ARBITRATION IN TIMES OF COVID-19: A REVAMP IN PROCESS?
Author: Asmita Chakraborty
Chanakaya National Law University, Patna
ISSN: 2582-3655
ABSTRACT
COVID-19 has severely impacted the countries across the globe and has brought the world to a standstill. Every sector across the world has closed down in response to the spread of coronavirus. As a result, most of the commercial transactions have come to a stoppage as the situation prevailing right now makes it impossible to complete such contractual obligations. Disputes have also arisen and the legal fraternity across the globe has been facing a challenge in resolving these disputes. In such time arbitration and especially online arbitration has come as a relief to the parties. With this background, this research paper aims at answering the following research questions:
1) How has the Covid-19 impacted the arbitration proceedings in India and on International level?
2) Is online arbitration, the much required change in order to respond to such unprecedented situations?
The researcher in this research work aims to deal with the above mentioned issues and existing loopholes in the same and wishes to provide forth various criticisms and subsequent suggestions for the same.
CHAPTER I: INTRODUCTION
The world right now is reeling under the effects of a global pandemic, caused by the COVID-19 or as used in common parlance, the Corona Virus. Countries globally have been affected by the outbreak of COVID-19. With severe lockdowns being enforced vigorously everywhere, the global economy has come to a halt. Needless to say, such unprecedented disruption and discontinuity, has severely affected the global legal systems on many folds. This worldwide stop down has generated shockwaves that have adversely affected and continue to affect both the global and domestic markets.
Most of the commercial contracts contain a clause according to which a contract may become suspended in certain situations or circumstances and the consequent dissolution of contract which is to be done as per the terms of the contract.[1] Often times there may occur unforeseen situations beyond the control of the parties which may frustrate the performance of contract. Such unforeseen circumstances are often termed as ‘force majure’ and involve situations like earthquakes, floods, etc. Even though a pandemic has not been expressly cited as one of force majure, the current prevailing situation in the world is no short of Force majure.
The closure of manufacturing units and supply services, stoppage of crucial air and sea routes, has led to a crash in the stock markets with loss of billions of dollars.[2]This unprecedented disruption has created a situation where it has become extremely difficult and even impossible to perform or carry put various contractual obligations.[3] This has either caused severe commercial hardships for some parties in fulfilling their contractual obligation or complete frustration of contract due to the inability of the performance of the contract.
Not only have that, but the resolution of disputes arising out of the failure to perform the contractual obligations also taken a major hit. The alternate dispute mechanism in India is no exception to it. [4]Arbitration proceedings in India which is time-bound statutorily has suffered a major setback due to the outbreak of Covid-19.
This research paper aims to deal primarily with how Covid-19 is affecting the arbitration proceedings in India.
CHAPTER II: COVID-19: THE CURRENT SCENARIO
The novel coronavirus was first reported on 31st December 2019, when the World Health Organisation (hereinafter referred to as WHO), China country office was reported of cases of pneumonia and an unknown etiology which was detected in the Wuhan City, Hubei province of China.[5] Through January 3rd, 2020 the reported cases had risen to about 44.[6] However, till then the causal agent hadn’t been identified. On the 7th of January, the Chinese authority had been able to identify a new type of coronavirus.[7] By 20th of January, 2020 282 confirmed cases had been reported from China, Thailand, Japan and the Republic of Korea. [8] There onwards the confirmed cases of Novel Coronavirus increased by leaps and bounds spreading to a number of other countries.
On the 1st of March, 2020, the confirmed cases of coronavirus globally were reported to be 87, 137 cases out of which China reported having 79, 968 confirmed cases.[9] At the same time, India reported 3 confirmed cases of covid-19 all of which were situations of imported cases only. [10] Almost a month later on 7th April 2020, the total confirmed cases of Covid-19 globally were reported to be 12,79,722 72, 614 deaths reported globally.[11]On the same day India reported 4067 confirmed cases of coronavirus with 109 deaths.[12] The shortage of equipment and personal protective gear that is being used by doctors, nurses and all those workers working on the frontline in this war against the virus, has only augmented the problem.
As the condition worsens everywhere, fears of a global recession is on the rise. Covid-19 seems to have given the global economy a triple whammy with massive supply chain disruptions globally, amplification of demand-side shock resulting due to the lockdown and other domestic containment measures and propagation of the financial shock and US dollar credit crunch.[13] For the India economy which was already on a concerning downward trajectory since the financial year 2018 wherein the growth rate fell from 8 % in the fourth quarter of FY 2018 to 4.5 % in the 2nd quarter of FY 2020, this pandemic came at a rather inopportune time for India.
Needless to say, like almost all sectors of the Indian Economy whether it be the manufacturing sector or the service sector, the legal fraternity has also taken a major hit. As it is due to the large backlog of cases that are prevailing in the various courts of the country which has been consistently leading to the delaying of adjudication on cases, this disruption is going to have a far-fetched impact for years to come.
CHAPTER III- ARBITRATION IN INDIA IN TIMES OF COVID-19
As already mentioned the outbreak of Covid-19 which was subsequently declared as a pandemic by WHO has created completed chaos globally. Such has been the catastrophic spread of this virus, that the Indian Government since 24th March 2020 had declared a complete lockdown of the country. Even prior to the announcement the various state governments had announced complete lockdown in their respective states in the wake of this ghastly virus. With most of the sectors be it government, private, manufacturing or business sector coming to a halt, the Indian Judiciary was no different.
The Supreme Court of India on 16th March 2020 had announced that the regular operations of the court would remain suspended and only urgent matters would be taken up. Needless to say, following this most of the High Courts and lower courts suspended regular operations and only started taking up urgent matters. The Supreme Court, however, took Suo Moto cognizance of legal hardship that would be faced by the litigants and extended the limitation period from the 15th of March till further notice. The Ministry of Corporate Affairs has also extended the time period for a number of formalities.
The situation of lockdown in the country prevents the physical conduction of arbitration[14] and other alternative dispute resolution proceeding in the country. Statutorily as per Section 29A of the Arbitration and Conciliation Act, 1996 an arbitration proceeding is required to be completed within 12 months from the date of commencement of arbitration proceeding. this is extendable up to a time period of 6 months with the consent of the parties and further extensions can only be granted by the court either before or after the expiration of the time period, failing which the mandate of the Arbitral tribunal is terminated.[15] Prior to the Arbitration and Conciliation (Amendment) Act, 2015, the arbitration proceedings were being extended over a long period of time like court proceedings. This was defeating the entire purpose of a faster alternative dispute mechanism resolution. To curb this, Section 29A was inserted which set a time limit on the continuity of Arbitration Proceedings.
With covid-19 scares increasing throughout the country the arbitration proceedings which were already in proceed would have been affected as well severely. However much to the advantage of the parties and arbitrators, the order passed by the Supreme Court vide order dated 23rd March 2020 that extended the limitation period from 15th March 2020 has come into play. According to this order, the statutory time limit for filling, pleading and conduction of proceedings stands extended until further orders. This order being an all-encompassing order covers under its ambit both courts as well as tribunals. Arbitral tribunal being one such tribunal. Not only that Statutory time limit for litigation arising out of arbitration proceedings that is seeking the assistance of court for adducing evidence as mentioned under section 27 and appeals against enforcement of arbitral awards under section 34 also have also been extended via the order vide 23rd march 2020. The all-encompassing order for extension of limitation period by the Supreme Court has surely come to a great sigh of relief for the legal fraternity everywhere in the country.
However, despite the relief that this order provides, arbitration proceedings can still be continued in India even during this time of Covid-19. The arbitrations proceedings which are of urgent nature and delay in initiation of such arbitration proceedings may cause severe loss and injustice to the parties can be continued virtually even during this period of lockdown. The Act of 1996 is silent about virtual arbitration proceedings, Section 19 of the Act empowers the parties and the arbitrator to decide the rules of the procedure.[16] The parties in their discretion may very well decide to conduct arbitration proceeding virtually through video conferencing. The arbitral tribunal can even direct the parties to file their pleading via means of email and conduct proceeding through video conferencing.[17]
CHAPTER IV: INTERNATIONAL ARBITRATION PROCEEDING IN TIMES OF COVID-19
With this pandemic having destabilized the global commerce and company earning worldwide[18], the fulfilment of contractual obligation has become increasingly difficult. And so has their resolution. Arbitration has an inherent flexibility which makes it an attractive alternative dispute resolution system.[19]In In the wake of the pandemic, this flexibility has been suspended which has significantly affected the international arbitration proceedings. Arbitration is a go-to choice of dispute resolution in most high stakes commercial contracts,[20] this virus has caused severe disruptions in the carrying on arbitral proceedings globally. International Arbitration entails travel for both arbitrators, witnesses, and counsels.[21]Even before being declared a pandemic, the virus has affected arbitration in Asia as travel to and from China had been advised against by many countries.[22]
Most of the arbitration proceedings have been delayed and major protective steps have been taken by most of the international arbitration centers. The outbreak of the pandemic has not only lead to delay of many arbitration proceedings but has also lead to the cancellation of any such proceedings. The rate at which the current situation is proceeding, imposing further measures to mitigate the situation seems very likely. Economic measures are already being announced which are likely to have a significant impact on banks, such as mortgage suspensions.[23]
To tackle such a situation most of the international arbitration centers have taken ardent precautionary measures in such a situation, including encouraging protective health measures, in their offices, suggesting postponement of hearings and advising parties to refrain from attending hearings in person.[24] Some of the institutes of arbitration like Hong Kong International Arbitration Centre had issued advisory that people arriving from outside of mainland China and China would not enter their office for 14days after their arrival. Other international institutes like the International Chamber of Commerce, the London Court of Arbitration and others have taken a more pragmatic and flexible approach by allowing the parties and the arbitrators to decide upon and adopt a particular approach during this situation opting for a virtual model of arbitration through video conferencing.
It is certainly difficult to gauge how this virus will affect International Arbitration in the long. However online arbitration that is being conducted by most of the international arbitration institutions has come as a relief to many of those who are stuck in a dispute.
CHAPTER V:ARBITRATION AFTER COVID-19 AND THE WAY FORWARD:
The flexibility and consent of the parties are two very important principles on which arbitration is based. The entire aim of adopting an alternative mechanism of dispute resolution is the faster and speedier resolution of a dispute without having to indulge in the complexities of law which the various legal jurisdiction of the countries require. Almost everywhere in the world, arbitration proceedings are carried on with a certain amount of flexibility and a good amount of freedom is vested with the parties to decide their own procedure for conducting the arbitration. While arbitration has become increasingly popular globally right now and is the go-to option for dispute resolution for parties, especially those who are involved in commercial transactions, it may be just about time, that the traditional process of conduction of arbitration is revamped.
With social distancing being advocated globally in the wake of covid-19, arbitration which is of urgent nature is being conducted online through video conferencing. In general, when one takes a glance at the entire proceeding, arbitration from its very onset is done contact-free.[25] The request for arbitration the response there, the request for appointment of an arbitrator to the actual appointment of an arbitrator is mainly done through electronic correspondence.[26]Further on the communication between the parties, clients and arbitrators in the early stages are done mostly through email, telephone, etc. even the exchange of documents is mostly conducted through electronic modes and the parties, clients or arbitrators hardly ever come in physical contact. Arbitration as already mentioned allows the parties or the arbitral tribunal to set up their own procedure for conduction of Arbitration proceedings. Often times the arbitral tribunals decide the dispute on the basis of the documents pleadings and submission which are submitted to it without actual physical conduction of oral hearing. In case oral hearing becomes necessary, it can be easily conducted through video conferencing.
Shifting to online arbitration has been the answer to most of the arbitral tribunals and institutions in the wake of covid-19. Online arbitration does away with the logistical requirements of the physical place of arbitration. In addition to this online arbitration reduces the need for travel especially in cases that involves multi-country parties. However, there are certain difficulties which online arbitration cannot overcome. For eg sometimes in cases of complex disputes, there is a need for conducting multi-level communication with different parties or clients which can be done effectively only when everyone is physically present.[27] But all in all when compares the advantages with the disadvantages, online arbitration fares better.
But in order to revamp the traditional mode of arbitration and conduct the same online certain important changes must be brought.
Firstly, proper guidelines and regulations with respect to the conduction of arbitration proceedings online must be laid down. While freedom has been provided to both parties and arbitrators to frame the rules and regulations for the proceedings of arbitration as per their convenience, such procedure must also be guided by some general regulations and guidelines. For example in India Arbitration and Conciliation Act, 1996 is silent about online arbitration. In order to shift maximum of the arbitrations taking place in India into the digital space, the act could be amended to include certain guidelines like the video conferencing must always have a backup system ready in case of power or network failure, or that no third party other than those concerned must be present in the vicinity while the arbitration is in process.
Secondly, the online privacy system and laws governing them must be strengthened. Disputes that arise out of commercial arbitration often have a high amount of stakes involved. With data security being on flimsy grounds, special care must be taken while conducting online arbitration for data protection.
All in all Online arbitration does project good growth prospects and should be adopted at par with traditional arbitration post decline of covid-19.
CONCLUSION
Covid-19 has created an unprecedented disruption across the globe bringing large economies and superpowers to a halt. The effects of Covid-19 are not only imminent but also far-fetched as the current prevailing crisis could very well see the onset of the global economic recession. Needless to say with the world being stuck behind their home doors, all the sectors across the world are suffering. Commercial transactions have come to a halt resulting in the frustration of contracts and giving rise to the dispute.
The legal fraternity has also been severely affected with almost all legal proceedings being brought to a halt. However, in such trying times, generic arbitration has shifted gear and taken a step forward into online arbitration. Most of the renowned international arbitration centers have released an advisory to follow online arbitration in order to resolve disputes. India too is no exception. With the Indian Supreme Court granting an all-encompassing order extending the limitation period for all filing pleading and conducting legal proceedings across all courts and tribunals including arbitral tribunal, it has come as a breather to all those parties which would have suffered grave injustice had this not been time. However, it yet remains to be seen as to how these steps have been taken by India and legal fraternity across the world, fare post-Covid-19.
[1]Impact of Covid-19 on Contracts: India Law Essentials, Nishit Desai Associates, available at http://www.nishithdesai.com/information/news-storage/news-details/article/impact-of-covid-2019-on-contracts-indian-law-essentials-1.html last accessed on 8th April 2020.
[2]BharatVasani, Hasan Molla, Samiksha Pednekar & Esha Himadri, Covid-19: Officially Pandemic, www.cyrilamarchandblogs.com available at https://corporate.cyrilamarchandblogs.com/2020/03/covid-19-officially-a-pandemic-faqs-coronavirus/ last accessed on 8th April 2020.
[3] Sweta Madhu & Shivangi Khanna, Impact of Covid-19 on Indian Commercial Contracts, www.singhania.in available at https://singhania.in/safeguards-in-force-majeure-in-india/ last accessed on 8th April 2020.
[4] Mirza Aslam Beg, Chadni Arora, Impact of Covid-19 on Arbitration Proceedings in India, www.Mondaq.com available at https://www.mondaq.com/india/Coronavirus-Covid-19/911554/Impact-Of-Covid-19-On-Arbitration-Proceedings-In-India last accessed on 8th April 2020.
[5]Novel Coronavirus (2019-nCov) Situation Report- 1, World Health Organisation, available athttps://www.who.int/docs/default-source/coronaviruse/situation-reports/20200121-sitrep-1-2019-ncov.pdf?sfvrsn=20a99c10_4 Accessed on 8th April, 2020.
[6] Ibid.
[7] Ibid.
[8] Ibid.
[9]Novel Coronavirus (2019-nCov) Situation Report- 41, World Health Organisation, available https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200301-sitrep-41-covid-19.pdf?sfvrsn=6768306d_2 accessed on 8th April 2020.
[10] Ibid.
[11]Novel Coronavirus (2019-nCov) Situation Report- 78, World Health Organisation, available at https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200407-sitrep-78-covid-19.pdf?sfvrsn=bc43e1b_2 accessed on 8th April 2020.
[12] Ibid.
[13] Ramkishen Rajan, Sasidaran Gopalan, Covid-19: another blow to India’s Economy, 30th March 2020, The Hindu Business Line, available at https://www.thehindubusinessline.com/opinion/covid-19-another-blow-to-indias-economy/article31208648.ece#
[14] Supra Note 3.
[15] Ibid.
[16] Supra Note 3.
[17] Ibid.
[18] Gary L Benton, How will Coronavirus Impact International Arbitration? Kluwer Arbitration Blog, available at http://arbitrationblog.kluwerarbitration.com/2020/03/13/how-will-the-coronavirus-impact-international-arbitration/ accessed on 9th April 2020.
[19] Tola Adeseye, How Covid-19 Might Affect International Arbitration, Thomson Reuters Practical Law Arbitration Blog, available at http://arbitrationblog.practicallaw.com/how-covid-19-might-affect-international-arbitration/ accessed on 9th April 2020.
[20] Ibid.
[21]Impact of Covid-19 on International Commercial Arbitration, National Law Review, 21st March 2020, available at https://www.natlawreview.com/article/impact-covid-19-international-arbitration-hearings last accessed on 9th April 2020.
[22]Ibid.
[23] Federica Paddeu, Covid-19 and Investment Treat Claims, Kluwer Arbitration Blog, available at http://arbitrationblog.kluwerarbitration.com/2020/03/30/covid-19-and-investment-treaty-claims/ last accessed on 9th April 2020.
[24] Supra Note 13.
[25] ALok Jain, Dhruv Jain, Arbitration in Times of Covid-19, Bar and Bench, available at https://www.barandbench.com/columns/arbitration-in-the-time-of-covid-19 last accessed on 10th April 2020.
[26] Ibid.
[27] Supra Note 24.