INTRODUCTION:
Over the last few decades, there has been increasing denunciation of the role of arbitrators in
In today's competitive business environment, the costs of litigation can often present a significant barrier to businesses seeking to pursue their legal rights. Disputes can have severe financial consequences for companies, particularly if a dispute cannot be resolved quickly or is protracted over several years. This article aims to address the status quo on the arbitrator's fee and address the possible ways to ensure arbitration is not just equitable and affordable but help foster more parties to adopt arbitration as their preferred method of dispute resolution in
EVOLUTION OF SCHEDULE IV:
The precursor to understanding the conundrum surrounding the arbitrator's fee is to understand how Schedule IV came about in existence. The Fourth Schedule was inserted into the 1996 Act via the 2015 Amendment, based on the 246th
The problem with the earlier provision was that it restricted the autonomy of the parties which is supposed to be the nucleus of any arbitration proceeding. The high fee charged largely by ex-judge arbitrators has brought disrepute to the entire arbitration biome in
THE CONUNDRUM:
Now moving into the talk of the town in terms of arbitration is the judgment by the
CONUNDRUM No. 1:
1.1 Whether the Arbitral Tribunal Can Unilaterally determine their fees.
The court's ruling held that an arbitrator cannot determine their compensation without consulting the parties, upholding the significance of party autonomy. The Court found that the fee model proposed in Schedule 4 is not mandatory and that parties to an arbitration may choose another fee structure for the arbitrator. However, the Fourth Schedule shall become the default pick if the parties cannot agree upon a fee. 3
1.2 Interpretation Of "Costs" And "Fees"
The court held that the term "costs" and "fees" are two different paradigms, where cost shall include the arbitrator's fees. However, an arbitral tribunal cannot pass a binding order on its fees, while determining the amount of costs. The Court also observed that an arbitrator can demand deposits and supplementary deposits since these advances for costs are provisional.
It was held that the arbitrator in terms of Section 39(1), can only exercise a lien over the arbitral award if any payment remains outstanding. A party can approach the court to review the fees demanded by the arbitrator under Section 39(2) if it believes that the fees are unreasonable.
1.3 Directives Governing Fees of Arbitrators In Ad Hoc Arbitrations
The Court framed certain guidelines via Article 142 of the
- Upon the constitution of the arbitral tribunal, there shall be a maximum of four hearing to finalise the terms of reference ("TOR") and the arbitral tribunal must set out the components of its fees as a tripartite agreement.
- An arbitrator appointed by the parties in terms of the arbitration agreement, is liable to be paid as per the arbitration agreement. However, where the arbitrator finds the fee stipulated therein unacceptable, he must clarify his proposed fee in the preliminary hearings. In the event of any disagreement, the arbitrator(s), may decline the assignment.
- Once the TOR have been finalised and issued, it would not be open for the arbitrator to vary either the fee fixed or the heads under which the fee may be charged. The fees fixed, however, may be revised upon completion of a specific number of sittings and the quantum of such revision should also be mentioned clearly.
- Where the arbitrator is appointed by the Court, and the Court does not specify the arbitrator's fee then in such case, the arbitrator and the parties should agree upon the TOR as mentioned hereinabove.
- The Court also clarified that there can be no unilateral deviation from the TOR, which is a tripartite agreement.4
CONUNDRUM No.2
Whether the term "sum in dispute" in the Fourth Schedule to the Arbitration Act, means the cumulative total of the amounts of the claim and counter-claim.
The Court analysed various provisions of the Act, where references to claim and counter-claim and observed the following:
- The Act treats claims and counter-claims at par and the same procedure and timelines must be followed for both.
- The Act allows the arbitrator to fix the deposit of separate costs for claims and counter-claims, considering the same to be distinct proceedings.
The Court finally concluded that in so far as institutional arbitrations are concerned, parties shall be bound by the respective rules of the institutions and the arbitrator's fee shall also be payable as per the respective rules.
However, the in case of ad-hoc arbitration, where the Fourth Schedule is applicable, the arbitrator's fee should be calculated separately for a claim and separately for a counter-claim and not on the cumulative value of the two.
CONUNDRUM No.3
Whether the ceiling of ₹30,00,000 in the entry at Serial No. 6 of the Fourth Schedule of the Arbitration Act applies only to the variable amount of the fee or the entire fee amount
While dealing with this issue, the Court held that the ceiling of ₹30,00,000 in entry at Serial No. 6 of the Fourth Schedule applies to the sum of the base amount and the variable amount, and not just the variable amount. Therefore, the maximum fee payable to the arbitrator shall be ₹ 30,00,000.
CONUNDRUM NO. 4
Whether the ceiling of ₹30,00,000 applies as a cumulative fee payable to the arbitral tribunal or it represents the fee payable to each arbitrator
The Court held that the fees provided in Fourth Schedule are for individual arbitrators, regardless of whether they are a member of a multi-member tribunal or sole arbitrators. However, the Court clarified that a sole arbitrator would be paid 25% over and above the ceiling amount per the fourth schedule.5
THE STATUS QUO ON ARBITRATION FEES IN
The Arbitration regime in
DOMESTIC PERSPECTIVE
The below chart abridges and provides a bird's eye view of the current fee scenario in
*The chart is an approximate depiction of the fee structure of institutes at various levels of dispute amounts based on information available in the public domain.
* The amount depicted above is excluding the administration fee (charged for facilitating the Arbitration proceedings) which is over and above the arbitrator's fee.
INTERNATIONAL PERSPECTIVE
Though a lot of hue and cry were made in relevance to the arbitrator's fee in
*This chart is an approximate depiction of the fee structure in USD for simple comparison and the fees may vary depending on the exchange rate at any given time.
*The calculated fee is based on the Fees schedule shown on the respective websites of the Institutes in the public domain, which may vary depending on the institute.
THE WAY FORWARD:
The judgment in the case of
Now on to the matter of affordability, the fee structure of Arbitrators in
Footnotes
1 https://ibclaw.in/annexure-246th-report-on-amendment-to-the-arbitration-and-conciliation-act-1996-law-commission-of-india-aug2014/?print-posts=pdf
2 https://www.livelaw.in/law-firms/law-firm-articles-/arbitral-fee-supreme-court-fourth-schedule-arbitration-and-conciliation-act-ongc-law-commission-report-pioneer-legal-215942#
3 https://www.scobserver.in/reports/fixing-arbitrators-fee-judgment-pronouncement/
4 https://www-barandbench-com.cdn.ampproject.org/c/s/www.barandbench.com/amp/story/law-firms/view-point/the-viewpoint-arbitrators-fee-supreme-court-settles-the-law
5 https://www.scconline.com/blog/post/2022/09/01/arbitrator-cannot-decide-own-fee-fourth-schedule-arbitration-costs-arbitral-tribunal-justice-sanjiv-khanna-partially-dissents/
6 Schedule 4 - Arbitration and Conciliation Act 1996 / Fees schedule from ACB, MCIA & ICA website.
7 Schedule fees of SIAC and ICC from their official website and Fourth Schedule of Arbitration Act, 1996 for Indian Arbitrator's fee.
8 https://main.sci.gov.in/supremecourt/2021/28254/28254_2021_2_1501_37867_Judgement_30-Aug-2022.pdf
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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