- Balaji Harish Iyer[i]
I. The New Delhi International Arbitration Centre
Parliament passed The New Delhi International Arbitration Centre Act (“Act”) to set up a federal government-backed international arbitration centre on 26th July 2019. The Act seeks to establish the so-called New Delhi International Arbitration Centre (“NDIAC”) to inter alia, create “an independent and autonomous regime for institutionalised arbitration … as to make it a hub for institutional arbitration”[ii]. Under the Act, the NDIAC will take over and take transfer of the functions of the current International Centre for Alternate Dispute Resolution (“ICADR”).[iii] The Act, in its current form, recognises the shortcomings of the ICADR which has “[…] not been able to actively engage and embrace developments in the arbitration ecosystem and to create a reputation par excellence keeping pace with the dynamic nature of arbitration over more than two decades”[iv].
This move to create the NDIAC is a welcome one in its objectives to strengthen Indian arbitration. However, what remains to be seen is if the NDIAC will live up to its goals once established or fall into the trap that ensnared the ICADR. We will note that there is an apprehension of governmental interference in the functioning of the NDIAC, but critiquing this interference is not the scope of this article. The Act lays down the institution’s structure, thereby providing an opportunity for the institution to create its own arbitral rules of procedure. In order to develop an effective set of arbitral rules, the NDIAC would be well-served in recognising the requirements of the market from an arbitration institution and striving to satisfy these requirements.
II. The arbitration marketplace
The past two decades have seen arbitration move from being an “alternative” to a more traditional method of adjudicating disputes. To serve this shift from litigation to arbitration, numerous arbitration institutions have emerged, both abroad and in India, in varying degrees of success and importance. Leaders among these are the International Court of Arbitration of the International Chamber of Commerce, the London Court of International Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce, and the Singapore International Arbitration Centre; examples of renowned, but regional arbitration centres are the German Arbitration Institution in Bonn, Germany; the Asian International Arbitration Centre in Kuala Lumpur, Malaysia; and the China International Economic and Trade Arbitration Commission with its various provincial centres throughout China. These international arbitration institutions have achieved global and regional success for several reasons.
IIA. Model arbitration agreements
Drafting a model arbitration agreement that may be copy-pasted by parties, with minimal changes, into their contracts is an advantage for institutions. Parties may not take care to carefully craft the arbitration agreement, leading to pathologies;[v] pathological arbitration agreements are always a source of pre-arbitral litigation[vi], before the parties can enter into and determine the actual dispute that has arisen between them.
Almost all arbitration institutions today have crafted their own model arbitration agreements that can simply be incorporated by an arbitration user. For example, the International Chamber of Commerce’s model agreement reads as: “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”[vii] The ICC has a model arbitration agreement in other languages such as Polish, Arabic, Portuguese and Russian, thus catering to a wide linguistic market.
Institutionally drafted model arbitration agreements rarely suffer from pathologies and provide ample room for parties to agree on aspects such as language, seat, or substantive law of the underlying contract. By adopting a model arbitration agreement, parties also adopt the rules of the concerned institution, thus making it clear as to what rules govern the arbitration. The NDIAC will have to create its own model arbitration clause that is free from pathologies, preferably in multiple languages, if the Centre intends to cater to a wide international market.
IIB. Arbitral rules of procedure
One of the highlights of the success behind the institutions named is the applicability of their arbitral rules of procedure. The NDIAC needs to overcome the shortcomings of the ICADR in this regard. The procedural rules of the new institution should be arbitration-friendly and free of all archaic procedures. Rules that combine flexibility and efficiency are given preference over rules that are unclear and obtuse. Parties tend to appreciate rules that are clearly and precisely drafted.
This is because arbitration agreements are often drafted and dictated by businessmen’s commercial interests rather than legal interests; counsel who drafts arbitration agreements are often unfamiliar with practical and procedural idiosyncrasies faced during an arbitration. For example, the ICC Rules of Arbitration provide for scrutiny of the award by the ICC once the tribunal renders it.[viii] This lets parties know that an ICC arbitrator will issue an enforceable award, that runs through multiple scrutiny levels.
Parties may also be keen to adapt institutional rules to their specific needs and expectations. Many institutional rules cater to this expectation. Many leading arbitral institutions have provided rules for emergency arbitration[ix], expedited procedures, consolidation of multiple arbitrations involving the same disputants under different contracts,[x] joinder of third parties, etc. Rules that provide for time- and cost-effectiveness are also preferred. Expedited proceedings, emergency proceedings, etc., ensure faster proceedings. Parties are also incentivised not to create excessive delay by rules that allow arbitrators to take into consideration the efficacious conduct of proceedings by parties in determining costs.[xi]
The ability of an institution to tap into expert resources forms another cornerstone of success. Institutions do not determine disputes themselves; they provide an administrative platform for the ease of dispute resolution by the tribunal. Therefore, an institution that can maintain a panel of arbitrators[xii] ranging from junior-level arbitrators to seasoned specialists to render services to the users of institutional arbitration is at an advantage. Above all, the arbitrators must be able, conflict-free, and non-partisan. The arbitrators must also be supported by a bar of dedicated professionals competent to conduct arbitrations in accordance with institutional procedures, rather than being distracted by traditional litigation.
To this extent, the aim of the NDIAC to create a Chamber of Arbitration comprising national and international arbitrators across various categories of disputes, including construction, maritime, contract, etc., is impressive. However, the Chamber of Arbitration must take care not to pander to the interests of retired judges of the High Courts or Supreme Court who seek arbitral appointments or other form of governmental interference. In other words, the Chamber of Arbitration must not become a second Supreme Court for retired judge-arbitrators, who may not be experts in the subject-matter of the dispute, to conduct proceedings in whatever fashion they may like. This practise reflects poorly on Indian arbitrators, who in turn, fare extremely poorly at present in appointment as international arbitrators.
The Chamber must also be nationally diverse, having arbitrators renowned across jurisdictions and industries, to enable foreign disputants to avail dispute resolution services. One key reason for this is that parties from different jurisdictions are reluctant to subject themselves to the jurisdiction of arbitrators from the opposite parties’ country of origin. Having a few big names among the Chamber of Arbitration would be a powerful marketing tool in itself. India can attract renowned expert arbitrators by providing incentives to arbitrate in India. For example, Singapore provides tax exemptions for non-resident arbitrators. The income is derived by a non-resident arbitrator for arbitrations carried out in Singapore (i.e., governed by the Arbitration Act or International Arbitration Act) are exempt from tax, as per section 13-V of the Singaporean Income Tax Act. With a taxation system like Singapore, India would do well to provide similar tax exemptions to international arbitrators, conducting arbitrators seated in India.
Although arbitration was envisaged as the “cheaper” alternative to traditional litigation, the hard truth is that this is not the case. Arbitration in India is plagued by delays leading to increased costs to disputants. Ancillary litigation such as applications for interim relief to courts and applications for appointment of arbitrators, etc. lead to delays of the actual arbitration proceeding and burden parties with the costs of advancing or opposing these matters in courts.
In the general context of international commercial arbitration, the costs incurred by disputants are also vast. The I.C.C. charges almost $90,000 for a dispute worth $1 Million. A new international arbitration centre can compete with the more renowned institutions by lowering the costs of arbitration. For instance, the Ukrainian Chamber of Commerce charges only $20,200 for a $1 Million dispute, providing an economic incentive to opt for cheaper arbitration services.
Rules must provide a clear-cut cost calculation mechanism (as in, for e.g., the 2018 D.I.S. rules). Most rules mandate parties to deposit the arbitrators’ fees and expenses, and administrative fees prior to the arbitration. Most institutions also undertake to communicate the costs (calculated according to their cost calculation mechanism) and pay the arbitrators’ fees directly – this ensures that the first and only priority of the arbitrators is a resolution of the dispute, rather than their remuneration. This would also entail a perception of the autonomy of arbitrators from the parties appointing them.
IIE. Flexibility to choose lex arbitri
There are numerous arbitral seats across the globe with liberal curial laws, such as, e.g., Sweden, France, Singapore, and Switzerland. Most international arbitral institutions allow parties to choose their seats according to their needs, which may include costs of arbitration, proximity to major global economic centres, or a jurisdiction perceived as being neutral and non-interfering to the arbitral process. Typically, the arbitration hearing (or any other part of the proceeding, e.g., tribunal deliberations) need not occur in the designated seat. For example, an arbitration hearing may take place in Paris but be seated in The Netherlands under the rules of the Permanent Court of Arbitration.
The flexibility to choose a seat different from the geographical location of the proceeding or the underlying dispute is, in today’s day and age, of some importance, particularly where parties may be apprehensive of entering the countries of their counterparties. Parties may wish to choose, for e.g., a Swiss seat and Swiss curial law since Swiss courts tend to avoid interference with an award and because Swiss awards are readily enforceable the world over as Switzerland is a party to the New York Convention. Indian jurisprudence presently compels foreign parties to choose Indian law as the curial law, from the moment they choose India as the geographical “place” of arbitration. This requirement is now due for reconsideration.
IIF. Judicial system
An arbitration institution’s reputation is also closely linked to the reputation of the country in which the institution is incorporated. India must seek to improve its judicial system, constantly upgrade The Arbitration & Conciliation Act, 1996, and other laws, and create a pro-arbitration image. Unfortunately, the Indian judicial system in general and Indian arbitral jurisprudence, in particular, have given several causes for concern to the international arbitral community. However, this negative image is gradually changing through (for instance) the 2015 amendments to The Arbitration & Conciliation Act, 1996 such as the inclusion of cost-calculation mechanisms for arbitrators’ fees in proportion to the claim, restricting the grounds for annulling an award, extending the option of approaching courts for interim reliefs in an international commercial arbitration, etc. There are also several High Courts in the country that have indicated a pro-arbitration stance, the Delhi High Court being the foremost among them.
The setting up of an international arbitration centre is underway. However, this article suggests that merely setting up a shell, without creating progressive internal structures to the institution is a wasted affair. The New Delhi International Arbitration Centre would do well to take several leaves out of the books of renowned international institutions, and create a framework that is clear, concise, flexible and amenable to change. Setting up an international institution is the first step, but the rest must follow in quick succession, if India is to truly become an “arbitration hub”.
[i] Balaji Harish Iyer is an advocate practising in Mumbai, with a focus on arbitration and admiralty law. Balaji is an alumnus of Humboldt University of Berlin and National Law University, Delhi. He can be reached at +91-7349360143 (mobile). [ii] The New Delhi International Arbitration Centre Act, Preamble (2019). [iii] Id. at 7–10. [iv] Id. at preamble. [v] See, Jae Hee Suh, Interpretation of pathological clauses: a cautionary tale?, Practical Law Arbitration Blog (2019), http://arbitrationblog.practicallaw.com/interpretation-of-pathological-clauses-a-cautionary-tale/ (last visited May 23, 2020). [vi] See, June Yeum et al., Singapore: Pathological Arbitration Clause Revisited, Mondaq (2017), https://www.mondaq.com/arbitration-dispute-resolution/582212/pathological-arbitration-clause-revisited (last visited May 23, 2020). [vii] Arbitration Clause, International Chamber of Commerce , https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/ (last visited May 23, 2020). [viii] ICC Rules of Arbitration, 34 (2017), https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/ (last visited Apr 1, 2020). [ix] ICC Rules of Arbitration, 29 (2017), https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/ (last visited May 23, 2020). [x] See for e.g., Id. at 7–10. [xi] See, Id. at 38. [xii] SIAC Panel, https://www.siac.org.sg/our-arbitrators/siac-panel (last visited May 23, 2020).