Arbitration, a Grey Area?

Is ADR ‘Alternate’ Dispute Resolution or ‘Additional’?

The author is no fan of ADR, especially in normal litigation. While there is a lot to be said about arbitration in highly technical matters, experience shows that ADR is only one more stepping stone. Arbitration, mediation and conciliation are the latest ‘catch’ words; more as a panacea for court-weary litigants than for providing instant relief. Conciliation is, in our opinion, better. AND then, there are pitfalls, as three recently reported cases will show.

What is arbitration? It is the out-o-court resolution of a civil matter. There is an arbitrator or three of them. They usually hold “court” in a specified place but not in a court of law. Often the setting is in 5-star hotels. There are two divisions in the room, one for each side to sit on. Then there are stenographers, computers, and other paraphernalia. Should there be more than two disputants the set-up is multiplied.

The main difference is that while you cannot select your judge, arbitrators are chosen by both parties.

Arbitrators do not pass orders or judgements. They issue ‘awards’. Does the award have the force of law? Maybe, maybe not. Depends on the terms of the contract and the terms of reference. Experience shows that matters still end up in court.

In Case 1, involving Physicians Insurance Capital, one party did not keep a proper record of the proceedings. It was not satisfied with the award. The arbitral award was sparsely worded. It went to court.

YOU BE THE JUDGE. Was it justified?

The court held that since the party was lethargic in its approach to the arbitration, it was at a disadvantage to prove that the award was unjustified. The lesson here is that just as ALL court records are of outmost importance, so are arbitration proceedings. And as in court, ask for the moon as an award. Whether you get it, or not, is secondary.

In another case, this time involving two insurance companies, when half way through the proceedings, one party decided that the arbitrator was partial since an interim (in-between) award was granted to the other side. The affected party went to court, won its day and lost in appeal. Why? The appellate court asked for final conclusion of the matter after which the aggrieved party could approach the courts.

In yet another case, there was a clause for the arbitration award to be reviewed by yet another arbitrator. Please do not ask me why. That was the way the contract was drawn up. The employee, Mr. Dunham ,lost out on both occasions against his employer, Lithia Motors Supports Services. The employee then approached the court of law. The question was whether the court should pay attention to the first arbitration of the second. Or should it look into both? Or only the final, that is the second, arbitration?

YOU BE THE JUDGE.

The court decided that both arbitration proceedings needed a look-see. Fortunately, both were found to be properly handled and the award against Dunham upheld. So where is the problem?

Consider that the two awards were different. Which one should the court uphold would be the question. Suppose also that both awards were similar but the court thought both incorrect. Where would that land the opposing parties? Another round of arbitration? We thought that the process was a fast-track one; not multiplying itself in endless procedures.

“What, then, is the advantage of arbitration?”. For one, as mentioned earlier, highly technical matters may require an arbitrator who understands the intricacies. Yet, he needs to have a ‘legal’ background because an award has to be based on the law in force at the time. In other cases, it is more likely a throw of the dice. And a trip to the court.

Bapoo Malcolm is a practising lawyer in Mumbai. Please email your comments to bapoomalcolm@gmail.com or mail@moneylife.in

Courtesy By: Moneylife