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Use Of Experts In Arbitrations – The Time Has Come

Malvika Trivedi
22 May 2019 7:04 AM GMT
Use Of Experts In Arbitrations – The Time Has Come
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The Arbitration and Conciliation Act, 1996 (Arbitration Act) was significantly amended in 2015 to usher in a new and dynamic dispute resolution mechanism and improving some of the major bottlenecks that were making arbitrations less efficacious for resolution of disputes. The government's intent was to ensure that it became a more preferred and efficient mechanism for resolving disputes at par with global standards. The changes made intended to boost the ease of business rankings and ensure that commercial disputes and matters had a more efficacious resolution involving minimal court interference, both pre-arbitration as well as subsequent to the arbitration proceedings. One of the many changes that were introduced in the Arbitration Act was the obligation to ensure timely completion of the arbitration process and the law actually clarified that arbitration must be completed in a 12-month period and only a 6-month extension will be possible with the mutual agreement of the parties.

The success of any arbitration proceedings is contingent on many differing factors starting with the complexity of the case in hand, the facts in question, the type and experience of the arbitrators, the conduct of the parties and the manner in which the proceedings are undertaken. Whilst the increased complexity in business dealings and transactions do add additional layers of difficulty in the arbitration proceedings, experts in the subject area involved can play a crucial role as many a times the nature of dispute could largely be technical or on an area where lawyers may not necessarily be as conversant as desirable for the proceedings to be efficient and in turn may not necessarily do justice to the task at hand. In particular, the experience in dealing with governmental body related matters involving municipal corporations or agencies undertaking civil and urban infrastructure work has been mixed. This article touches upon the experience in dealing with disputes arising from contracts awarded by government agencies such as municipal corporations to private parties to undertake civil and urban infrastructure work under the Public Private Partnership model.

In terms of Section 26 of the Arbitration Act, unless the parties otherwise agree, an arbitral tribunal may, at its option, appoint experts to report to it on specific issues as may be determined by the tribunal. The tribunal may also require a party to furnish relevant information to the expert so pointed or otherwise make available information that may be relevant for consideration by the tribunal. The expert may also be required to give oral evidence and maybe cross-examined by the parties.

With the advent of the new arbitration regime and the more complex and technical issues involved in disputes, the time has come for increased involvement and reliance of external experts by government agencies and the arbitral tribunals. Under the Arbitration Act, disputing parties are allowed to involve subject matter experts as is the tribunal. While the disputing parties would tend to engage experts or their technical team, an arbitral tribunal has the option to appoint experts unless the parties otherwise agree. Given cost considerations, internal procedural requirements and general decision-making process in governmental agencies and the overarching post-decision review mechanism, the experience also has been that government agencies find it difficult to agree to tribunals appointing external experts.

Some of the factors that merit consideration especially in respect of arbitrations/disputes involving governmental agencies on civil and urban infrastructure contracts are briefly discussed below. These become even more significant following the recent decision of the Hon'ble Supreme Court in Ssangyong Engineering & Construction Co. Ltd. Vs. National Highways Authority of India Limited [CA No. 4779 of 2019, dated 8.5.2019 where the Supreme Court examined the scope of Section 34 of the Arbitration Act, which sets out the grounds on which an arbitral award may be set aside. While exhaustively dealing with the scope of Section 34, the Hon'ble Supreme Court underpinned the importance of sanctity of arbitration awards and reaffirmed the principle that Courts have limited scope to review and set aside an arbitral award. While dealing with public policy of India, a ground on which an arbitral award may be set aside, the Court observed that under Section 34, public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law. It went on to observe:

Therefore, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.

Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award.

Given the clear directions of the Hon'ble Supreme that arbitral awards may only be set aside in very limited circumstances and evidence would not ordinarily be re-appreciated, the onus of ensuring that unimpeachable evidence is led during the arbitral proceedings is on the parties with greater force now. Consequently, in arbitrations involving technicalities, it is only advisable that government agencies regularly involved in these types of arbitrations should rethink their strategy and reconsider the approach towards expert involvement, both during and pre-arbitral proceedings, failing which they would start at a disadvantage when faced with private parties who would more likely have the ability to involve subject matter experts with significant experience in such proceedings.

Another factor that needs to be borne in mind is that the new arbitration regime has specifically dealt with costs and emphasized the well-established concept that the losing party should bear the costs of the proceedings. Section 31-A has been introduced to clarify the discretion of the arbitral tribunal to decide the party which should bear the costs and goes on to clarify that it applies notwithstanding anything contained in the Code of Civil Procedure, 1908, which has a restricted regime for attribution of costs of parties. Costs would include costs of the arbitral tribunal and witnesses. This aspect should also be taken into account by government agencies to ensure that should the award go against them they would also run the risk of bearing the costs of experts used by the adverse parties. Conversely, should they prevail in the arbitral proceedings, they would have the chance to recover the costs incurred by them in the proceedings. Secondly, the benefit of expert evidence would help in ensuring the finality of awards and act as a mitigating factor when the award comes up for challenge.

Pre-Dispute

Typically, grant of contracts for undertaking civil and urban infrastructure works are standard form granted post a two-stage tender process. The negotiations during the bid process tend to be driven not by external lawyers but largely by the engineering and technical teams of the governmental agencies given their requirements. External lawyers get involved once a dispute arises and at that stage, the usual expectation is for the lawyers to on the internal technical and engineering teams of the governmental body or those of an approved panel of technical experts and outside experts are generally not involved. On the other hand, private parties would typically involve external subject area experts from different fields who are generally more sophisticated, experienced and specialists in assisting on disputes.

These contracts also tend to have a pre-dispute settlement process which could involve good faith, without prejudice, discussions or even a reference to some kind of dispute adjudicating board. Consequently, given the overarching technical nature of disputes involved, involvement of subject area experts at an early stage becomes critical. Whilst private parties tend to involve them at such stage, the governmental agencies lag behind.

Technical member in an arbitral tribunal?

The composition of an arbitral tribunal may involve each of the claimant(s) and the respondent(s) appointing one member each while the two so appointed, nominate the presiding arbitrator. In such a situation, government agencies could consider nominating a technical member on the arbitral tribunal so that the tribunal is not required to seek external expert assistance on matters of technicalities. However, there are inherent limitations and challenges to this option. For one, the nature of dispute and the technicalities involved would be varied and consequently, it may not always be possible to identify an expert who could be considered qualified and suited for all such technical issues that may arise during the proceedings. In any event, at the time of the constitution of the tribunal, it may not be possible to anticipate the types of disputes that may arise. For example, in a road construction contract for a Municipal Corporation, if the dispute arises on the specifications of the materials used and the chemical composition, whether cement concrete or bituminous, the subject matter expert would be different than if the same dispute involves issues relating to topographical conditions leading to change in scope or measurements.

It must be noted that the use of assessors is recognized in several common law jurisdictions to provide Judges expert advice on technical issues or customs and practices. There is no good reason why this model should not be followed in arbitrations.

However, the obvious challenge that would arise under this option would be that a technical expert would be limited to dealing and commenting only on certain types of technical aspects and not be conversant with contractual arrangements, interpretation of contracts and the principles applied by courts while dealing with contractual disputes. Thus, a combination of legal and technical expertise would be desirable.

Reforms in decision-making and review

In the longer term, institutional reforms are perhaps the more substantive way to sufficiently address issues around the reluctance of governmental agencies involved in public infrastructure works and appointing contractors to undertake construction works in agreeing to involvement of third-party experts in disputes.

One of the aspects in the new arbitration regime discussed above that would help is the stricter focus on award of costs by the arbitral tribunal. In other words, if arbitral tribunals remain predisposed to award costs to the party which has been successful in line with the norm in international arbitrations (under with Section 31-A of the Arbitration Act), then gradually one may start seeing more disputes being resolved prior to arbitration and as part of a pre-arbitral resolution mechanism involving ground for discussions or reference to a dispute adjudication board contemplated by the underlying contracts. This would also encourage government agencies to start relying on external specialists and experts at an earlier stage of a dispute as well as during the dispute resolution process to de-risk themselves from losing as well as bearing the costs of the prevailing party. In fact, in the context of Section 26 of the Arbitration Act, the importance of such expert evidence has been recognized in Ssangyong (supra). Challenges to awards that have had the benefit of expert evidence may also be reduced, particularly as there is and can be no ground to question determinations of fact.

Conclusion

The reforms, outlined above, would necessarily need to focus on the decision-making process which creates a more robust system, where officers are encouraged to take commercially sound decisions on a case to case basis rather than a set precedent to mechanically submit to arbitration even when the case is noticeably weak. The system would be such that commercial decisions taken are not questioned merely because they went wrong. That said, given the public interest and concerns around nepotism and corruption, it is not always easy to strike a balance.

Malvika Trivedi is practising as an arguing counsel before various Courts and Tribunals in Delhi including the Supreme Court. Author's Views are Personal

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