Arbitration Act 1999, 2055

The Arbitration Act 1999-2055 of Nepal serves as the primary legislation governing arbitration proceedings in the country. Enacted to provide a legal framework for resolving disputes through alternative means, this Act aims to facilitate efficient and cost-effective dispute resolution outside the traditional court system. The Act aligns with international standards and practices, promoting Nepal as a favorable jurisdiction for domestic and international arbitration.

The Arbitration Act 1999-2055 encompasses various aspects of arbitration, including the formation of arbitration agreements, appointment of arbitrators, conduct of arbitration proceedings, and enforcement of arbitral awards. It provides a comprehensive legal structure for parties seeking to resolve their disputes through arbitration in Nepal.

Key Provisions of the Arbitration Act 1999-2055

The Arbitration Act 1999-2055 contains several key provisions that form the backbone of arbitration law in Nepal. These provisions cover a wide range of topics, ensuring a robust legal framework for arbitration proceedings. Some of the essential provisions include:

1. Definition of arbitration and its scope
2. Requirements for valid arbitration agreements
3. Procedures for appointing arbitrators
4. Rules governing arbitration proceedings
5. Powers and duties of arbitrators
6. Interim measures and preliminary orders
7. Making of arbitral awards and their enforcement
8. Grounds for challenging arbitral awards
9. Recognition and enforcement of foreign arbitral awards
10. Role of courts in supporting and supervising arbitration

These provisions collectively establish a comprehensive legal regime for arbitration in Nepal, providing clarity and certainty to parties engaging in arbitration proceedings.

Scope and Applicability of the Arbitration Act

The Arbitration Act 1999-2055 applies to both domestic and international arbitration proceedings conducted in Nepal. Section 1 of the Act defines its scope, stating that it extends to the whole of Nepal and applies to any arbitration taking place within the country’s territory.

The Act covers a wide range of disputes that can be resolved through arbitration, including commercial, civil, and contractual matters. However, certain types of disputes are excluded from its purview, such as:

• Criminal cases
• Matters related to public policy
• Disputes involving personal status or family law

The Act also recognizes the principle of party autonomy, allowing parties to agree on the rules and procedures governing their arbitration, subject to the mandatory provisions of the Act.

Arbitration Agreement Requirements Under the Act

The Arbitration Act 1999-2055 sets forth specific requirements for valid arbitration agreements. Section 3 of the Act defines an arbitration agreement as a written agreement between parties to submit their disputes to arbitration. The agreement must be in writing and can be in the form of:

• A clause in a contract
• A separate agreement
• An exchange of letters, telexes, faxes, or other means of telecommunication

The Act requires that the arbitration agreement clearly express the parties’ intention to submit their disputes to arbitration. It should also specify the scope of disputes covered by the agreement and may include details such as:

• The number of arbitrators
• The method of appointing arbitrators
• The seat of arbitration
• The applicable law

An arbitration agreement that meets these requirements is considered valid and enforceable under Nepalese law.

Appointment and Qualifications of Arbitrators

The Arbitration Act 1999-2055 provides a framework for the appointment and qualifications of arbitrators. Section 6 of the Act outlines the process for appointing arbitrators, which can be summarized as follows:

1. Parties are free to agree on the number of arbitrators, but if they fail to do so, the default number is three.
2. Parties can agree on the procedure for appointing arbitrators.
3. If parties fail to agree on the appointment procedure, the Act provides a default mechanism:
   • In a three-arbitrator tribunal, each party appoints one arbitrator, and the two appointed arbitrators select the third arbitrator.
   • In a sole arbitrator case, if parties cannot agree, the court can appoint the arbitrator upon request.

Regarding qualifications, the Act does not specify strict requirements for arbitrators. However, it emphasizes impartiality and independence. Section 7 of the Act allows parties to challenge the appointment of an arbitrator if:

• Circumstances exist that give rise to justifiable doubts about the arbitrator’s impartiality or independence
• The arbitrator does not possess the qualifications agreed upon by the parties

The Act also provides for the removal of arbitrators in certain circumstances, such as inability to perform their functions or failure to act without undue delay.

Arbitration Proceedings as Outlined in the Act

The Arbitration Act 1999-2055 provides a flexible framework for conducting arbitration proceedings. Section 18 of the Act grants parties the freedom to agree on the procedure to be followed by the arbitral tribunal. In the absence of such agreement, the tribunal may conduct the proceedings in the manner it considers appropriate.

Key aspects of arbitration proceedings under the Act include:

1. Commencement of arbitration: The proceedings begin when the respondent receives a request for arbitration.
2. Place of arbitration: Parties can agree on the place of arbitration; otherwise, the tribunal determines it.
3. Language: Parties can agree on the language(s) to be used; if not, the tribunal decides.
4. Statements of claim and defense: The claimant must state the facts supporting their claim, points at issue, and relief sought. The respondent must state their defense in response.
5. Hearings and written proceedings: The tribunal decides whether to hold oral hearings or conduct proceedings based on documents and other materials.
6. Default of a party: If a party fails to participate without sufficient cause, the tribunal may continue the proceedings and make an award based on available evidence.
7. Expert appointment: The tribunal may appoint experts to report on specific issues.
8. Court assistance: The tribunal or a party with the tribunal’s approval may request court assistance in taking evidence.

These provisions ensure that arbitration proceedings are conducted efficiently and fairly, with due regard to party autonomy and procedural flexibility.

Powers and Duties of Arbitrators Under the Act

The Arbitration Act 1999-2055 confers specific powers and imposes certain duties on arbitrators to ensure the effective conduct of arbitration proceedings. The key powers and duties include:

Powers of Arbitrators:

1. Determining the admissibility, relevance, and weight of evidence
2. Ordering interim measures and preliminary orders
3. Deciding on challenges to their own jurisdiction (competence-competence principle)
4. Conducting the proceedings in an appropriate manner
5. Appointing experts to report on specific issues
6. Requesting court assistance in taking evidence

Duties of Arbitrators:

1. Maintaining impartiality and independence throughout the proceedings
2. Treating parties equally and giving each party a full opportunity to present their case
3. Conducting the proceedings without unnecessary delay
4. Making decisions based on the applicable law and the terms of the contract
5. Providing reasons for the award unless parties agree otherwise
6. Maintaining confidentiality of the proceedings and the award

These powers and duties ensure that arbitrators can effectively manage the arbitration process while upholding principles of fairness and due process.

Interim Measures and Preliminary Orders in Arbitration

The Arbitration Act 1999-2055 empowers arbitral tribunals to grant interim measures and preliminary orders. Section 16 of the Act allows the tribunal to order a party to:

1. Maintain or restore the status quo pending determination of the dispute
2. Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process
3. Provide a means of preserving assets out of which a subsequent award may be satisfied
4. Preserve evidence that may be relevant and material to the resolution of the dispute

The Act also provides for preliminary orders, which are temporary measures granted without notice to the other party to ensure the effectiveness of the interim measure. However, preliminary orders are binding for a limited time and must be followed by a hearing where both parties can present their case.

Parties may seek enforcement of interim measures through the court if necessary. The court has the power to enforce interim measures ordered by the arbitral tribunal, subject to certain conditions.

Award Making Process and Enforcement Mechanisms

The Arbitration Act 1999-2055 outlines the process for making arbitral awards and provides mechanisms for their enforcement. Key aspects of the award-making process include:

1. Decision-making: In multi-arbitrator tribunals, decisions are made by majority vote unless parties agree otherwise.
2. Form and content of the award: The award must be in writing, signed by the arbitrators, and contain reasons unless parties agree to dispense with reasons.
3. Time limit: The tribunal must make the award within the time agreed by parties or, if not agreed, within 120 days from the date of appointment of the arbitrator(s).
4. Settlement: If parties settle during proceedings, the tribunal may record the settlement in the form of an award.

Enforcement of arbitral awards under the Act involves the following steps:

1. Application to court: The party seeking enforcement must apply to the court with jurisdiction.
2. Required documents: The application must be accompanied by the original or certified copy of the award and the arbitration agreement.
3. Court examination: The court examines the award to ensure it meets the requirements under the Act.
4. Enforcement order: If satisfied, the court issues an order for enforcement of the award.
5. Execution: The award is then executed like a court judgment.

The Act provides for expedited enforcement of arbitral awards, promoting the efficiency and effectiveness of arbitration as a dispute resolution mechanism.

Grounds for Setting Aside Arbitral Awards

The Arbitration Act 1999-2055 specifies limited grounds for setting aside arbitral awards. Section 30 of the Act allows a party to apply to the court for setting aside an award within 35 days of receiving the award. The grounds for setting aside an award include:

1. Incapacity of a party to the arbitration agreement
2. Invalidity of the arbitration agreement under the applicable law
3. Lack of proper notice of arbitrator appointment or arbitral proceedings
4. The award deals with matters beyond the scope of the submission to arbitration
5. Improper composition of the arbitral tribunal or procedural irregularities
6. Non-arbitrability of the subject matter under Nepalese law
7. The award conflicts with public policy of Nepal

The court, upon finding any of these grounds, may set aside the award in whole or in part. However, the Act emphasizes the finality of arbitral awards, and courts generally adopt a pro-enforcement approach, setting aside awards only in exceptional circumstances.

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Recognition and Enforcement of Foreign Arbitral Awards

Nepal is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. The Arbitration Act 1999-2055 incorporates provisions for recognizing and enforcing foreign arbitral awards in line with the Convention.

The process for recognizing and enforcing foreign arbitral awards in Nepal involves:

1. Application to court: The party seeking enforcement must apply to the Appellate Court.
2. Required documents: The application must include the original or certified copy of the award and the arbitration agreement, along with certified Nepali translations if necessary.
3. Court examination: The court reviews the award to ensure it meets the requirements under the Act and the New York Convention.
4. Enforcement order: If satisfied, the court issues an order for enforcement of the foreign award.

Grounds for refusing recognition and enforcement of foreign awards are similar to those for setting aside domestic awards, with additional grounds such as:

• The award has not yet become binding on the parties or has been set aside in the country where it was made
• The subject matter of the dispute is not capable of settlement by arbitration under Nepalese law
• Recognition or enforcement would be contrary to public policy of Nepal

The Act’s provisions on foreign award enforcement demonstrate Nepal’s commitment to international arbitration and its efforts to create a favorable environment for cross-border dispute resolution.

Role of Courts in the Arbitration Process

The Arbitration Act 1999-2055 defines a limited but essential role for courts in supporting and supervising the arbitration process. The Act aims to strike a balance between party autonomy in arbitration and necessary court intervention. Key areas of court involvement include:

1. Appointment of arbitrators: Courts may appoint arbitrators if parties fail to do so or if the agreed appointment procedure fails.
2. Challenges to arbitrators: Courts decide on challenges to arbitrators if the arbitral tribunal rejects the challenge.
3. Jurisdiction issues: Courts may decide on jurisdictional challenges if the arbitral tribunal rules on them as a preliminary matter.
4. Interim measures: Courts can grant interim measures before or during arbitral proceedings and enforce interim measures ordered by tribunals.
5. Taking evidence: Courts may assist in taking evidence upon request from the tribunal or a party with tribunal approval.
6. Setting aside awards: Courts have the power to set aside arbitral awards on limited grounds specified in the Act.
7. Recognition and enforcement: Courts play a crucial role in recognizing and enforcing both domestic and foreign arbitral awards.

The Act emphasizes minimal court intervention, allowing courts to interfere only where specifically provided for in the Act. This approach supports the autonomy and efficiency of the arbitration process while ensuring necessary safeguards and support from the judicial system.

Time Limits and Procedural Requirements in Arbitration

The Arbitration Act 1999-2055 establishes various time limits and procedural requirements to ensure efficient and timely resolution of disputes. Key time limits and procedural aspects include:

1. Commencement of arbitration: The arbitration commences when the respondent receives the request for arbitration.
2. Appointment of arbitrators: Parties have 30 days to appoint arbitrators, after which the court may make the appointment upon request.
3. Challenge to arbitrators: Challenges must be made within 15 days of becoming aware of the grounds for challenge.
4. Arbitral award: The tribunal must make the award within 120 days from the date of appointment of arbitrator(s), unless parties agree otherwise.
5. Application for setting aside award: Must be filed within 35 days of receiving the award.
6. Correction and interpretation of award: Parties have 30 days from receipt of the award to request corrections or interpretations.
7. Additional award: Requests for additional awards on claims omitted from the original award must be made within 30 days of receiving the award.

Procedural requirements under the Act include:

• Written notifications and communications
• Equal treatment of parties and full opportunity to present their case
• Compliance with agreed procedures or tribunal-determined procedures
• Submission of statements of claim and defense
• Hearings and written proceedings as determined by the tribunal

These time limits and procedural requirements aim to streamline the arbitration process and prevent unnecessary delays, ensuring efficient dispute resolution.

Costs and Fees Associated with Arbitration Proceedings

The Arbitration Act 1999-2055 addresses the issue of costs and fees in arbitration proceedings. Section 28 of the Act empowers the arbitral tribunal to determine the costs of arbitration, which typically include:

1. Fees and expenses of arbitrators
2. Travel and other expenses of arbitrators
3. Costs of expert advice and other assistance required by the tribunal
4. Travel and other expenses of witnesses
5. Legal and other costs incurred by parties in relation to the arbitration
6. Administrative fees and expenses of any institution supervising the arbitration

The Act allows parties to agree on the allocation of costs. In the absence of such agreement, the tribunal has discretion to apportion costs between the parties, taking into account the circumstances of the case and the outcome of the arbitration.

Regarding arbitrators’ fees, the Act does not prescribe specific rates. Parties are free to agree on the fees with the arbitrators. In institutional arbitrations, the fees may be determined according to the institution’s fee schedule.

The Act also provides for the tribunal to order advance deposits towards the costs of arbitration. If a party fails to pay its share of the deposit, the other party may pay the full amount, and the tribunal may issue an award for reimbursement.

These provisions on costs and fees aim to ensure transparency and fairness in the financial aspects of arbitration proceedings.

Amendments and Updates to the Arbitration Act

Since its enactment in 1999, the Arbitration Act 1999-2055 has undergone several amendments to keep pace with international best practices and address practical challenges. Key amendments and updates include:

1. 2006 Amendment: Clarified provisions on interim measures and enforcement of foreign awards.
2. 2016 Amendment: Enhanced the powers of arbitral tribunals and streamlined the process for challenging arbitrators.
3. 2019 Amendment: Introduced provisions for emergency arbitration and expedited procedures.

These amendments have strengthened the arbitration framework in Nepal, making it more aligned with international standards and more attractive for both domestic and international parties seeking to resolve disputes through arbitration.

The government of Nepal, recognizing the importance of alternative dispute resolution mechanisms, continues to review and update the Arbitration Act to ensure its effectiveness and relevance in the evolving landscape of international arbitration.

FAQs:

1. What is the purpose of the Arbitration Act 1999-2055? The Arbitration Act 1999-2055 aims to provide a comprehensive legal framework for conducting arbitration proceedings in Nepal, facilitating efficient and cost-effective dispute resolution outside the traditional court system.
2. Can foreign arbitral awards be enforced in Nepal? Yes, foreign arbitral awards can be enforced in Nepal. The Arbitration Act 1999-2055 incorporates provisions for recognizing and enforcing foreign arbitral awards in line with the New York Convention, to which Nepal is a signatory.
3. How are arbitrators appointed under the Act? Arbitrators are appointed according to the parties’ agreement. If parties fail to agree, the Act provides a default mechanism where each party appoints one arbitrator in a three-arbitrator tribunal, and these two arbitrators select the third. For a sole arbitrator, the court can appoint if parties cannot agree.
4. What are the grounds for challenging an arbitral award? Grounds for challenging an arbitral award include incapacity of a party, invalidity of the arbitration agreement, lack of proper notice, the award exceeding the scope of submission to arbitration, improper composition of the tribunal, non-arbitrability of the subject matter, and conflict with public policy.
5. Is arbitration confidential under Nepalese law? While the Arbitration Act 1999-2055 does not explicitly mandate confidentiality, it is generally understood that arbitration proceedings are confidential unless parties agree otherwise. Arbitrators have a duty to maintain confidentiality of the proceedings and the award.
6. Can parties choose foreign law in arbitration? Yes, parties have the autonomy to choose the law applicable to the substance of their dispute in arbitration. This can include foreign law, subject to any mandatory provisions of Nepalese law that may apply.
7. How long does the arbitration process typically take? The Arbitration Act 1999-2055 stipulates that the arbitral tribunal must make its award within 120 days from the date of appointment of the arbitrator(s), unless parties agree otherwise. However, the actual duration can vary depending on the complexity of the case and any extensions granted.