-Ajay* & Shreya Nair**
UNDERSTANDING “BASEBALL ARBITRATION”
Baseball arbitration is the kind of arbitration that lacks investment in terms of time and the primary focus is to arrive at a conclusion based on the offers put up on the table by both parties. Baseball Arbitration or Pendulum Arbitration is also termed as FOA (Final Offer Arbitration). The basic idea is to put an end to the dispute in the shortest period of time, just like a home run in Baseball. The proceedings are conducted in summary wherein the parties put up their final offers and the arbitrator has to choose one of those offers as the final decision. It is quite efficient on record, because of which it is gaining popularity, especially in the United States, from where it has originated. Its suitability in terms of the nature of the dispute can however be disputed. While it is appropriate for disputes where the conflict in issue is the quantum, the ground is shaky when it comes to disputes where there is a decision regarding liability being taken.
Another interesting aspect lies in the fact that the general norm is to not accept a complete offer from one party as that could render the award one-sided and absurd. Therefore, arbitrators tend to merge their findings with the issue-wise determination of the better award and take the final call.
While this concept is unexplored to the Indian subcontinent and its arbitration regime, it is imperative to focus on the international position of the practice and understand the effect it can have on the Indian arbitration practices.
BASEBALL ARBITRATION IN THE INTERNATIONAL CONTEXT
The practice originated out of the constant settlement of disputes regarding salaries of baseball players in the U.S. and the same became a source from where it derived its popular name. The shift from the US legal sphere has taken place over the course of the last decade, where baseball arbitration has been employed in disputes involving royalty rate settlements in FRAND agreements[i] & also in international tax disputes in the 2016 OECD Multilateral Tax Convention.[ii] The big picture behind the increasing incorporation of baseball arbitration in multi-billion dollar tax disputes is to accentuate the “Winner takes it all” scenario.[iii]
There is no doubt that there are various concerns regarding baseball arbitration in the international context. The issues can range from curtailing the arbitral tribunal’s powers, with extreme, controlled and impractical offers to the problem of appeal against the enforcement of the award. However, the law has the power to regulate such practices, owing to the flexible nature of baseball arbitration. For example, Japanese baseball arbitration clauses do not limit the tribunal with only the choices offered by the parties.[iv]
Presently, it would not be extreme to say that, globally every dispute which deals with rates, salaries or rent negotiations, is being resolved through baseball arbitration. The focus is to elaborate the practice in the global market and its utility will be a testament to the potential of the practice to gain momentum even in India in the coming years.
POSITION OF LAW IN INDIA
If we consider the recent developments, it would not be wrong to say that there have been constant endeavors in the direction of making arbitral proceedings more cost-efficient and effective. These attributes are a necessary part of any popular arbitration regime across the globe. Specifically in India, there has been the insertion of Section 29A and Section 29B to the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”) by the amendment of 2015. These provisions ensure fast-track arbitration in a specified time. However, the problem lies in the fact that the time limits provided are not uniform and hence, cannot be considered adequate for various types of disputes. In simple terms, time limits for any arbitration proceeding can be too short or at the same time, it can be too long, all depending on the nature of the dispute and many other factors which cannot be anticipated by the parties at the start of the arbitral proceedings. Therefore, in order to deal with a situation like this, baseball arbitration can be quite effective as one of the main characteristic advantages of it is, time-saving.
Even if we go by the letters of the law, there is no express bar in the Act regarding the usage of baseball arbitration in India. The same can be inferred from the provision of Section 19 of the A&C Act, 1996 which expressly allows the involved parties to decide for themselves the procedure that they are willing to follow during the arbitral proceedings. Also, Section 24(1) of the A&C Act, 1996 allows the involved parties as well as appointed arbitral tribunal, to waive off their obligation of conducting the proceedings by an oral hearing.
At the same time, baseball arbitration can never be suitable for determining all types of disputes. It can be a successful model in the disputes wherein quantum of liability is the primary issue of conflict and liability of all the parties have already been determined. Ms. Samira Varanasi and Mr. Sriram Govind are of the opinion that such a model can be useful in resolving DTAA disputes in India.[v] On the same lines, Baseball Arbitration can be useful in deciding insurance arbitral disputes wherein the quantum of claim is under conflict and the liability of the insurer has already been settled.
REQUIREMENT OF REASONING
While dealing with baseball arbitration, one of the points that might attract conflicts is the need to have a reasoned award. However, Section 31(3)(a) of the Act permits the parties to waive off the need of having reasoned award. Another option can be the adoption of baseball arbitration only for certain issues in the entire dispute and in that case, the parties will not be abandoning the requirement of having a reasoned arbitral award entirely as the arbitrator will still have to give a well-reasoned award and at the same time, he will be bound to accept the awarded figures proposed by involved parties of the dispute. The apex court has clearly distinguished an unreasoned award and unintelligible award. Unintelligible awards are those awards which are clearly contradicting the provisions of Section 31(3) of the Act, whereas unreasoned awards are judged on the threshold of whether the reasons were even required or not, in the particular award.[vi] Taking the same into consideration, there is always a possibility that the Indian courts are not open to enforcing such awards emerging out of baseball arbitration in the absence of any existing clause for the same. In order to rule out all such possibilities, it is very important to have a properly drafted clause for the enforcement of the arbitration award.
For example, the following addendum clause can be inserted in the dispute resolution clause of any Insurance Contract:
“Each party shall submit to the arbitrator and exchange with each other an advance of the hearing their last, best offer. The arbitrator shall be limited to awarding only one or other of the two figures submitted. The parties further agree that the figure so awarded by the arbitrator shall not be challenged on the grounds of lack of reasoning, unreasoned award or otherwise.”[vii]
If added, such a clause would be helpful in two ways. Firstly, it would not take away the right from either of the parties to challenge the substantive part of the award. Secondly, the latter part of the clause would be taken as the consent of the parties involved, to waive off the requirement of disclosing the reason behind the award, in accordance with the provision laid down under Section 31(3)(a) of the Act.
Baseball arbitration, if adopted in an appropriate manner, has the potential of bringing many long disputes to an end in a time-bound manner. It cannot be negated that, in the present times, it would be really hard to predict the attitude with which the Indian courts will act when it comes to enforcing such baseball arbitration awards. At the same time, it is an undisputed fact that the adoption of efficiently drafted arbitration clauses can facilitate the path of baseball arbitration in India. Considering the number of cases that are pending right now in Indian courts and the average duration in which any case reaches to decision, it would not be wrong to say that ADR mechanisms such as arbitration proceedings are big positives. However, we will have to regularly check that even such arbitration proceedings do not turn out to be time-consuming and costly for the parties involved. In order to ascertain the same, it is important for each arbitration regime to keep on evolving in a better way. Baseball arbitration can be a big leap in the same direction, provided the Indian legal system adopts it in a manner that is in accordance with its core principles. We cannot fail to acknowledge that there are thousands of disputes pending in sectors like Insurance and DTAA. Baseball Arbitration, if implemented in its right sense, can be a revolution in the direction of effective resolution of all such pending cases.
* Ajay is a final year law student pursuing a five-year integrated undergraduate B.A. LL.B course from Damodaram Sanjivayya National Law University, Visakhapatnam. He can be reached at: firstname.lastname@example.org ** Shreya Nair is a final year law student pursuing a five-year integrated undergraduate B.A. LL.B course from Damodaram Sanjivayya National Law University, Visakhapatnam. He can be reached at:email@example.com [i]Joost Pauwelyn, Baseball Arbitration to Resolve International Law Disputes: Hit or Miss?, 22 FLO’ TAX REV. 40 (2018). [ii]Development of a Multilateral Instrument to Implement the Tax Treaty related BEPS Measures, 15, OECD BEPS Action, 8, 20 (2016) https://www.oecd.org/ctp/treaties/public-comments-received-discussion-draft-Development-of-MLI-to-Implement-Tax-Treaty-related-BEPS-Measures.pdf. [iii] Patrick Temple West, International arbitration for tax disputes, 'baseball' style, THOMAS REUTERS (Sept. 14, 2021, 5:40 PM), https://www.reuters.com/article/usa-tax-arbitration-idUSL1E8MGA6U20121125. [iv]David L. Snyder, Automatic Outs: Salary Arbitration in Nippon Professional Baseball, 20 MARQ. SPORTS L. REV. 79, 87 (2009). [v] Sriram Govind & Samira Varanasi, Dispute Resolution in Tax Matters: An Indian-UK Comparative Perspective, 9 INTL’ TAX’ 313, 321 (2013). [vi]Dyna Technologies v. M/s Crompton Greaves, 2019 SCC Online SC 1656. [vii]Drafting Dispute Resolution Clauses: A Practical Guide, AMERICAN ARBITRATION ASSOCIATION, 5, 30 (2013), http://www.arbiter.com.sg/pdf/rules/AAA%20Drafting%20Dispute%20Resolution%20Clauses.pdf.