Dispute Resolution:
Arbitration Law in Nepal
Anamol Bisht
Kathmandu University School of Management

In an event of the breach of any contract, legal remedy should be provided to the parties that are involved in the agreement. However, instead of going directly to the court of law, there are specific remedies that serve as an alternative dispute resolution and one such alternative is arbitration. In arbitration, an arbitrator (a neutral third party or experts) renders a decision based on the disputes they are presented with. Here, the third party’s decision is legally binding, as it is an alternative dispute resolution (ADR) to the judicial system of the nation. Except for a few special cases, the court of law will reject any disputes between contracting parties and refer to the parties to arbitration. This is why almost all contracts and agreements have arbitration clauses mentioned in so it has to be a collateral to the main contract so as not to end with the contract itself. “The other term of the contract fall but the arbitration clause survives” (Pathak, 2010). The procedures to arbitration are stringent laws that pertain to how justice should be served in case of a contractual breach. Since courts alone couldn’t resolve the question of arbitration, there had to be a law that referred to the powers invested to the parties as private legislation and the ousting of the jurisdiction of the court. Hence, the Arbitration Act, 2055 (1999) was enacted to provide such guidelines for remedy for breaches in contracts. In this Act, there is mention of the procedures to appoint arbitrators, the powers vested upon the arbitrators, procedures to carry out arbitrations and awards. First, the arbitrators, as mentioned in section 5, should always be an odd number. The parties can decide on the number of arbitrators (assumed as three if not mentioned). The appointment is made through the parties autonomy of who is to be chosen as arbitrators within 30 days of the dispute settlement reason arises. However, even though the parties decide the number and the persons who are to be chosen as arbitrators, the arbitrators themselves appoint a chief arbitrator who acts as an agent to break the deadlock between majority-less decisions. Inevitably, the question arises about the post of the arbitrators and how permanent they are. Arbitrators have to be impartial to both the parties and the violation of any aforementioned contract rules as well as actions against the law of the state will lead to their removal. According to the Arbitration Act (1999 , any of the following will lead to the removal of the arbitrators:
(a) In case any arbitrator is clearly seen to have shown a bias toward or discriminated against any party instead of working in an impartial manner; (b) In case any arbitrator engages in improper conduct or commits fraud in the course of arbitration; (c) In case any arbitrator frequently commits mistakes or irregularities in the course of arbitration; (d) In case any arbitrator does not attend arbitration meetings or refuses to take part in arbitration proceedings for more than three times without furnishing satisfactory reasons with the objective of prolonging or delaying the arbitration proceedings in an improper manner; (e) In case any arbitrator takes any action which is opposed to the principles or rules of natural justice; or (f) In case any arbitrator is found to be lacking the necessary qualifications, or to have ceased to be qualified.
The removal of arbitrators can be dealt with by the parties as per their agreement but also can be sent to the Appellate Court, whose hearing on the matter is always final. Furthermore, there is mention of how to approach a situation in the absence of a conclusive appointment of an arbitrator. There can be special cases where, either there is no mention of an arbitration clause in a contract or there is a failure to produce sufficient number of arbitrators, the Appellate court is consulted. In this special case, parties submit their cases to the court after the 30-day deadline has expired without an arbitrator and henceforth the court will come to a decision on how the case is to be handled. As the arbitration process acts as the alternative to the judicial system, it actually carries several characteristics of a court system. “In the typical hearing format, the parties present opening arguments to the arbitrators and state what remedies should or should not be granted. Next, evidence is presented, and witnesses may be called and examined by both sides” (Clarkson, 2001). Also like judges in the court system, arbitrators are anointed with certain powers exclusive to them. In the Arbitration Act Section 21, the arbitrators will have powers such as but not limited to the summoning of parties and required documents, record witness statements, appoint and seek expert opinions, inspection of related materials, issuing order, issuing certified copy of document. Hence, it is evident that this system is the ADR to the judicial system. The Act also provides procedures on how the arbitration is to be conducted outside the judicial jurisdiction. The procedures mentioned in Chapter 5 of the Arbitration Act gives an insight of the methodology of approaching a disputed breach of contract via the arbitration clause. Chiefly, within 120 days of the appointment of arbitrators, a decision on the case and the verdict will be the decision of the majority, similar to that of a court case. Nonetheless, if in case there is no majority, the chief arbitrator will declare his or her verdict and that will determine the outcome of the dispute. However, what is to be entertained here is that the Appellate Court cannot revise except the decision of the arbitrators. In a sense, the word of the arbitrators is final and is legally binding. The dissatisfied parties, if they feel that any one of the cases mentioned above that can result in the removal of the arbitrators has been executed can petition to the Appellate court within 45 days. After the arbitrators make the decision, the context of rendering a decision or an award, which is called an award. “In the context of litigation, the amount of money awarded to the plaintiff in a civil lawsuit or damages; the arbitrators decision” (hg.org) is called an award. Usually the arbitrator’s word is the final say in the matter. In the Arbitration Act, section 31, 32, 33, 34 and 35 deals with how an arbitrator’s decision should be carried out. First and foremost, the time period of 45 days is given to the party who the decision is made against to pay the plaintiff. If in any case the party cannot provide the plaintiff the award in 45 days, they must submit their appeal to the Appellate Court within 30 days. All awards include interest. Furthermore, there is mention of the case of foreign countries where the application should be made to the Appellate Court who makes the decision and forwards it to the district court. As we can see, the arbitration process is performed in much the same manner as the courts. This is the main reason it serves as an ADR to the judicial system. The reason for courts and involved parties to refer to arbitration and oust the judicial system lies in the ineffectiveness of going to court to settle disputes. According to in his book The Legal Aspect of Business, 2010 (Pathak, p. 577) the reasons for arbitration being the ADR to the judicial system are:
One, courts could take a long time to settle dispute and award remedy. Two, court proceedings are always adversarial. The traders, as they would, most probably, continue to deal with each other in the future as well, preferred an amicable settlement of dispute. Three, court proceedings are open to public. This is not in the business interests of either of the parties.
These reasons mentioned above are the key reasons for the rise of arbitration as an ADR. Crucially, the necessity of arbitration is highlighted by the need to solve problems efficiently and privately, which the court does not provide. Furthermore, when we look into the features of arbitration in Nepal’s Arbitration Act, we can clearly see why it is the ADR to the judicial system. This is why the court system compels parties in contract to resolve disputes via arbitration and holds the awards given by arbitrators as legally binding. An ADR has to have certain characteristics for it to be implementable as an alternative to the judicial system. The European Union IPR Helpdesk defines ADR on having characteristics of: “A single neutral procedure, Party autonomy Neutrality Expertise Confidentiality Finality of arbitral awards and party autonomy to settle, Enforceability of arbitral awards” (European Commission, iprhelpdesk.eu) and concludes that arbitration has all of these qualities. In fact, all these qualities, including the presence of only a single proceedings, as opposed to multiple proceedings in court litigation that makes the cases drawn out, the decision maker being an expert on his field (may not be the case in courts), and the confidentiality of arbitration as opposed to court litigation is why almost always the judicial system is ousted in contracts and an arbitration clause is included.

Reference:

Clarkson, K. (2001). West's business law: Text, cases, legal, ethical, international, and e-commerce environment (8th ed.). Cincinnati, Ohio: West Legal Studies in Business.

Pathak, A. (2010). Arbitration. In Legal Aspects of Business (4th ed.).

Arbitration Act, 2055 (1999), Parliament of the 27th year of His Majesty King Birendra Bir Bikram Shah Dev (1999)

Alternative Dispute Resolution (ADR). (n.d.). Retrieved November 27, 2014, from http://www.hg.org/adr.html Efficient resolution of disputes in R&D collaborations, licensing and other technology transfer. (2012, November 1). Retrieved November 28, 2014.