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Arbitration and its early history
Arbitration is typically an out- of- court method for resolving a dispute in which a party submits a disputed matter to impartial person (the arbitrator) for decision. The arbitrator controls the process; listen to both sides and make a decision. Like a court trial only one side will prevail, but unlike court litigation appeal on the merit of the case is limited.
In a more formal setting the arbitrator will conduct hearing where all of the parities present evidence through documents, exhibits and testimony. The parties may agree, in some instances, to establish their own procedure or administrating organization may provide procedures.
What is Arbitration?
Until now you are familiar with the meaning of two major alternative dispute resolution mechanisms, i.e. negotiation and conciliation /mediation and now you will be acquainted with the concept of arbitration. Though most of the definition given upon the word arbitration do have similar gist (theme), there are various definitions as the persons who define the word are different.
As of Byrne’s law dictionary, quoted in the book entitled ‘Law Regulating to arbitration and conciliation arbitration’, ‘Arbitration’ means “the determination of disputes by the decision of one or more persons called arbitrators.” As to the same source, every dispute, which might be determined by civil action, may be submitted to arbitration. The author of the same book also specified the following meaning;
Arbitration’ is the substitution by the consent of the parties of another tribunal for the tribunal provided by ordinary process of law, a domestic tribunal as distinct from regularly organized court, proceeding according to the course of the common law depending upon the voluntary acts of the parties, disputants, on the selection of judges of their choice.
Arbitration is a settlement of conflict by the decision of not of regular and ordinary court of law but of one or more persons who are called arbitrators.
But all the definition above connote that arbitration presupposes binding decision from the arbitrators. Whereas some writers use the word arbitration irrespective of the decision that appointed arbitrators would give: whether it is binding decision or non binding decision. In binding arbitration, the arbitrator has the power to render a decision that decides (concludes) the dispute in a legally binding way by issuing an award. The award can be enforced against a party in the same way that a court judgment can be enforced, such as by seizer and sale of property. If arbitration is not “binding”, then it is “advisory.” In advisory arbitration, the parties can choose whether or not to abide by the arbitrator(s) decision.
Some proponents on arbitration, apart two kinds of arbitrations: as binding and non- binding, refuse the applicability of the word arbitration for non- binding decision of arbitrator(s). As to these people, the word arbitration is used only to show a process in which an arbitrator would give an award which is binding upon the conflicting parties. Agreement of the disputing parties to submit their dispute to third party and the latter to give his opinion (non- binding decision) upon dispute could not be called as arbitration as to the above opinion. The most widely applicable meaning of arbitration is the former.
Early History of Arbitration
So as to grasp some of the incidents on the progress of arbitration as one of dominant alternative dispute resolution, we consider worth mentioning its historical development in India and England as one can appreciate different content of arbitration law in both countries at different time.
A) In india
To begin with, while every arbitration is the result of consent of the parties in each case, but there was no such element of individual consent in’ panchayat’ proceeding in India. The jurisdiction of the village panchayat seems to be custom.
Though panchayat system of arbitration was not abrogated totally, the advent of British rule in India resulted in the coming in to existence of the Bengal Regulation of 1772. This regulation came up with a provision which recommends parties in a dispute to submit their dispute to arbitrator and considers arbitration award as if it were given by the court. Following Bengal Regulation of 1772, there were consecutive regulations 1780 and 1781 to provide further facilities for arbitration. Regulation of 1781 affirms the finality of arbitration award made by the arbitrator except the corruption or impartiality of arbitrators, on the case arbitrated, is proved by oath of two witnesses.
The original Hindu idea of panchayati arbitration provided for appeal to higher tribunals, but the regulation of 1781 imported the idea that as the arbitration tribunal was of the parties own choice, the parties must be held bound by its decision, except in the case of misconduct of the arbitrator.
The Bengal Regulation of 1993, on the other hand , came up with additional concepts: it empowered the court to refer certain suits to arbitration with the consent of parties where the value of the suit did not go 80 beyond sicca’ Rs 200 and the suits were for counts, partner ship debts, non performance of contracts etc . Apart this substantive issue to refer case to arbitration by court, where parties in a dispute agree, 1793 Regulation specifies procedures to be followed during arbitration.
The first civil procedure (C.P.C) was placed on the statute book in 1959 and the law relating to arbitration was incorporated in chapter six of the same code. Even the procedure code enacted 1908 incorporated provision regarding arbitration in the second schedule and section 89 and clauses (a-f) of subsection (1) of section 104. Parallel to these provisions were the provisions contained in the Indian arbitration Act. Act of 1899, which apply to cases where, if the matters submitted to arbitration were subject of a suit, the suit could, whether with the leave or otherwise, be institute in a presidency town.
Then came the Arbitration Act of 1940 which repealed and replaced the arbitration Act of 1899 and also the second schedule of the code of civil procedure of 1908 and section 89 and clauses (a) to (f) of subsection(1) of section 104.
As to Sujan, in India, “The practice obtained in the beginning was that each party appoints his own arbitrator usually his advocate engaged for the case, who while sitting as arbitrator, normally advocates the cause of his client.” Since arbitrators advocate the interest of their client, it was hardly possible to reach in agreement and they were forced to refer the case to a single arbitrator, umpire. This was found to be time consuming and it was realized that if ultimately the dispute had to be determined by the decision of a single person, umpire, why go through the process of dual arbitration? Why not appoint a sole arbitrator to begin with. Then the question of selection a sole arbitrator had to be settled either named in the agreement itself or left to be appointed the designated authority or institution.
It was also progressively realized that the selection of arbitrator had to be tailored to the dispute as the real advantage of arbitration over court litigation was that the parties could select a specialist in the line in tune with the nature of the dispute while parties in court could not. This advantage would be lost to the parties if the arbitrator was named in the agreement in advance as the nature of the dispute could not be predicted at that time. Again it was realized that empowerment of designated authority had also its own minus- the named arbitrators, most often, favor to one disputing parties with some relation. Latter on government to reduce corruption and subtle act of arbitrator who is appointed by government, introduce a term in the arbitration clause that arbitrator must give reasons for award he/she made on a claim quantified for more than Rs 50,000.
In order to avoid corruption, curb it and control the same government of India gave emphasis for the establishment of arbitral tribunal. As of the 1940 Indian Arbitration act, the award of on arbitrator will not have a legal effect unless it get the blessing of the court. As to this arbitration act, the court can: (1) remit the award back to the arbitrator (2) set it aside (3) Pass a decree in terms thereof. Final supervisory power was rested in the court of law.
The 1996 Arbitration and conciliation Act substituted the arbitration act of 1940 and curtailed the power of court and the arbitration award is given teeth.
B) In England
Arbitration has an ancient origin in England, namely in the practice adopted by merchants and traders by which they referred disputes arising form matters of accounts or other trading for settlement to persons specially selected for the same purpose. Initially only disputes related with personal chattels or personal wrong could be submitted to arbitrator, however, later on dispute on other maters including dispute related on real state also were referred. But the practice was governed by the common law.
The English courts started with violent prejudice against arbitrations as attempts at ousting the jurisdiction of the king’s court, and at common law the authority of an arbitrator, at any time before the award, could be revoked at the pleasure of any of the parties to the agreement for arbitration even where the submission was in writing, by bond or deed, or by the judge’s order or rule the court.
It was identified that the common law applicable to arbitration was not satisfactory and demanded more clarification and as the result Arbitration Act of 1697 was enacted. And farther amendment was made by Procedure Act 1854. The main purpose of this Act, as Sujan, was to make arbitration submission more binding on the parties ; to make decision of arbitrators more easily enforceable; and to remedy other defects which were brought in to light as the importance of arbitration increased.
From the above description about the development of arbitration rules in England and India, one can easily understand the contents of arbitration rules in each era and what its development looks. This in turn would enhance the understanding of the subject matter, i.e arbitration, by the reader of this material.