second Schedule of the Code of Civil Procedure. It was in 1940 that the Indian Law on Arbitration was consolidated and redrafted in the form of the Arbitration Act, 1940, repealing the provisions contained in the Code of Civil Procedure with respect to Arbitration. Hence, when the Arbitration Act was enacted in the year 1940, the provision for arbitration made in Section 89 of the Code of Civil Procedure, 1908, was repealed. The Arbitration Act, 1940 remained in force until passing of the Arbitration and Conciliation Act, 1996.[11]

International arbitrations have evolved along similar lines. In 1958, the United States passed the “New York Convention,” which recognizes agreements to arbitrate that were entered into in foreign nations that were also signatories to the Convention, and also provides a mechanism for recognizing and enforcing awards made by tribunals in those countries. Moreover, in 1976 the United Nations Commission on International Trade Law (“UNCITRAL”) adopted a “Model Law” applicable to international commercial arbitrations. These rules, known as the UNCITRAL Rules, are specifically developed to apply internationally and are tailored to meet the needs of the UN’s various member States: “the establishment of rules for ad hoc arbitration that are acceptable in countries with different legal, social and economic systems would contribute to the development of harmonious international economic relations.[12]

Ambit of Arbitrations:

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.[13] the Supreme Court discussed the concept of arbitrability in detail and held that the term 'arbitrability has different meanings in different contexts: (a) disputes capable of being adjudicated through arbitration, (b) disputes covered by the arbitration agreement, and (c) disputes that parties have referred to arbitration. It stated that in principle, any dispute that can be decided by a civil court can also be resolved through arbitration. However, certain disputes may, by necessary implication, stand excluded from resolution by a private forum. Such non-arbitrable disputes include: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified Courts are conferred jurisdiction to grant eviction or decide the disputes Act.

To illustrate the effect of the effect of rendition of an award passed by such thorough process of Arbitration the Privy Council long back, in Sashi Sekhareswar v. Lalit Mohan[14], inter alia, observed that a decree on an award passed in arbitration proceedings has the same effect as an ordinary judgment of a court and therefore operates as res judicata on the question which has already been decided by the arbitrators.

DIVINATION INTO ARBITRATION PRUDENCE

Quintessential Rudiments:

Free Consent of the parties- Arbitration necessitates the mutual agreement of the involved parties, typically articulated within an arbitration agreement. This agreement explicitly denotes the parties' intent to resolve disputes through arbitration rather than litigation. Pursuant to Section 7 of the Arbitration and Conciliation Act, 1996, a contractual reference to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference integrates the arbitration clause as an integral part of the contract.

Competent Authority- The adjudicating body in arbitration, known as the arbitral tribunal, operates akin to a judicial bench in a court of law. The presiding authority, termed as the arbitrator, assumes the responsibility of resolving disputes between the parties. Analogous to a judge, an arbitrator is bound by oath to impartially fulfil their duties, and parties possess the freedom to select their presiding authority. Additionally, provisions exist for the removal of arbitrators if found to lack neutrality or independence. Seat of Arbitration: The geographical location designated as the seat of arbitration delineates the jurisdictional competence over the arbitration proceedings. Absent a specific agreement, the Arbitration and Conciliation Act, 1996, applies within the territory of India. Typically, the place of agreement execution or any explicitly mentioned location in the agreement is considered the competent jurisdiction.

Applicability of Law- Arbitration grants parties autonomy to choose the governing laws, particularly in international commercial arbitration. Furthermore, parties enjoy substantial flexibility in determining the procedural framework. While arbitration rules may be self-governed, they must align with the public interest of India.

Outcome of Arbitral proceedings- The arbitral award, once issued, is presumed final and enforceable under law, akin to a court order. However, grounds for setting aside an arbitral award exist as per the provisions outlined in Section 34 of the Arbitration and Conciliation Act, 1996.

Law in force;

As far as the domestic law is concerned, it shall be made clear that the latest Act on the Arbitration related matters dates back to 1996 with the last updated amendment of 2021. For meeting up with the international standards in this sector, the Parliament expressly stated in the preview of this Act that “AND WHEREAS it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules.

Conclusion:

In accordance whilst summing up this article and directing this stream of this comprehensive stream of wisdom in the ocean of conclusion; it shall be reiterated that the Arbitration prudence encompasses a set of principles and practices aimed at promoting fairness, impartiality, and efficiency in arbitration proceedings. It involves exercising sound judgment, adherence to ethical standards, and procedural fairness throughout the arbitration process. Arbitration prudence requires arbitrators to be diligent, impartial, and proactive in managing the proceedings, while parties are expected to act in good faith and comply with the agreed-upon rules.

In this fashion, the Arbitration prudence is imperative for preserving the integrity, credibility, and efficacy of arbitration as a dispute resolution mechanism. By adhering to tenets of impartiality, due process, efficiency, and confidentiality, arbitrators can ensure equitable and timely resolution of disputes whilst safeguarding parties' rights and interests. Parties, in turn, play an instrumental role in upholding arbitration prudence by acting in good faith and cooperating with the arbitration process. In due discourse, the success of arbitration eventually dangles on the shared obligation to prudence and professionalism evinced by all stakeholders enmeshed.

References:

[1] O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall. p. 324.

[2] Sarvesh Chandra, "ADR: Is Conciliation the Best Choice" in "Alternative Dispute Resolution", P.C.Rao & William Sheffield (eds.) 84.

[3] Frank D. Emerson, History of Arbitration Practice and Law, 19 Clev. St. L. Rev. 155, 155–56 (1970).

[4] Id. at 156.

[5] Richard Bales, Compulsory Arbitration: The Grand Experiment in Employment 5 (Cornell University Press 1997).

[6] Nelson M. Blake, "The Olney-Pauncefote Treaty of 1897," American Historical Review, (1945) pp. 228–243 in JSTOR.

[7] 126 F.2d 978 (2d Cir. 1942)

[8] Arthur Von Mehren, A General View of Contract, 7 Int’l Encyclopedia of Comp. L. 52–56 (1982)

[9] Arthur Taylor von Mehren, International Commercial Arbitration: The Contribution of the French Jurisprudence, 46 La. L. Rev. 1045 (1986)

[10] Liliana Burnett, The Current State of Arbitration Clauses Within Native American Tribal Contracts: An Examination of Binding Arbitration Contracts, in Native American Payday Lending, The Arbitration Brief 4, no. 1 142, 144 (2014).

[11] Dr. Harman Shergil Sullar, Alternative Dispute Resolution, page 163-164, Ed. 4, Shree Ram Law House (2022)

[12] United Nations Commission on International Trade Law (UNCITRAL), ARBITRATION RULES, General Assembly Resolution 31/98.

[13] 2011 (5) SCC 532

[14] AIR 1925 PC 34.


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