Institutional arbitration is the need of the hour. It is and will always be better than ad-hoc arbitrations. Everybody and their mother know it; especially lawyers. There is a plethora of articles, books and papers on the subject that confirm the same. In short, institutional arbitrations tend to be better regulated and therefore, less inefficient as they involve detailed procedural rules, tighter timelines, reasonable fee schedules, and administrative oversight.
The question then is not whether institutional arbitration is better than its ad-hoc counterpart; the question is when institutional arbitration is clearly superior, why does ad-hoc arbitration continue to thrive in India? Surely, there must be some sound reason for the majority of Indian lawyers and companies to opt for ad-hoc arbitration and it is this rationale that we must seek. For you see, institutional arbitration offers many advantages, but there are two things that ad-hoc provides better – a fatter arbitrator’s fee and increased procedural freedom to both the parties and their lawyers.
A glaring difference between the both types of arbitrations is that in an institutional arbitration, the arbitrator’s fee is generally based on a percentage of the amount in dispute. All major arbitral institutions in India have a fixed fee structure according to the value of the claim and the counter claim, for e.g. Indian Council of Arbitration (ICA), The International Centre for Alternative Dispute Resolution (ICADR) , Delhi High Court Arbitration Centre (DAC) etc; the only exception being LCIA India . Conversely, the fee of an arbitrator in an ad-hoc proceeding is typically calculated per hearing. One can imagine why this leads to additional hearings and liberal adjournments in a single dispute; the more (the hearings) the merrier (the arbitrator). At the moment, it has become almost a disincentive for arbitrators to resolve issues too quickly because fees are based on the number of sittings.
In most of these ad-hoc proceedings, parties prefer to choose retired Judges as arbitrators. But unfortunately, there appears to be a competition among the retired Judges to put for himself a more impressive price tag than the others – often after they enter on the reference. And again, there is no guessing on the duration of the proceedings where fees are on the basis of sittings. Recently, excessive arbitration fee charged by retired judges of the Supreme Court and High Courts in an ad-hoc proceeding prompted the Delhi High Court to dissolve one such Tribunal and refer it to be conducted under the auspices of an arbitral institution. As is evident, the large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award.
Moreover, an ad-hoc arbitrator is not bound by the additional rules or guidelines of an arbitral institution; he is free to set his own quantum of fees and mostly schedule hearings at his own convenience. So, from an arbitrator’s point of view, ad-hoc arbitration is actually much better than institutional arbitration. It then stands to reason that there is an ever so slightly less chance of them being really supporting and promoting institutional arbitration.
But rest assured, not all is lost. At the very least, the Arbitration and Conciliation (Amendment) Act 2016 advocates for a fixed fee structure for arbitrators appointed by Courts. It allows the High Courts to frame rules for the determination of fee of such Tribunals. The Act offers rates for the Court’s consideration as well. Still, it is only a discretionary power which may be exercised by High Courts. Now the wait begins for all twenty four High Courts of India to formulate their own rules with regards to an arbitrator’s fee.
Clearly the heart is in the right place but it’s not enough. Even if the Courts were to frame such rules, they would only apply on arbitrators appointed by the Courts themselves. Private ad-hoc arbitrations, going on without Court interference, will continue to charge exorbitant fees on a hearing-based system. An indirect way the Amendment of 2016 weakens this hearing-based system is by fixing a time limit of 12 months (extendable up to 18 months) on the arbitrator to make an award and by incentivising him if he completes the arbitration in 6 months. Earlier, arbitrators were able to hold multiple hearings and dispense adjournments generously because they were under no obligation to complete the arbitration on time. Now, with only 12 months in hand, there are only so many hearings one can hold – the number of sittings will certainly come down and so will the total fees.
To completely solve this ‘hearing-based fees’ situation, the only solution I can think of is not a legal one, but an ethical one. The onus falls on us – the lawyers – to advise our clients to opt for institutional arbitration; for we are the ones who formulate and negotiate the arbitration agreement and it is our duty to have the client’s best interests in mind. The Courts and legislature can only do so much. Ultimately, the burden is ours and it is a burden we must bear to rid Indian arbitration from the clutches of greedy arbitrators.
5th Year BA LLB (Hons)
Dr. Ram Manohar Lohiya National Law University