Arbitration is supposed to be a speedy and economic way to resolve disputes. But three judgments of the Supreme Court delivered last week shake this trust.
The dispute in UP Cooperative Federation vs M/s Three Circles started in 1986 under the old Arbitration Act 1940 and wound its way up to the Supreme Court in 2001 where the appeal has been dismissed after eight years. Another case, Steel Authority of India vs Gupta Tubes Ltd started in 1993 and closed with the dismissal of the government company’s appeal.
The third one, Balaji Coke Industry vs Maa Bhagwati Coke, reached the Supreme Court for its transfer from the civil judge’s court in Gujarat to the Calcutta high court. That is just the beginning and it has miles to go. The dispute was over the appointment of a retired Gujarat high court judge as the sole arbitrator in a dispute involving a Kolkota importer.
Meanwhile, the Supreme Court made some significant observations about nomination of retired high court judges as arbitrators in the judgment, Union of India vs Singh Builders Syndicate. According to the court, the cost of arbitration shoots up when retired judges are chosen. In arbitration agreements, very often the qualification of the arbitrators and preferences of the parties are incorporated. In order to make the process cheap, sometimes government officers with technical knowledge, like engineers or chartered accountants, are preferred.
However, when a retired judge is nominated, the parties are forced to bear the high cost of arbitration by way of private arbitrator’s fee even though they had not consented for the appointment of such non-technical non-serving persons as arbitrators. The court remarked: “There is a prevalent opinion that the cost becomes very high in many cases where retired judges are arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award.”
Normally the court leaves it to the private arbitrator to fix his fees. This creates problem for the disputing parties. The court explained: “When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee.”
Therefore, the court thought it necessary to find an urgent solution to this problem to save arbitration from the high costs. Institutional arbitration has provided a solution as the arbitrators’ fees is not fixed by the arbitrators themselves, but is governed by a uniform rate prescribed by the institution under whose aegis the arbitration is held.
Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Yet another solution suggested by the court is for the retired judges offering to serve as arbitrators to indicate their fee structure to the registry of the respective high courts so that the parties will have the choice of selecting an arbitrator whose fees are in their ‘range’ having regard to the stakes involved. What is objectionable, according to the court, is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such arbitrator.
“It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are seriously hampering the growth of arbitration as an effective dispute resolution process. Delay and high cost are two areas where the arbitrators by self-regulation can bring about marked improvement,” the judgment pointed out.
Other private arbitrators are no better than the judges. In the Steel Authority case mentioned above, there were 50 sittings yielding an award of 300 pages which became the focus of discord for the next 15 years. Many of the sittings in five-star hotels only decide where and when to meet the next time while running up huge bills.
