Arbitration in Commercial Disputes: Best Practices for Businesses

Introduction

Traditional litigation, often characterised by its lengthy timelines, high expense, and complex procedures, has been a significant barrier to effective conflict resolution and has increasingly prompted individuals and organisations to look out for and seek an alternative mechanism for resolving their disputes. This has resulted in a shift towards Alternative Dispute Resolution (ADR) methods, which offer a more accessible and efficient path for parties to solve their conflict. It involves three dispute resolution modes: mediation, conciliation, and arbitration. Each has its features and procedures for settling disputes outside of courts. Arbitration has been the most preferred mode of dispute resolution for commercial organisations.

History of Commercial Arbitration

Modern arbitration originated in significant international frameworks, such as the New York Convention and the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards. These conventions established the principles that are the foundations for recognising and enforcing arbitral awards.

The Indian Arbitration Act, modelled after the English Arbitration Act of 1889, was enacted in 1899. It was applied only to Calcutta, Madras, and Bombay presidential towns. Subsequently, the Arbitration Act of 1940 was legislated to provide a more comprehensive legal framework. Arbitration in India is governed by the Arbitration and Conciliation Act of 1996, enacted on August 22, 1996. It is based on the UNCITRAL Model Law on International Commercial Arbitration.

Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 (hereinafter 'The Act') is India's primary legislation governing arbitration and conciliation. The Act incorporates international best practices and aims to resolve disputes efficiently.

The following are the key provisions of the Act:

• Arbitration Agreement (Section 7): This section defines an arbitration agreement as an agreement between parties to submit disputes to arbitration, whether contractual or not, and specifies the form and requirements for such agreements.
• Appointment of Arbitrators (Section 11): Provides guidelines for the appointment of arbitrators, including procedures for appointing sole arbitrators, appointment by parties, and appointment by the court or designated authority in case of disputes or challenges.
• Conduct of Arbitral Proceedings (Section 18-27): This section outlines the procedures for conducting arbitral proceedings, including statements of claim and defence, hearing procedures, evidence submission, witness testimony, and the issuance of interim measures or orders by the arbitral tribunal.
• Arbitral Awards (Section 31-34): This section specifies the requirements and procedures for making arbitral awards, including the form and contents of awards, time limits for making awards, correction of awards, and termination of proceedings upon issuance of final awards.
• Challenge and Enforcement of Awards (Section 34-36): This section sets forth grounds for challenging arbitral awards, such as procedural irregularities, lack of jurisdiction, and contravention of public policy. It also provides procedures for enforcing domestic and foreign arbitral awards.
• Court Assistance (Sections 9, 17, 27) empowers courts to intervene in arbitration proceedings by granting interim measures, appointing arbitrators, assisting in evidence collection, and assisting in related matters.
• Settlement of Disputes (Section 30): Encourages parties to settle disputes amicably during arbitral proceedings and allows the arbitral tribunal to assist parties in reaching settlements.
• Confidentiality (Section 75): Protects the confidentiality of arbitral proceedings and awards, barring disclosure of confidential information except in limited circumstances.
  

Benefits of Arbitration for Businesses

Arbitration is becoming a popular mode of dispute resolution in the business landscape due to many features that differentiate and favour businesses, unlike litigation in courts. Some of the notable features are:

Time and Efficiency

Arbitration is very favourable to businesses because it resolves disputes quicker, unlike litigation, which can take months or even years to resolve the same conflict.

Cost Effective

The low cost of arbitration makes it more favourable for commercial organisations to use this dispute resolution method.

Simple Procedure

Unlike the complex litigation procedure, arbitration offers both parties excellent flexibility. The parties agree upon the time, place, formats and rules.

Confidentiality

The most important factor that attracts commercial organisations to arbitration is the confidentiality the parties can enjoy during the proceedings. Trade secrets, data, financial transactions, etc., remain confidential during the process.

Best Practices for Businesses

Importance of a Well-Drafted Arbitration Clause:

• An arbitration clause forms the foundation for the arbitration process and helps manage disputes effectively.
• The clause should be clear and free from ambiguity to avoid complications later.
• It should specify the scope of disputes referred to arbitration and the method of appointing arbitrators.

Choosing a Suitable Arbitrator:

• The arbitrator should be an expert in the subject matter of the dispute.
• The arbitrator should have a good understanding of the legal framework relevant to the parties involved.

Types of Arbitration:

• Institutional Arbitration: Managed by an arbitration institution with predefined rules.
• Ad Hoc Arbitration: Conducted by the parties, offering flexibility with custom rules and procedures.
• International Commercial Arbitration: Resolves disputes across different jurisdictions under a common framework independent of national courts.

Role of the New York Convention:

• The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards enables the enforcement of foreign awards in over 160 countries worldwide.

Maintaining Communication:

• Keeping an open line of communication with all involved parties helps facilitate negotiation and resolution.
• Regular updates on the progress of the arbitration keep stakeholders informed and engaged.

Leveraging Technology:

• Document management tools help efficiently organise and share arbitration-related information.
• Virtual meetings save time, especially for parties located in different geographical regions.

Post-Arbitration Review:

• After the arbitration, the parties should review the outcomes and processes.
• This helps identify lessons learned and strategies for improving the effectiveness of future dispute resolutions.

Conclusion

Arbitration has emerged as a vital mechanism for resolving commercial disputes, offering businesses a more cost-effective and easy-to-do alternative to traditional litigation. To maximise the benefits of arbitration, companies must prioritise best practices that enhance the process’s effectiveness. The clear and concise arbitration clause is crucial, as it sets the foundation for a smooth resolution by defining the scope of disputes and the method for appointing arbitrators. Selecting a suitable arbitrator with relevant expertise can significantly influence the outcome. Maintaining open communication lines among all parties can foster collaboration and help manage expectations of resolution. The parties must all leverage the technology for virtual meetings and document accessibility. By embracing these practices, companies can navigate conflicts more effectively and protect sensitive information through confidentiality. Hence, as arbitration continues to evolve, businesses that adopt these will be able to easily handle their disputes efficiently and sensitive information confidentially.

References

1. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”)
2. United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards.
3. Arbitration and Conciliation Act, 1996
4. UNCITRAL Model Law on the International Commerical Arbitration
5. The Institute of Dispute Resolution Center, "What Is the History of Arbitration in India?"
6. Government of India, Arbitration and Mediation.
7. International Dispute Resolution Centre. "What Is the History of Arbitration in India?".
8. ADRTimes, "Commercial Dispute Resolution."