Making the Arbitration Experience More Effective For Indian Parties
This article was first published in CNBC Money control (www.moneycontrol.com) on 20 July 2011
Arbitration in India has up to recently stayed true to its characterization as an ‘alternative’ dispute resolution mechanism. Elsewhere, arbitration is increasingly a primary dispute resolution mechanism. Nowhere is this more evident than in the statistics on the cases filed with major international arbitral institutions. The International Chamber of Commerce’s (ICC) International Court of Arbitration at Paris saw a 51% growth in the number of cases from 2000 to 2009; the International Centre for Dispute Resolution (ICDR) in the USA saw a 64% growth for the same period. Most significantly, the Singapore International Arbitration Centre (SIAC) saw an astronomical 208% growth in cases filed with it for the same period.1
India and the SIAC
The SIAC is a premier international arbitral institution, one of the first of its kind in Asia, and fulfilling a need for an institution of this nature in Asia. Singapore has been long renowned as a major hub for international trade, shipping, logistics, aviation and finance. The SIAC is another manifestation of Singapore’s role as a hub and service for international commerce and trade, with its commitment to creating an arbitration hub for the region and beyond.
The meteoric increase in the number of new cases filed at the SIAC in the past decade is testament to its growing credibility as an arbitral institution, the impeccable quality of its arbitrators’ panel, the professional and efficient functioning of its Secretariat, the robust nature of its rules of arbitration and the practical and proportionate nature of its fee and costing structures.
Of particular interest to India is that the number of cases filed at the SIAC involving at least one Indian party has grown by an astounding 200% in the past two years. Not to be buoyed by the number of cases alone, it is of some importance that the monetary quantum of disputes involving at least one Indian party has similarly gone up by more than 140% for the same period. Cases have emerged in varying sectors of trade, construction, joint ventures, corporate disputes, international trade and maritime, amongst others. Many factors contribute to this commendable feat.
Not least of them is the strong economic ties that exist between India and Singapore, particularly since the nineties. India and Singapore signed the Comprehensive Economic Co-operation Agreement (CECA) in 2005; and their bilateral trade has grown at enormous proportions from a mere USD 2.2 billion in 2001 to US 9-10 billion in 2006, and to USD 50 billion in 2010.
In the Indian economic context of today, as the logical investment destination for scores of multi national companies, India is seeing foreign investments of more than US 30 billion a year. Equally active on the outbound investment scene, Indian companies have accounted for more than USD 80 billion worth of investments in the past decade.
It is a matter of little surprise then that an increasing number of Indian entities are found party to international arbitrations. In this context, Singapore has emerged as a ‘familiar’ destination for Indian companies looking to take the plunge into international arbitration. Singapore is remarkably well-suited to be the logical arbitration destination for Indian parties, with similar cultures and a shared history. Singapore’s legal system has constantly and strongly supported international arbitration, party autonomy and the finality of arbitral awards. Singapore freely permits foreign counsel and arbitrators to participate in arbitral proceedings. Singapore’s judiciary is viewed as one that understands and encourages commercial enterprise and is independent from influence. Singapore is also a naturally neutral seat, a global city and is geographically well located in relation to India and the rest of the region.
Making arbitration work effectively
It was hypothesized that the global financial crisis led to an increase in the use of arbitration as a dispute resolution mechanism and consequently, the number of international arbitrations.2 Of greater importance is the fact that a crisis of this nature also draws focus to the process itself. Consequently, increasing efforts are visible towards making the arbitration process better in terms of appointment of arbitrators, interim measures, confidentiality, document disclosure, the use of experts and witnesses and the use of innovative procedures to avoid costs and delay, amongst others.
Drafting it Right
Conducting an efficient arbitration starts prior to the dispute arising. An effective arbitration agreement has a major impact on the speed and cost effectiveness of the process. In the endeavour to avoid increased costs and delays, the choice of the dispute resolution mechanism for the contract, and the wording of the arbitration clause are crucial. This should be considered at early stages of the drafting of the contract. However, often, it is only after detailed negotiations on commercial terms, obligations, representations, warranties, indemnity obligations, have taken place that attention is turned to what is aptly called the ‘midnight clause’3. Parties and lawyers alike are generally mechanical in their approach to tend to treat it as ‘fairly standard’. However, parties run the risk of severe consequences for any careless rendering of language. Several factors play an important role in this determination.
Of foremost importance is the agreed dispute resolution mechanism. Disputes can be subject to arbitration alone, or negotiations, mediation, arbitration, or a customized hybrid of any of the above. Parties must choose the governing law of the contract and the governing law of the arbitration agreement. These can be different or identical. Parties can also choose the seat of an arbitration, the language of an arbitration, the number of arbitrators they wish to adjudicate the dispute and most importantly the institution, if any, under whose rules, the arbitration is to be administered and conducted. These choices, no doubt, go a long way in determining jurisdictions and the power of an arbitral tribunal and courts in relation to an arbitration.
Oops, my Lord!
Drafting mistakes are common. At the SIAC, up to a third of all cases filed contain dispute resolution clauses with errors, some minor, some glaring and fatal. Some examples are set out below.
For a start, some clauses provide for a non-existent arbitral institution such as the ‘Singapore Arbitration Body at Singapore’.
Others provide for a multitude of arbitral institutions or for the rules of one institution to be applied by another institution in administering the case. In one case, parties agreed that the dispute would be resolved by ‘the Singapore International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce’. One of the parties approached the ICC first only to have the request rejected. The party approached the SIAC thereafter. The SIAC assumed jurisdiction only to have it challenged before court. A long and expensive litigation ensued. The Singapore Court of Appeal applied the principle of effective interpretation to find the arbitration agreement valid and SIAC’s assumption of jurisdiction correct.4
In another case, one involving a contract between an Indian company and a Singapore company, parties agreed to a detailed arbitration clause only to submit to the exclusive jurisdiction of an Indian court in the subsequent clause. Proceedings ensued before the Indian court and the SIAC simultaneously. The Indian court refused to refer the matter to arbitration, while the SIAC prima facie found an arbitration agreement to be in existence and continued with the arbitration.
In a contract between a Chinese seller and an Indian buyer, parties drafted the contract in English and Chinese, with both versions having equal force. Unfortunately, the clause on arbitration provided for different arbitral institutions to administer the arbitration, in the two languages. In another contract between a Chinese seller and an Indian buyer, parties agreed to both Singapore and England as the seat of arbitration. Lawyers in both jurisdictions are bound to have a field day with such clauses on the issue of the courts’ jurisdiction to deal with an award, if ever there is one.
In a shareholders agreement between companies incorporated in British Virgin Islands, Singapore and India, parties agreed that both Singapore law and Indian law would govern the arbitration agreement.
A poorly drafted arbitration agreement may have the following unintended consequences:
- parallel proceedings in different jurisdictions regarding the meaning and scope of the arbitration agreement;
- challenges to the tribunal’s substantive jurisdiction;
- affect the chances of successfully enforcing the award and bind the parties to an unnecessarily expensive or lengthy procedure.
It is obvious that the consequences of such oversight in drafting dispute resolution clauses are disastrous in terms of the time, energy and money spent in handling exchanges between parties and potential litigation before the arbitration process can even be commenced. Needless to say, once a dispute has arisen, agreement between parties on any issue is rare and difficult to come by.
There is a clear trend that arbitration is emerging as the main option for dispute resolution in international transactions in Asia, and this trend is also discernible in transactions and projects involving India. The strong growth in the number of cases from India received by SIAC covering a variety of sectors is testament to this. Arbitration will slowly but surely cease to be a mere ‘alternate’ in India. Keeping this in mind, drafting dispute resolution clauses correctly and with a view to making the process work in the manner desired is one of the first steps to ensuring that arbitration works correctly, efficiently and effectively for Indian parties.5
1 Singapore International Arbitration Centre, Facts and Figures: Statistics (2010) at 14 July 2011.
2 Professor Doug Jones, International Dispute Resolution in the Global Financial Crisis, The Arbitrator & Mediator 35 (October 2009).
3 The phrase is courtesy Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration, 132 (2004).
4 Insigma Technology Co. Limited v. Alstom Technology Limited,  SGCA 24.
5 Parties may use the SIAC Model Clause for arbitration in the following terms:
“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in ______________ in accordance with the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the time being in force, which rules are deemed to be incorporated by reference in this clause.
The Tribunal shall consist of _________________* arbitrator(s). The language of the arbitration shall be ________________.”
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