Ethics in Arbitration: Guiding Principles for Professional Excellence

ABSTRACT

It has frequently been stated that the calibre of the arbitrators engaged in an arbitration determines both its success and its quality. Disputes have been part of human life since civilization began, evolving from war to sophisticated mechanisms like arbitration, arbitration, arbitration, and litigation. Arbitration, a type of Alternative Dispute Resolution, is defined as a dispute resolution method involving neutral third parties whose decision is binding. In India, with its courts struggling with a backlog of approximately 33 million cases , arbitration has become an effective alternative. The efficiency of adjudication in terms of time and cost is crucial for India’s economic development and global business perceptions. Scholars advocate for a robust domestic dispute resolution system, with arbitration gaining popularity and receiving state enforcement of arbitral awards. This paper questions the necessity of a dedicated code of ethics for arbitration, examining existing conduct rules for arbitrators and their limitations. It explores arguments for and against specific arbitration ethics, assessing the sufficiency of current rules in light of arbitration goals and diverse bargaining styles. The paper highlights the distinct nature of arbitration compared to litigation and the general role of lawyers. It argues that arbitration benefits are maximized with a binding code of ethics enforced like mandatory professional conduct rules, contrasting this with softer advisory guidelines. The implications of each approach are evaluated from moral, economic, behavioural, practical, and public policy perspectives.

I. Introduction

In our legal profession, principles like truthfulness, dignity, and cordiality are quickly being substituted by standards like money, power, and the unwavering need to “win, if not the right way then resorting to another legal way. The advocates and the Law schools have both downplayed the significance of establishing regulating values in lawyers while worries about the declining moral ethics of legal professionals mount. conventional legal education has not paid importance to students from studying the significance of what is moral, and immoral, the code of ethics, applying wit and techniques, moral ethics, and the care and relationship that exists between advocates and clients due to the overemphasis put on rules, letter of the law, allegations, rebuttals, cross-examining, analytical and logical reasoning.

In a world full of conflicts and disputes, Alternative Dispute Resolution (ADR) techniques have emerged as the front-runners, with arbitration experiencing significant growth in the previous several years. This is true for disagreements between businesses as much as between people. Numerous legal conflicts, including those resulting from partnerships, employment, family or marriage ties, consumer disputes contracts, and torts, can be solved by arbitration. One must be astonished that more than 90% of Apex Court advocates who took the Advocates on Record (AOR) evaluation in 2013 were unsuccessful in the “Professional Ethics and Advocacy” paper, which poses important queries like the alignment of legal and ethical parameters. What it means to accept cases that conflict with one’s moral principles; appropriate legal behaviour, etc. A working advocate who did not pass the paper challenged the findings, arguing that the exam questions dealt with general advocacy ethics and the day-to-day operations of the Supreme Court, and such information and comprehension were unrelated to the practice of law.

Although the goal of arbitration is for the parties to resolve their differences on their own, an arbitrator’s assistance is essential in making this happen. When it comes to this, there is no more popular concern for ethical norms. This worry about standards in arbitration makes some sense, considering that there is no standard structure for substantive or procedural guidelines in arbitration. Since arbitration is an informal procedure, the internationally recognized norms of impartiality, neutrality, self-governance, and confidentiality must be kept in mind by the mediator. Furthermore, courts In India usually maintain an arbitration centre ], where established guidelines specify the requirements, obligations, and ethical standards for their appointed mediators. One must comprehend the function of an arbitrator in order to comprehend the appropriate ethical standards . Moreover, one needs to comprehend the function of an arbitrator , which entails:

• assisting the parties in amicably resolving their disagreement;

• sharing with the opposite side the opinions of each party;

• assisting parties in recognizing problems; and minimizing miscommunications;

• defining priorities; and investigating potential compromises; and creating solutions to resolve the conflict.

The study examines the topic of ethics and arbitration, posing the question of whether ethics in arbitration is necessary or not. The first portion covers professional ethics in general for the legal fraternity, the subsequent section discusses ethical practices related to different forms of arbitration, and the third and last part explores if ethics are necessary for arbitration. The necessity and form of ethical standards in arbitration are argued in the fourth part, which also serves as the conclusion.

II. Ethical Standards Imposed by the Laws and by Arbitration Centre

Any profession needs ethics to guide conduct and make choices about what is good and wrong. Professional ethics govern the behaviour of advocates in the legal area, guaranteeing justice and honesty in their work. These legal ethics are governed by the Bar Council of India, which was founded by the Advocate Act of 1961. and also, the Arbitration and Conciliation Act, 1996 governs the professional conduct of the arbitrators.

Sections 35 to 38 of the Advocates Act, regulate the conduct and discipline of advocates and specify the professional standards and legislative requirements that define the Bar Council of India’s (BCI) disciplinary authority. These guidelines include the procedures for processing complaints, conducting disciplinary actions, and conducting evaluations and changes. The Advocates Act, of 1961 , which regulates attorneys, is the source of the Indian legal system. The Bar Council of India and the State Bar Councils are established by the Act. The Bar Council of India is empowered under Section 49 to establish regulations, including those governing the norms of professional behaviour and etiquette that advocates must adhere to. Chapter V of the Bar Council of India and the State Bar Council’s regulations stipulate that in cases of proven professional misconduct, a reprimand, suspension, or removal of the advocate’s name from the list may be imposed. In the Bar Council of India’s Chapter II, Part VI Standards of Professional Conduct and Etiquette is provided, the foundation of legal professionalism that is anticipated while handling legal affairs is established by rules on norms of professional behaviour. The advocate’s duties as an officer of the court and to protect his client’s interests are outlined in this chapter’s Preamble . The advocates’ obligation to the court is covered in the first part.

According to Rule 4, the advocate will make an effort to stop the client from engaging in harsh or unjust behaviour and will turn away a client who persists in doing so. Respect and dignity shall be the prevailing attitudes toward the Court. According to Rule 9 , the advocate is not allowed to serve in a case in which he or she has a financial stake.

A series of eagerly anticipated and much-needed changes to the Act were brought about by the 2015 Amendment. Novel provisions were placed, and a few already-existing clauses were changed, mostly to emphasize the value of party sovereignty and independence, court interference was kept to a minimum, and arbitration procedures were completed quickly. Most Importantly, the parties were allowed to seek interim relief from Indian courts, and it was made clear that the public policy objection to arbitral awards could only be brought in very specific circumstances. These reforms’ pro-arbitration stance indicated India’s desire to be and be perceived as an arbitration-friendly jurisdiction.

In the case of Builders Federal (Hong Kong) Ltd & Another v. Singapore, Turner (East Asia) PTE Ltd. — the judge determined that each party is qualified to anticipate total impartiality and indifference from an arbitrator, as well as a disinterested ruling. An objection to an arbitrator may be made on the grounds of their lack of neutrality or prejudice. The court additionally declared that, as far as factual determinations are concerned, an arbitrator’s ruling made following the Arbitration Act is final. Therefore, an arbitrator should not be permitted to continue acting in their dispute or in items that are left up for the arbitrator’s decision if there is a good cause to suspect that he lacks objectivity.

The comprehensive interpretation of the Public Policy doctrine, however with the Apex Court’s decision in the Muralidhar case, that “what constituted public policy earlier might not constitute public policy now, hence the development of new fields of public policy was authoritative. It doesn’t stay stationary. It may differ from generation to generation. Public policy would be impractical if it were to remain in fixed moulds for all time.”(emphasis applied)

A significant ruling in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc. (BALCO) established a landmark shift in the interpretation of arbitration agreements. Prior to this decision, there was ambiguity regarding the applicability of Part I of the Arbitration and Conciliation Act, 1996 to arbitration agreements executed after September 6, 2012. The prevailing view was that Part I applied to both domestic and foreign-seated arbitrations, a stance that faced considerable criticism due to excessive judicial intervention in international arbitrations.

The BALCO decision, however, overruled this approach, reaffirming that Part I of the Act applies strictly to arbitrations seated in India. It introduced the principle of territoriality, emphasizing that courts in India would not interfere in arbitrations seated abroad. Furthermore, the judgment denied interim relief under Section 9 of the Act for foreign-seated arbitrations and applied only prospectively, to agreements executed after September 6, 2012.

The 2015 Amendment Act sought to remedy some of these limitations by allowing parties to foreign-seated arbitrations to seek interim relief under Section 9 of the Act, thereby providing greater flexibility for parties involved in cross-border disputes. This amendment marked a significant step towards addressing the concerns raised post-BALCO.

The judgment also clarified the interpretation of the term “public policy” under Section 48(2)(b) and Section 34 of the Arbitration Act, noting that both provisions contain similar language. Consequently, the enforcement of foreign arbitral awards under Part II of the Act was to be subject to the same limited review on grounds of public policy as local arbitral awards under Part I. This decision reaffirmed the Indian judiciary’s commitment to upholding arbitral autonomy while ensuring that the grounds for challenging awards remain narrowly circumscribed.

REFORMS AND AMENDMENTS IN THE ARBITRATION LAW

Indian litigation is infamous for its protracted and frequently unreasonable delays, which deter parties from engaging in economic transactions. As a result, arbitration is now the go-to process for resolving disputes arising from both domestic and foreign business contracts. Although the Arbitration & Conciliation Act, 1996 sought to reform arbitration law in India, it was criticized for contradictory jurisprudence, excessive judicial intervention, and a failure to match international standards. In 2015, the Arbitration & Conciliation Act was modified to address these concerns. The revisions demonstrated a pro-arbitration stance by limiting the actions of Indian courts in the arbitral procedure and permitting them to grant temporary relief in arbitrations with foreign seats. The 2015 modifications also eliminated the automatic stay for national awards pending arbitration and added timeframes to speed up the arbitral procedure. challenge, as well as make clear the limited extent of the public policy objection to arbitral rulings. The goal of these modifications was to increase arbitration’s effectiveness and dependability in India.

A major provision was added to the Arbitration and Conciliation (Amendment) Act, 2021 , the most recent amendment. This provision allows the court to find prima facie evidence that fraud or corruption was used to influence the arbitration agreement, which served as the basis for the award itself, and it unconditionally stays in effect. This clause seeks to protect the arbitration process’s integrity and guarantee fairness.

The Commercial Courts, Act, 2015 was approved by the Indian government in addition to these modifications. It was revised in 2018. To further speed and streamline litigation in India, this act developed special commercial courts for settling complicated business disputes, including petitions connected to arbitration. These courts are intended to lessen the load on the broader legal system and expedite the resolution of business disputes.

All things considered, India’s attempts to improve the viability and appeal of arbitration as a means of resolving disputes are reflected in these legal reforms. India wants to position itself as a centre for international arbitration and harmonize its arbitration structure with international norms by eliminating delays, reducing judicial intervention, and maintaining the honesty of the arbitral process. It is anticipated that these changes will improve the effectiveness and dependability of arbitration in India, which will help both foreign and domestic parties engaged in business disputes.

Provisions and Case Laws

Advocates and arbitrators have a duty to the court to present cases with dignity and respect for themselves. They must abstain from all servile conduct and desist from using unlawful or inappropriate methods to sway court judgments. It is forbidden to discuss pending cases in private with judges, under Schedule V and VII of the Arbitration and Conciliation Act, 1966.

Advocates have a duty to their clients to accept briefs that are in line with their standing and shouldn’t resign without good reason. They cannot serve as a witness in instances in which they have already been involved without first disclosing any possible conflicts of interest. Advocates have a duty to boldly defend the interests of their clients and abstain from any activities that would jeopardize confidentiality or create a conflict of interest. They must maintain thorough records of client finances and refrain from purchasing or promoting actionable claims. All these provisions are provided in Schedule VI , Chapter II of the Advocates act,1961.

Appellate arbitration clauses are allowed under Indian rules even though India forbids parties from signing to a total constraint on the right to file legal action, like by waiving the right to contest an arbitral award in a binding manner. In Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited , the Supreme Court of India upheld the primacy of the theory of party independence. In the case of Centrotrade , the Supreme Court affirmed the legitimacy of two-tier/appellate arbitration clauses. This effectively validates a system that prevents a losing party from contesting the very first tribunal’s decision in courts and requires them to take their disagreements to an appellate arbitral tribunal. Following that, if either of the parties is unsatisfied, a party may contest the subsequent award in a suitable civil court if they are still unhappy with the decision made by the appeal arbitral panel, Section 34 under the Arbitration and Conciliation Act, 1966.

In the case of Aboobaker Latif v. Reception Committee of the 48th Indian National Congress , The Bombay High held that even though arbitrators were not bound by strict rules of procedure or evidence such as the rules of evidence which were based on fundamental principles of justice and public policy applied to arbitral proceedings as non-observance of the same would lead to substantial injustice being perpetrated The application of basic ethics of justice and public policy to arbitrational proceedings is necessary because failure to do so would result in the commission of significant injustice.

This section examines the dynamics of moral behaviour in arbitration settings, emphasizing the ways in which various arbitration philosophies and situational elements affect moral judgments. It is divided into three primary sections: the types of arbitration styles, how certain settings affect these styles, and the moral standards that apply to arbitrations. In contrast to arbitration and conciliation, arbitration does not follow a set procedure in India. While the Arbitration and Conciliation Act, 1996 governs arbitration and conciliation, Section 89 of the Code of Criminal Procedure (CPC) sets down the standards that the court must follow when mediating disputes. There are no explicit measures guaranteeing secrecy throughout the arbitration process since there is no particular legislation governing arbitration operations.

The Supreme Court of India issued a historic ruling in Moti Ram Tr. LRs and Anr. v. Ashok Kumar and Anr. to close this disparity. The case started when a mediator settled a disagreement that was sent to arbitration and then gave the court an extensive account of the arbitration process. This sparked questions regarding the arbitration’s secrecy. The Supreme Court decided that arbitration sessions, even those that the court refers to, must be kept secret, in contrast to open court proceedings. The ruling made clear that even in cases when arbitration is submitted to the court, secrecy is essential.

If arbitration is successful in resolving the conflict, the mediator creates a contract, which the parties acknowledge and present to the court in accordance with Section 89 of the CPC . The Supreme Court made it clear that in order to preserve secrecy, the court should only get the agreement and not an exhaustive account of the arbitration procedure. The integrity and efficacy of the arbitration process would be compromised if the events were made public.

Due to its expediency and cost-effectiveness, arbitration is becoming more and more popular, especially for private and business conflicts where maintaining anonymity is crucial. The ruling by The Supreme Court’s ruling creates a threshold that raises confidence in the arbitration process and sets a critical precedent for preserving secrecy in arbitration. This ruling is a major step towards institutionalizing arbitration and guaranteeing its legitimacy and efficacy in India. In the Srei Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd. case, the apex court observed that arbitral tribunals make decisions based on the agreement between the parties and adhere to natural justice principles, much as statutory tribunals. Additionally, the Arbitration and Conciliation Act governs the roles and authority of the tribunals. Statutory tribunals and arbitral tribunals are comparable even in terms of procedural dynamics. moreover, an arbitral tribunal’s function is to operate as a neutral third party, and within the bounds of the legislation, it cannot be stated that the panel has any personal or direct interest in law when it is just adjudicating the issue before it. Apart from these tactics, certain negotiating strategies have a big impact on the results of arbitrations.

SCHOLARS WORKS AND LITERATURE

The behavioural categories proposed by Blake and Mouton —competing, cooperating, compromising, accommodating, and avoiding—show different degrees of attention to one’s objectives as opposed to those of the other party. Professional conduct guidelines that emphasize defending clients and competitive tactics may naturally lead lawyers, who are often trained in competitive workplaces, to adopt competitive bargaining techniques. The negotiating situation further impacts the desired style and ethical behavior. A comprehensive approach to ethics is necessary for legal situations because talks frequently address wider concerns transcending technical points, such as mergers and settlements. For example, family law cases involving divorce or child custody issues need an emphasis on mending relationships, which affects the moral behaviour that is appropriate in these situations. Similar to judicial processes, commercial conversations meant to clear up misconceptions or maintain ties also call for various ethical concerns.

The literature goes into further detail on ethical negotiating techniques. In a study, Hal Abramson contrasts appropriate behaviour with inappropriate strategies. In contrast to unethical techniques, which include dishonesty, manipulating strategies, and misleading information, good practices incorporate straightforward interactions, trustworthiness, and objective standards. Abramson notes that certain strategies may be more or less acceptable depending on contextual and cultural elements.

The work of Paul J. Zwier and Ann B. Hamric presents a revised strategy for attorney-client interactions that emphasizes the ethics of care. In this concept, empathy and connectivity take precedence over conventional adversarial, rights-based methods. It implies that moral principles should serve as the foundation for good legal representation, placing a greater emphasis on understanding and listening than on merely fixing problems. This non-rights-based approach is especially applicable in family law settings, where the interpersonal components of bargaining are quite important.

CONCLUDING REMARKS

The preservation of the process’ sanctity is essential if both sides have placed their trust and confidence in arbitration as a means of resolving their disagreement, and this depends on the mediator upholding the highest ethical standards. Although arbitration is still in its infancy in India, it is certainly becoming a viable choice at this point. The full potential of arbitration has yet to be realized. Among other things, the mediator needs to fulfill in order to establish and maintain arbitration as a practical means of resolving conflicts.

This paper’s study issue was whether or not an arbitration-specific code of ethics is necessary. The process started with looking at the legally mandated norms of behaviour and comparing them to the lack of any kind of control. The analysis shows that:

i) certain ethical restraints on attorneys are deemed important, even when a court or other impartial third party ultimately renders the judgment;

ii) the standards are insufficient to appropriately handle discussions within their purview;

iii) even though there are wide legislations governing ethics for advocated more has to be laid down for arbitrators as well, hence there is insufficient code of ethics for arbitrators;

iv) there is a huge difference between the litigation and arbitration hence their ethical guidelines as well;

v) although there are a quite good number of rules for ethics, practising and adherence to them is very rare and worrisome as big advocates and arbitrators often cross their moral ethics to in greed of earning few more bucks, and hardly take up any pro bono case.

Author: Ms. Shubhi Singh, Fourth-year law student pursuing BBA.L.L.B(Hons.) from SVKM’S NMIMS University.

References: 

[1] Harish v nair, 3.3 crore backlog cases in courts, pendency figure at highest: CJI Dipak Misra

https://www.indiatoday.in/india/story/3-3-crore-backlog-cases-in-courtspendency-figure-at-highest-cji-dipak-misra-1271752-2018-06-28. Assessed on 25 July, 2024

[2] Utkarsh Annand, 93% lawyers fail paper on ethics, advocacy | News Archive News – The Indian Express, assessed on 23 july,2024

[3] ibid

[4] For instance, the Delhi High Court Arbitration and Conciliation Center, better known as “Samadhan,” was formed in May 2006, while the Supreme Court of India’s Arbitration and Conciliation Project Committee was founded in 2005.

[5]  The 2004 Arbitration and Conciliation Rules of the Delhi High Court; the 2006 Civil Procedure Alternate Dispute Resolution and Arbitration Rules of the Bombay High Court, etc.

[6].  Shatrajit Banerji & CAM Disputes TeamEthical Practices to be followed by a Mediator | India Corporate Law (cyrilamarchandblogs.com)assessed on 27 July, 2024

[7] ibid

[8] ibid

[9] Advocates act, 1961

[10] ibid

[11] ibid

[12] Bar Council of India Rules’ (Bar council of India)

[13] ibid

[14]  ibid.

[15] ibid

[16] ibid

[17] ibid

[18] ibid

[19] ibid

[20] ibid

[21] The Arbitration and Conciliation (Amendment) Act 2015 .

[22] In their attempt to have the arbitrator removed, the applicant claimed that the arbitrator had not acted impartially, had threatened or actually exceeded his authority by appearing to rule on a matter outside of it, and had conducted the proceedings with complete disregard for Singaporean law.

[23] ibid

[24] Murlidhar Aggarwal & Anr v. State of Uttar Pradesh & Ors., (1974) 2 SCC 472

[25] The Supreme Court upheld the Allahabad High Court’s decision, ruling that the respondent, despite lease irregularities, was a lawful tenant entitled to protection under the U.P. (Temporary) Control of Rent and Eviction Act, 1947. An agreement clause waiving statutory benefits was deemed invalid, emphasizing tenant protection against eviction.

[26] Bharat Aluminium v. Kaiser Aluminium, (2012) 9 SCC 552

[27] ibid

[28] ibid

[29] ibid

[30] Arbitration & Conciliation Act, 1996

[31] Arbitration & Conciliation(Amendment) Act 2015,

[32] ibid

[33] Arbitration and Conciliation (Amendment) Act, 2021

[34]  Commercial Courts, Act, 2015

[35] Rule 12 –commercial courts act 2015,  (Pre-Institution Arbitration and Settlement) Rules, 2018.

[36] section 28 of the Indian Contract Act, 1872 along with section 35 of the (Indian) Arbitration and Conciliation Act, 1996

[37] Centrotrade Minerals and metal inc. v. Hindustan Copper Limited, (2017) 2 scc 228.

[38] ibid

[39] Aboobaker Latif v. Reception Committee of the 48th Indian National Congress, air 1937 Bom 410,

[40] Alabh Anant Lal & Soham Banerjee, the public policy doctrine in arbitration: a primer on its effect on challenges and enforcement of awards, Indian Arbitration law review/ vii page no. 63

[41] ibid

[42] Section 89 , civil procedure code, 1908

[43] Moti Ram (D) Thr. L.Rs. and Anr. v. Ashok Kumar and Anr (2010) 14 (ADDL.) SCR 809.

[47] ibid

[48] Srei Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd. (2018) 11 SCC 470

[49] Manjri Singh, arbitration ethics: the case for a code, cadr journal of dispute resolution page no.9

[50] Manjri singh, arbitration ethics: the case for a code page no.10

Link to similar articles: https://jpassociates.co.in/foreign-arbitral-awards-in-india/