Process of Arbitration - Interesting explanation by Venky Pony

Arbitration Process

The clause is decided / added when the contract is signed. For arbitration, let’s assume exporter goes to Indo-Singapore chamber of Commerce in Singapore. Exporter informs registrar that he wants to do arbitration against Importer (not paid for goods). Registrar will check whether there is an arbitration clause in the contract. Registrar will write a letter to importer to participate in arbitration and will give 15 days for replying to it. If importer replies then importer becomes “respondent” and exporter becomes “claimant”. The registrar will now give them a panel which has a “list of arbitrators” – people having high reputation, who do arbitration not for money, but for status. Arbitrator needs to be invited by chamber of commerce. An “arbitrator” is by virtue of his / her expertise in a particular trade / field and not because of qualification (expertise in making diamonds, antiques etc.). Both importer and exporter will choose 1 person as arbitrator. Then a 3^rd umpire is chosen from 2^nd panel – in case the 2 selected arbitrators do not come to any consensus.

Now the claimant / exporter submit the document to registrar to support his claim (gives 5 copies – 3 to arbitrators, 1 to respondent and 1 to registrar). Similarly, the respondent will make a counter claim and will make 5 copies. The claims will continue till all the documents are finished from both sides (documents includes contract, email, fax copies etc.).

For arbitration, the parties can settle it via video conferencing / tele conferencing (physical presence is not required).

Who pays for this entire process – Both parties pays an equal amount, which is kept in a kitty. The arbitrators are paid something like $1000 per hour of sitting and reading the documents from the kitty. Hence, it is a very expensive process in the initial stages (Litigation is expensive over a period of time). Most arbitration has to be completed within 12 months. Hence, it is a faster process. Here, argument is not done; everything is based on documentation filed. The person who wins has his documentation perfectly in order.

After the arbitration is over, “Arbitration Award” is given. All the 3 arbitrators are called “Arbitration Tribunal”.

Arbitration is legally binding; How – WTO says if anyone is going for an arbitration, do his and his respondent’s country has an act for arbitration passed by its Parliament (Indian Act – Arbitration and Reconciliation Act, 1996). Now, every participating member of WTO has an arbitration act. The penalty is decided by the panel based on the value of the contract, interest due, opportunity lost due to arbitration by the correct party.

Now, the award has been passed in favor of exporter, but importer is not paying. What next – The exporter files a writ petition (which comes up faster) in his country in court of law. The court will ask 2 questions –

· Who did the arbitration – Indo Singapore chamber of Commerce.

· Was it followed properly – The exporter submits the letter received from registrar.

The exporter is given a decree from the court and then exporter goes to importer’s country and files the decree in importer’s country’s court. The court in importer’s country will also ask the same 2 questions and will ask for the letter (decree). On receipt of the same, the court of importer’s country will issue a contempt notice against the importer. Now, the importer will have to pay, else he will be imprisoned. Here, the exporter will demand money for his legal expenses also. Hence, payment after arbitration decision is cheaper than after arbitration & litigation.

Only bad part for exporter could be that importer has become insolvent and can’t pay.