Arbitration

A Part of Alternative Dispute

Resolution (ADR)
 ADR Philosophy
• Roscoe Pound – appropriate dispute resolution
mechanism necessary
• John Rawal – Justice as fairness
• Contract – Private legislation
• Privatization of justice
• Democratization of Justice
• ADR – One of the two legs in
dispensation/administration of justice – Supreme Court
of Nepal (mediation centers in almost all courts)
• Party autonomy, flexibility and accessibility (choice of
law, language, venue and judge or arbitrator), easy
enforcement even cross border
 ADR History
• ADR started in Nepal much before codified legal
system. Similar situation in other countries.
• ADR remained as a prominent mechanism for
dispute resolution throughout the history.
• During the time of King Vim Malla in 1645 -1650,
a dispute between Nepal and Tibet was settled
through arbitration and Nepal Tibet bilateral
Trade Treaty, 1856 was also outcome of the
arbitration.
• Nepal was trade transit route and some disputes
were settled though ADR.
 ADR – statutory Phase
Development Board Act, 2018
• Arbitration Act, 2038 replaced by
Arbitration1999.
• Arbitration Rules 2002
• Local Self Governance Act, 2056 provides for
arbitration committees in all VDCs and
Municipalities.
• Mediation Act and Rules
• Court Administration Rules on Mediation and
arbitration
 ADR – Related Institutions and dimension

• Traditional Panchyat
• Several laws provide power to Chief District Officer to
mediate/arbitrate cases
• Department of Industries (DOI) can mediate dispute
related to investment
• Nepal Council of Arbitration (NEPCA)
• Courts and arbitration centers in there
• Nepal Mediators’ Society
• NGOs in Community Mediation
• Federation of Nepalese Chambers of Commerce and
Industries (FNCCI).
• WTO/WIPO / SAFTA, BIMISTEC
 Why ADR ?
• To settle the dispute related to private legislation
• To reduce stress, time and cost in business
• Prompt, less cost, confidential
• Better enforcement
• Support/increase productivity
• Maintain peace/stability in industry/society
• Better access to justice/ equality before law
• To meet to aim of welfare state/ avoid future disputes
• To facilitate foreign investment
• Flexibility in jurisdiction/cross border dispute settlement
• Not only for cost and backlog in courts but also to avoid
deficiency and inefficiency in formal court system.
 Commercial ADR/Arbitration
• Difficult to define what is “ commercial”.
• Often misused as Citizenship Act in Nepal and Gun
Control Act in USA were put as Economic/Commercial
Bill.
• Should include basic elements of trade/commerce
• Dispute arising from a contract concerning right, duty,
power and liability is supposed to a commercial dispute
• Broadly, dispute related to contract, corporate affairs,
tax, revenue, tax, finance, industry, trade and commerce
may be commercial disputes.
 Kinds of ADR
• Good Office, Facilitation, Negotiation, Mediation,
Conciliation, Mini-Trail, Med-Arb ( Shadow mediation,
co-med-arb, Med-Rec, arb-med). Private judging,
Partnering, Dispute Review Board, Adjudication,
Summary Trail, Fast Track Mediation, Expert Mediation,
Multi-Track Mediation, Fact Finding.
• In conciliation, the third party can give opinion. Mediation
is more formal than conciliation. Facilitative mediation,
evaluative mediation.
• Conciliation officer in all business lines.
• Conciliation is an unstructured process of
communication than mediation, though mediation and
conciliation can be used interchangeably
 Mediation
• Court Referred Mediation
• Court Annexed Mediation
• Mediation Law and Practice in Nepal
 What is Arbitration ?
• Many definitions. One of the Alternative Dispute
Resolution (ADR) means. Two or more than two
persons agree to decide a dispute or a potential
dispute in a legally binding way by one or more
than one impartial persons in a judicial manner
but it is done out of regular court with minimum
cooperation of the court system.
• Section 2(Ja) of Arbitration Act, 2055 defines
arbitrator and it also includes group of arbitrator
what is called arbitration tribunal.
 Essentials of Arbitration
• Only civil cases can be settled by arbitration. Criminal
cases can not be settled by arbitration.
• Existence of an agreement – Section 2(A) of arbitration
Act. Present or future dispute about any legal
relationship can be settled by arbitration. Any agreement
or contract with a provision of arbitration or with separate
provision therewith, any correspondence for this, counter
claim without denying arbitration.
• There can be an indirect agreement between the parties
to submit a dispute to arbitration. Barun Beverage Pvt.
Ltd Vs. National Marketing Sales Pvt. Ltd Writ No. 3028
2059
 Essentials …..
• Maintain confidentiality
• Arbitrator can not use discretion
• Impartial settlement of dispute
• Arbitration is binding once agreed by a party
• Decision of arbitration (award) is final and binding –
Section 30(2) of Arbitration Act, 2055
• Nationality of arbitration.
• Neutral venue (choice of law and venue). Hong Kong
and Singapore, a later comer but established as a
neutral venue for international arbitration.
• Lessons for Nepal ??
 Arbitrator
• Arbitrator Vs Arbitration Tribunal
• An arbitrator should be capable enough to enter
into a contract and should not have conflict of
interest on the matter on which he is going to
decide.
• Section 21 of Arbitration Act, 2055, an arbitrator
has power equal to a judge of a regular court.
• An arbitrator should not decide beyond the
jurisdiction given by parties, maintain
confidentiality, be impartial, do not delay, do not
increase cost, do not invite situation of court
intervention.
 Appointment of arbitrator
• Person or institution to appoint arbitrator can be stated in the
agreement itself. If not it can be done according to section 3,5,6 and
7 of Arbitration Act, 2055.
• Arbitrator should be appointed within three months from the date of
cause of action. However, agreement should be followed if the
agreement provides any time limitation.
• Section 6(1) of Arbitration Act, 2055 has annulled the supreme court
decision of Jyoti Spinning Mill that said the three months time
limitation for appointment of arbitrator does not apply.
• What is initiation for appointment of arbitrator is not defined in the
Act. However, attempt of any ADR like Dispute Resolution Board,
dissatisfaction over the decision of Engineer/adjudicator, application
to appellate court can be milestones to determine for initiation of
arbitrator.
 Appointment of arbitrator…
• If there is a provision of Single arbitrator in
the agreement, such a single arbitrator
should be appointed through consensus of
both the parties.
• If more than two arbitrators need to be
appointed, each party appoint arbitrator.
Sometimes, third arbitrator can be
appointed by a designated third person or
institution or appellate court.
 Arbitration Proceeding
• Arbitration proceeding starts from the cause of action to
appoint an arbitrator.
• The arbitrator can decide only on the matter what is
specifically assigned to him.
• If any matter in arbitration is attached to a case in court,
the arbitrator can not decide on the matter what is in
court. However, the parties on their consensus can put
the matter in arbitration after deleting the case from the
court if the matter is a civil case.
• If an agreement specifically provides that a dispute is to
be presented before arbitrator, such dispute generally
does not go to the regular court.
 Proceedings….
• Competence Competence Section 16 of
Arbitration Act, 2055
• Arbitration clause may survive even if the
main agreement is terminated.
•
 Proceedings…
• If an arbitrator is not impartial, he can be
dismissed. Section 11(2) of Arbitration Act, 2055
• An application demanding dismissal of an
arbitrator should, first, be filed before the same
arbitrator. A party not satisfied with the decision
of the arbitration tribunal about the dismissal of
an arbitrator can appeal to appellate court.
• Claim should be filed within 3 months. Section
14 of Arbitration Act, 2055
• Counter claim should also be filed within 30
days.
 Appointment ….
• Some agreement may provide right to appoint arbitrator to some
institutions like ICC, NCC etc. Such institutions appoint arbitrator
according to their rules.
• Party who sends notice to other party about appointment of
arbitrator should mention clearly which matter is going to be settled
through arbitration. Those who appoint arbitrator should do it though
application of their mind.
• If an arbitrator is not appointed by a party, application can be given
to appellate court and the court should appoint the arbitrator within
60 days. The appellate court should also consider whether the
application asking for appointment of arbitrator is filed within time
limit. The appellate court can not enter into merit (to determine right
or wrong) of the case at the time of appointing an arbitrator. The
appellate court can not amend the number of arbitrators.
• Chief arbitrator or chairperson of Tribunal Vs. Umpire arbitrator
Is arbitration meeting its objective ?
• Arbitration has been delayed in many stages.
First, for appointment of arbitration, second, for
decision of arbitrator, third, decision of appellate
court according to section 30 of Arbitration Act,
2055 and fourth, decision of writ petition filed at
Supreme Court against the decision of appellate
court.
• But still, the craze of arbitration is increasing all
over the world.
 Court and arbitration
• It is not business of government to do
business – Privatization
• It is not a business of court to look into
business – Arbitration
• A court should look –whether due process
is followed, whether it is fair and impartial.
 Adjudication/DB, cause of action
• An adjudicator is a neutral third party nominated by the parties at the
time of entering into a contract. He gives instant decision if any
dispute comes during administration or enforcement of contract.
Adjudicator is an expert of the subject matter of the dispute.
• Adjudication is sometimes replaced by Dispute Board that consists
more than one persons.
• Adjudication/DB is often required in ADB/World Bank funded
contracts.
• Cause of action for arbitration starts from the time when amicable
settlement does not work or the decision or adjudicator or Dispute
Board is rejected by one of the parties.
• Adjudication/ DB does not have sound legal base but widely
practiced
 Section 11 of Arb. Con. Act 1996 of India
• Section 11 in THE ARBITRATION AND CONCILIATION ACT, 1996
• 11 Appointment of arbitrators. —(1) A person of any nationality may be an arbitrator,
unless otherwise agreed by the parties.
• (2) Subject to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators.
• (3) Failing any agreement referred to in sub-section (2), in an arbitration with three
arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators
shall appoint the third arbitrator who shall act as the presiding arbitrator.
• (4) If the appointment procedure in sub-section (3) applies and—(a) a party fails to
appoint an arbitrator within thirty days from the receipt of a request to do so from the
other party; or
• (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days
from the date of their appointment, the appointment shall be made, upon request of a
party, by the Chief Justice or any person or institution designated by him.
• (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole
arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of
a request by one party from the other party to so agree the appointment shall be
made, upon request of a party, by the Chief Justice or any person or institution
designated by him.
• (
 Section 11 ….
• 6) Where, under an appointment procedure agreed upon by the parties,—
(a) a party fails to act as required under that procedure; or
• (b) the parties, or the two appointed arbitrators, fail to reach an agreement
expected of them under that procedure; or
• (c) a person, including an institution, fails to perform any function entrusted
to him or it under that procedure, a party may request the Chief Justice or
any person or institution designated by him to take the necessary measure,
unless the agreement on the appointment procedure provides other means
for securing the appointment.
• (7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or
sub-section (6) to the Chief Justice or the person or institution designated
by him is final.
• (8) The Chief Justice or the person or institution designated by him, in
appointing an arbitrator, shall have due regard to—(a) any qualifications
required of the arbitrator by the agreement of the parties; and
• (b) other considerations as are likely to secure the appointment of an
independent and impartial arbitrator.
 Section 11 …
• (9) In the case of appointment of sole or third arbitrator in an international commercial
arbitration, the Chief Justice of India or the person or institution designated by him
may appoint an arbitrator of a nationality other than the nationalities of the parties
where the parties belong to different nationalities.
• (10) The Chief Justice may make such scheme 1 as he may deem appropriate for
dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6)
to him.
• (11) Where more than one request has been made under sub-section (4) or sub-
section (5) or sub-section (6) to the Chief Justices of different High Courts or their
designates, the Chief Justice or his designate to whom the request has been first
made under the relevant sub-section shall alone be competent to decide on the
request.
• (12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10)
arise in an international commercial arbitration, the reference to ‘‘Chief Justice'' in
those sub-sections shall be construed as a reference to the ‘‘Chief Justice of
India''.(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10)
arise in any other arbitration, the reference to “Chief Justice” in those sub-sections
shall be construed as a reference to the Chief Justice of the High Court within whose
local limits the principal Civil Court referred to in clause (e) of sub-section (1) of
section 2 is situate and, where the High Court itself is the Court referred to in that
clause, to the Chief Justice of that High Court.
 Finality and limitation of award
• Arbitrator is the last and most competent
judge to decide the case which is put in
arbitration. Case No. 22. Sadak
Department and others Vs. Waiwa
Construction and others.
• Case No. 18. Krishna Chandra Jha Vs.
Dinesh Bhakta Shrestha – Arbitrator can
not give award beyond the agreement
made by parties.
 Scope of Arbitration
• Case No. 16 Rakesh Kumar Vs.
RamKrishna Rawal - Parties of a contract
can choose arbitration as a forum for
dispute settlement and can oust
jurisdiction of court. It will be a matter of
estoppels and another breach of contract if
a parties goes to court.
UNCITRAL in Court/Scope of Arb. Law

• Case No. 21. Bickram Pandey Vs. Ministry

of Physical Planning and Works
UNCITRAL does not apply automatically
as per national law. Its application comes
through agreement. Monism Vs dualism (
jurisprudence).
 Due process in arbitration
• Case No. 19. Road Department Vs. Nepal
Council of Arbitration – appointment of
decision maker ( arbitrator) can be tested
by writ jurisdiction.
Appointment of Arbitrator/ Survival
of Arbitration Clause
• Case No. 14. Appellate court is the
appointing authority. Arbitration cluse
survives even if the contact is
breached/terminated.
 Court Intervention- Property Right
• Case No. 13 Agriculture Tools Company
vs. Appellate Court, Lalitpur
Can court intervene on the ground of
property right
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