Becoming an arbitrator, negotiating and drafting important clauses

important clauses to consider before arbitration

Authors’ Note

Many lawyers have this weird confusion that one has to be learned in law to be appointed as an arbitrator. But to their surprise, no such law exists. Anyone can become an arbitrator.

This blog will talk about becoming an arbitrator.

Another, very important topic which we will cover is how to professionally negotiate and draft important clauses of arbitration agreements. This is a skill which you will have to hone with practice, but we have discussed some points to give you a headstart. Read them carefully.

Table of Contents

How to become an Arbitrator?

  1. Are all arbitrators advocates or lawyers?
  2. How to professionally negotiate or draft an important Clauses/Agreement
  3. What happens when an Arbitrator is not paid his fee?

How to become an Arbitrator?

Eligibility: There is no eligibility criteria to become an arbitrator in India. Any person of sound mind and of age can be appointed as an arbitrator.

Eligibility to get empaneled in an Arbitration Institutes: Every Arbitration Institute has its own sets of rules and eligibility criteria for employing arbitrators for itself. The criteria may vary from having a degree in law, business administration, engineering or any other qualification or experience as they may deem fit. They employ Arbitrators to work for the Institutes’ clients who have disputes in various professional areas.

Appointment: Section 6 of the Arbitration and conciliation Act, 1996 reads that the parties can choose their own arbitrators. But failing to which the court can appoint an arbitrator that usually is a retired judge of High Court or Supreme Court.

However, when they fail to appoint a common arbitrator then a party may an application under Section 11(6) before the High Court of appropriate jurisdiction to appoint an Arbitrator.

Non-payment of fee: The parties after getting into a dispute decide to appoint an arbitrator. They get into an Arbitration Agreement with each other and name the panel of arbitration tribunal or sole arbitrator if they opt for Ad-hoc arbitration. They get this Arbitration Agreement [the one which is entered into after the dispute to name the arbitrator(s)], on non-judicial stamp paper of appropriate cost and get it notarized (preferably). The arbitrator(s) then can get paid in accordance with the terms of the said agreement. They can refuse to arbitrate the matter and grant an award in case they are not paid accordingly. The unpaid arbitrator(s) can also sue the parties for breach of the contract due to non-payment of fees. It will be ironic if the Arbitrators go into arbitration with the parties in dispute. However, they can choose to do that, but think about it yourself; would it be productive?

In cases of institutional arbitration, the arbitrators are paid by the terms set by the rules of the arbitration institute. Such institutions usually charge a registration fee and a number of other fees. The arbitrators can again sue the parties for non-payment and also refuse to grant awards and arbitrate the matter until payment.

Are all arbitrators advocates or lawyers?

When high courts are approached to appoint an arbitrator, they usually appoint a retired judge. But senior advocates, young lawyers experienced in the arbitration area, businessmen, chartered accountants and technical experts are sometimes also appointed as arbitrators. It is not necessary to be a lawyer to be an arbitrator.

NOTE: The parties in dispute can name anyone they wish in their Arbitration Agreement to appoint that person as Arbitration.

How to professionally negotiate or draft an important Clauses/Agreement

You need to ponder, discuss and work on the below mentioned topics in order to negotiate for fail-proof and air-tight arbitration agreement. The key to successful arbitration lies in the arbitration rules. You need to develop a fore-sight for drafting sound arbitration agreements and negotiate with parties.

As an Arbitrator, you will always be out looking for the below given things in order to neutrally decide matters and ensure that justice is exercised.

Picking a Dispute Resolution Mechanism

Always consider if you will benefit more from stringent court procedures or lenient arbitration proceedings. You wouldn’t want for Arbitration if you’re a consumer because Consumer Forums are hugely inexpensive and are likely to favour you instead of corporate giant. Another example where you would not prefer Arbitration is in cases of industrial disputes.

However, you would want to get into Arbitration if you were the opposite party in the above two examples. Wouldn’t you?

Furthermore, go for arbitration if only if you can do it right and inexpensively. Don’t make it a slow and never-ending procedure which will bleed you dry. Take into consideration all kinds of expenses such as initial filing fee, rent of arbitration conference rooms, expense of travelling et al.

Go for arbitration in places where you are not so sure about the courts. You wouldn’t want to go for a court based settlement in a foreign country because you wouldn’t know the law and the court very well, but if you go for arbitration in any country which was signatory to the New York Convention of 1958 the laws that apply will be the same for arbitration in all of those countries.

Referring to Institutional Arbitration

If you refer your dispute to an Arbitration Institution then you must be very careful while choosing one because each institute has its own set of procedural rules and you should never jump into unknown territories. Not being cautious is bound to expose you to numerous kinds of troubles. Getting into disputes is already hectic enough in itself, worrying about nooks and crooks of new procedures is going to divert your focus from the real issue and make you obsolete in the fight.

On the upside, you will benefit greatly by referring the dispute to an institute when you are fairly aware of their set of rules and know that they can be used to maneuver the case in your favour.

The cost factor has to be kept in mind before referring to an institute. You can request them to send you a quote or you may refer to their Rules for such information. For a fair idea of how the Arbitrators in institutions charge, refer to the Rule 31 ICA Rule (click here) or look at DIAC (Fee) Rules, 2018 (click here).

Ambit of the Agreement

You need to analyse in advance all the possible disputes which might arise out of the agreement and prepare the arbitration agreement keeping in mind the possible methods for resolution. Decide which dispute will be dealt by arbitration and which will not be.

You don’t want to be unprepared and clueless when the dispute will come to life.

If your arbitration agreement is on point and you are aware of the rules guiding the arbitration (regardless of the fact if you have drafted them or it is laid down by some institute), you will save time and money while resolving the dispute.

Set your own rules

Don’t make arbitration tiresome like courts by not deciding any rules on discovery and production of evidence

You can set your own rules. You can decide what kind of evidence can be produced and what kind of evidence cannot. Make rules regarding credibility of evidence. Decide when can evidence be produced or not produced.

Determine how, why and when witnesses may be called and examined. Make rules regarding calling of expert witnesses.

If the parties don’t exercise this power of making their own rules, then what is the point of getting into arbitration?

The parties always have the power to approach the courts for summoning witnesses and evidence under Section 27 of the Act.

Pre-hearing motions and Pre-arbitration hearings

In civil litigations the courts can sometimes summarily decide matters. What makes you think that you can make a similar rule for your arbitration? Draft rules to knock-out frivolous disputes or claims. Make a pre-hearing motion for a drill for determining if the dispute should even go for further arbitration and make rules to determine the merit to such effect.

Interim relief

Courts everywhere in the world have the power to grant interim/provisional relief to parties. You can adopt a similar mechanism and save the parties from suffering more pain over the period of arbitration until the final award. Otherwise, a party may go to court for seeking an interim remedy under Section 9 of the Act.

Putting a limitation on the amount of damages, costs, awards and fee

You should pay careful attention to this provision of an agreement. If a winning party does not get sufficient award what good is winning? On the flip side, what is the point of drafting an agreement if you cannot minimize the damage to your client even if they lose the arbitration.

Think hard about it.

Dispute Escalation

Are you sure that you want to go directly into arbitration the moment a dispute will arise? Wouldn’t you want to settle it in some other more amicable way without?

You can save a lot more of your time and money if you don’t go into fighting a dispute or claim at all. Prepare a mechanism so that a dispute escalates to arbitration only after the parties have tried to negotiate with each other and failed to resolve or where a party offers a solution and it gets rejected by the other party.

Involve in-house counsels

It might prove helpful to involve the in-house legal team/counsel in the arbitration because they have better knowledge of the functioning of their organizations. Also, they may be able to help you strategize better for the arbitration and its rules because they are likely to be more congruent than you with their organization.

Other important clauses to consider

  1. Naming an arbitral body if you want to go for institutional arbitration; and
  2. Decide the language to be used; and
  3. Determine if transcripts are to be made and provided to parties and the manner in which they are to be provided; and
  4. Location/place of the arbitration; and
  5. Empanelment of arbitrators (procedure of appointment and size), failing to decide on this will result in appointment of sole arbitrator by court as per Section 10(2) of the Act; and
  6. Confidentiality clauses; and
  7. Realistic time frames for everything.

What happens when an Arbitrator is not paid his fee?

Usually, such a situation does not arise because most payments are either made in advance or partly advance.

However, if such a case arises then the Arbitrator has two options:

  1. he can make his fee a part of the award so when the parties execute the award as per Section 36 of the Act the Court would direct the party to pay the Arbitrator his due fees; or
  2. he can simply file a suit for recovery against the payment defaulting party.

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Comments (4)

Priyanshi Parashar

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Wow!!!! all over the post is so good to read.
things are clear cut. as a reader it’s excellent. as a lawyer, it gives the feeling of reading something relevant.

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