Arbitration Clause is something like a deed or agreement among parties that for any purposes. It may any business contract; lease or other written contract may contain an arbitration clause. By using such a clause, the parties to the contract agree to arbitrate any future disputes. As with any clause, all parties must agree to its use in the contract before the contract is signed. The Parties agree that any claim or dispute between them or against any agent, employee, successor, or assign of the other, whether related to this agreement or otherwise, and any claim or dispute related to this agreement or the relationship or duties contemplated under this contract, including the validity of this arbitration clause, must be resolved.
Arbitration, a form of ADR, is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons by whose decision they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides. The essence of arbitration, therefore, is that it is the arbitrator who decides the case and not the ordinary civil courts established by the state. The law of arbitration is based upon the principle of referring the disputes to a domestic tribunal substituted in the place of a regular Court.
- 1. Arbitration Clause
Arbitration is a system of formal dispute resolution by one or more impartial persons, known as arbitrators, for final and binding determination. Arbitrators may hear disputes as a sole arbitrator or on a panel of three arbitrators, known as an arbitral tribunal. The arbitral tribunal can be made up of legal and/or industry experts of the parties’ own choosing, using procedures which they can influence. Arbitration is a private and, to a greater or lesser degree, confidential process and can provide for the quick, practical and economical settlement of cross-border disputes.
This guide covers some of the main points to be taken into account when drafting an arbitration clause at main contract stage, either as clauses within the main contract or in a separate document, and sets out how arbitration will work in a particular case. It assumes that it will be used at the main contract drafting stage – that is, before any dispute has arisen – but the issues covered are also relevant to the negotiation of arbitration agreements after a dispute has arisen and to review of arbitration agreements that bind parties who are involved in a dispute.
An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through an arbitration process. Although such a clause may or may not specify that arbitration occur within a specific jurisdiction, it always binds the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.
Arbitration Agreement: Section 7 of Arbitration & Conciliation Act, 1996 says that it means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. It may be in the form of a clause in a contract or in the form of a separate agreement and should be in writing. Agreement shall be considered in writing if it is contained in a document signed by the parties or an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.
Since Arbitration is based upon either contract law of the law of treaties, the agreement between the parties to submit their dispute to arbitration is a legally binding contract. All arbitral decisions are considered to be final and binding. This does not, however, void the requirements of law. Any dispute not excluded from Arbitration by virtue of law (e.g. criminal proceedings of compoundable nature) may be submitted to arbitration.
Arbitration exists under national and international law and Arbitration and it can be carried out between private individuals, between states or between states and private individuals.
Arbitration is not the same as:
- Judicial proceedings, although in some jurisdictions, court proceedings are sometimes referred as arbitrations
- Alternative dispute resolution (or ADR)
- Expert determination
- 2. Different Types of Arbitration
When a dispute or difference arises between the parties in course of commercial transaction and the same could not be settled friendly by negotiation in form for conciliation or mediation, in such case ad-hoc arbitration may be sought by the conflicting parties. This arbitration is agreed to get justice for the balance of the un-settled part of the dispute only.
This kind of arbitration there is prior agreement between the parties that in case of future differences or disputes arising between the parties during their commercial transactions, such differences or disputes will be settled by arbitration as per clause provide in the agreement.
It is mandatory arbitration which is imposed on the parties by operation of law. In such a case the parties have no option as such but to abide by the law of land. It is apparent that statutory arbitration differs from the above 2 types of arbitration because (i) The consent of parties is not necessary; (ii) It is compulsory Arbitration; (iii) It is binding on the Parties as the law of land; For Example: Section 31 of the North Eastern Hill University Act, 1973, Section 24,31 and 32 of the Defense of India Act, 1971 and Section 43(c) of The Indian Trusts Act, 1882 are the statutory provision, which deal with statutory arbitration.
Domestic or International Arbitration:
Arbitration which occurs in India and has all the parties within India is termed as Domestic Arbitration. An Arbitration in which any party belongs to other than India and the dispute is to be settled in India is termed as International Arbitration.
When arbitration proceedings are conducted in a place outside India and the Award is required to be enforced in India, it is termed as Foreign Arbitration.
- 3. Advantages of Arbitration Clause
Flexible in Problem solving
One advantage of arbitration is that it serves as a forum to resolve disputes outside of the judicial system. Arbitration can be fast, quick and easy, whereas lawsuits can drag on for years and years. Since the rules of evidence and procedure are usually relaxed in arbitration proceedings, the parties are also in a better position to represent them without having to get lawyers involved.
It naturally follows that arbitration also tends to be less expensive than pursuing a lawsuit. While the parties will usually end up having to pay the arbitrator, his or her fees will inevitably be less than the attorneys’ fees that they may have to pay to take the same case to trial.
Another good thing about arbitration is that an arbitrator is typically not bound by the strict rules of procedure in reaching a decision. He or she can consider a lot more facts and circumstances than a judge or jury. Arbitrators typically try to be practical and oftentimes look at compromise as being inherently fair. Thus, the likelihood is that an arbitrator’s decision will award something to at least one of the parties. However, one would not expect that damages would be awarded that were anywhere near what a jury might have awarded if (and that is a big if) the matter were to have been tried before a jury.
A Better Outcome
Arbitration can also bring finality. Sometimes for the better, a decision on a binding arbitration cannot be appealed or overturned in the absence of a showing of extraordinary circumstances. Thus, once a decision is rendered, the case is over. The losing party will typically not be able to appeal which may take the issue year to year.
Arbitral proceedings and an arbitral award are generally non-public, and can be made confidential.
- 4. Disadvantages of Arbitration Clause
Not guaranteed to be fair
There are no guarantees that arbitration will be a fair process. As noted, once a decision is rendered in a binding arbitration, the parties are generally stuck with that decision. Without the right to appeal, there is always the risk of being subject to the whims and prejudices of the arbitrator. Overall, this is probably the biggest drawback to the arbitration process.
Position and Opposition Disadvantage
It says that whether one is in a good position or in opposition of the issue. If the issue goes against one’s interest then one cannot change the deed as it is signed.
Confined in deed
It is always confined in a deed. Once it is initiated then there is no way to modify or extend it. It is confined as in that deed.
If the arbitration is mandatory and binding, the parties waive their rights to access the courts and have a judge or jury decide the case.
In some arbitration agreements, the parties are required to pay for the arbitrators, which add an additional layer of legal cost that can be prohibitive, especially in small consumer disputes.
Fewer Enforcement Remedy
In some legal systems, arbitral awards have fewer enforcement remedies than judgments; although in the United States, arbitration awards are enforced in the same manner as court judgments and have the same effect.
Inability to Enforce Interlocutory Measures
Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore.
- Arbitration Awards
An arbitration award (or arbitral award) is a determination on the merits by an arbitration tribunal in arbitration, and is analogous to a judgment in a court of law. It is referred to as an ‘award’ even where the entire claimant’s claims fail (and thus no money needs to be paid by either party), or the award is of a non-monetary nature. Arbitration is particularly popular as a means of dispute resolution in the commercial sphere (for a summary of the various arenas in which arbitration is usually generally, see the specific article on “arbitration”). One of the reasons for doing so is that, in international trade, it is often easier to enforce an arbitration award in a foreign country than it is to enforce a judgment of the court.
- 6. Relevant Facts of Arbitration
The relevance of Arbitration is always sound good. When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed. Things cannot get slower as Arbitration is often faster than litigation in court. Here time consumption is relatively very low. Arbitration can be cheaper and more flexible for businesses. Arbitral proceedings and an arbitral award are generally non-public, and can be made confidential. Appeal does always consume time. So in most legal systems, there are very limited avenues for appeal of an arbitral award. One very potential role that arbitration plays is reduction of disputes. People in a deed may want to modify or even change the whole deed through high voice. But once the arbitration is done then it is fulfilled to handle a dispute a conclude a acceptable conclusion.
- 7. Irrelevant Facts of Arbitration
Arbitration agreements are sometimes contained in ancillary agreements or in small print in other agreements, and consumers and employees sometimes does not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job. If the arbitration is mandatory and binding, the parties waive their rights to access the courts and have a judge or jury decide the case. In some arbitration agreements, the parties are required to pay for the arbitrators, which add an additional layer of legal cost that can be prohibitive, especially in small consumer disputes. Some arbitration agreements and systems, the recovery of attorneys’ fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court. If the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee. There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned. Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays. In some legal systems, arbitral awards have fewer enforcement remedies than judgments; although in the United States, arbitration awards are enforced in the same manner as court judgments and have the same effect. Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore. Rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard the law. There is discovery, which may be more limited in arbitration.
8. The Arbitration Process and its Application
The sound application of relevant legal principles may contain few procedures as follows:
- One may need to fill a form of application. The form must contain many spheres. The will be applicant’s telephone number, fax number, e-mail address with valid seal.
- Then there will be applicant’s agent’s telephone number, fax number, e-mail address with valid seal.
- Then there will be respondent’s telephone number, fax number, e-mail address with valid seal.
- Gist for application.
- Ground for Application.
- List of attached documents and objects needed.
9. The respective process may also include followings as Solution:
First one has to take up the problem with the company or trader directly to give them a chance to sort things out. Then one writes to them, explaining exactly what one’s problem is and what one wants done about it.
Considering arbitration over court
If the company won’t sort out the problem, then have to consider whether arbitration would be a better bet than going to court.
Informing the company
If one decides to use arbitration, then writing to the company telling it that, if it doesn’t sort out your problem, one will apply for arbitration.
Collect evidence such as letters and invoices that will help prove the case. If the case is complicated, one might want to seek legal advice, but this is not usually necessary.
Submitting the evidence
Here one and the company one have a dispute with, submit one’s evidence to the arbitrator. Depending on the scheme, the arbitrator may look at both sides’ written evidence, or have a hearing, where one will have a chance to put one’s case to him or her.
If the arbitrator agrees with client’s complaint, he or she will make an ‘award’, telling the company what it must to do for the person. The company may have to pay compensation or repair something as needed.
- 10. Demonstration of independent legal search
Things those must take into consideration in arbitrating are as follows:
Appointment of the arbitral tribunal
The decision about how many arbitrators to appoint rests with the parties except where the parties select an institution to administer the arbitration. When an institution does the appointments then the number will depend on the rules of the institution. It is always cheaper to have a sole arbitrator and that may cut down on delays as well.
Place where the arbitration is to be held
The place of the arbitration is of upmost importance. The choice should not be based on geographical convenience alone but should be selected after careful consideration of the law governing arbitration in the place selected by the parties, supportive role of the courts of the place of arbitration, enforceability of the awards and neutral site.
The procedural rules that will be applied in arbitration
In most countries the domestic law will provide assistance in procedural matters but it is unlikely to have mandatory procedural rules. In view of that in ad hoc arbitrations parties will have to decide whether they should formulate rules that will apply to the arbitration or adopt a body of rules such as UNCITRAL arbitration rules to govern the procedure. Trying to formulate rules is by no means an easy task and attempting to do a comprehensive set of rules will be not only time consuming but costly.
The law governing the contract
It is of fundamental importance to choose the law that will govern the contract. Quite often in contracts there is a separate clause that provides for this. In the absence of a separate clause it is important to include a provision relating to the law governing the contract in the arbitration clause.
Language of the Arbitration
Parties can decide what language they are going to use in arbitral proceedings. But if the parties do not decide at the time of drafting the clause what language they are going to use in the arbitration then normally it is left to the arbitrators to make the decision once the proceedings commence.
Exclusion of the right to recourse
Most countries will permit some kind of recourse against the award to the national courts. In some countries parties are permitted by agreement to exclude the right to recourse. In some other countries recourse against an award may be available only if the parties agree to make provision relating to recourse.
Consolidation arises when there is more than one dispute or more than two parties to arbitration. In construction contracts where subcontractors are employed there can be in addition to the main dispute between the employer and the contractor other disputes involving the subcontractors. Where there are several disputes and parties it is practical to consolidate all existing disputes into arbitration as this would be not only cost effective but time-saving.
 Members among whom the deed is made
 ADR stands for “Alternative Dispute Resolution”
 Is an Act of arbitration conduct formation
 A treaty is an express agreement under international law entered into by actors in international law, namely sovereign states and international organizations
 Is a form of deed
 Ad hoc is a Latin phrase meaning “for this”. It generally signifies a solution designed for a specific problem or task, non-generalizable, and not intended to be able to be adapted to other purposes
 Are the Acts regarding Arbitration
 A lawsuit or (less commonly) “suit in law” is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant’s actions, demands a legal or equitable remedy
 A jury is a sworn body of people convened to render an impartial verdict (a finding of fact on a question) officially submitted to them by a court, or to set a penalty or judgment
 An appeal is a petition for review of a case that has been decided by a court of law
 Interlocutory is a legal term which can refer to an order, sentence, decree, or judgment, given in an intermediate stage between the commencement and termination of a cause of action, used to provide a temporary or provisional decision on an issue. Thus, an interlocutory order is not final and is not subject to immediate appeal.
 Also known as “Arbitration Award”
 The conduct of a lawsuit is called Litigation
 Is a validation tool
 The central idea or main substance
 Required documents
 A tribunal in the general sense is any person or institution with the authority to judge, adjudicate on, or determine claims or disputes—whether or not it is called a tribunal in its title
UNCITRAL stands for “United Nations Commission on International Trade Law”