Should online arbitration replace traditional arbitration?
This article is written by Vallika Varshri, a first-year student at Jindal Global Law School (O.P. Jindal Global University)
COVID-19 may have bought the world to a freezing standstill, but nonetheless, it continues to spin. The functioning of people is restricted, giving rise to the need for a system which can accommodate this changed scenario. With a situation as dynamic as COVID, there is an urgent need for courts to go online. However, its functions going online is not unique to courts, they extend to out of court settlement processes like arbitration. In fact, questions about the legal system’s ability to accommodate online transactions have been raised since the emergence of electronic commerce [1] and with COVID-19, these questions need to be answered even more urgently. While the virtual procedure is the best bet for courts to survive under the threat of COVID-19, with the lockdown nearing its limited end on 8th June, the question before the legal system to answer is whether it should remain online or go offline?
The need for online legal processes is not confined to the issues raises due to the pandemic alone. The Department of Justice has released a statement that it is keen for the government departments and organisations to resolve cases through alternate dispute resolution, whether it be online or otherwise. This is a result of pending litigation- a backlog of 3 crore cases that haves need to clear, out of which the government itself is involved in 46% cases [2]. With the increasingly efficiency of technology, those involved in transactional commerce seem to leaning towards online arbitration as an alternate due to the increasing inefficiency of traditional courts.
In both traditional and online arbitration, the neutral third party is decided by the parties, if not nominated by an institution chosen by them, who renders a decision. The difference between the online and traditional arbitration, in addition to all communication being online, is that non-binding arbitration is developed online. Thereby, not only are non-binding procedures proposed often, they are used as well. Despite its advantages, there are drawbacks to consider. Each stage of the process from agreement to arbitrate, the procedure itself as well as the recognition and enforcement of award faces an obstacle [3]. Usually, both lawyers and clients are reluctant to adapt to technology. Lasprogata lists three key reasons viz. issues of confidentiality and privacy, concerns about the enforceability of the award and the lack of human touch in virtual arbitration [4]. These issues raise the questions about the legality of the process.
In India, the question of legality of online arbitration is under the purview of Arbitration & Conciliation Act (ACA), 1996. This is supplemented by law governing technology, particularly the Information Technology Act (ITA), 2000. If read with s65-B of the Indian Evidence Act, s4-5 of ITA (2000) provides legal recognition of electronic records and signatures [5].
The objective of arbitration law is related to the implications of technology to determine its validity in its online form. This means that the rules of online arbitration should be made in accordance to the purpose of substantive law as they are served by technology. For example, the legal sanctity of online arbitration in India stems from the fact that the objective of the ACA, 1996 is to ensure a quick and efficient remedy. With the use of technology, this is enabled and thereby, since online arbitration makes the procedure more effective, it gains legal validity [6].
The question of whether online arbitration may be valid or not is raised since the general rule in both Indian and international rule is that an arbitration agreement should be in writing. However, Supreme Court cases of Shakti Bhog Foods Ltd. v. Kola Shipping Ltd and Trimex International FZE Ltd. v. Vedanta Aluminium Ltd have upheld the validity of agreements entered via emails despite there being no formal agreement in writing. The controversial question of the arbitral award is resolved by the S31(A) of the ACA, 1996 in conjunction with ITA, 2003. While ACA determines that an arbitral award be made in writing and signed by the members of arbitral tribunal, ITA, 2000 resolves this issue by saying that digital signatures have the same effect as paper signatures [7]. From these illustrations, it becomes clear that online arbitration is a legally valid option, even though it may be still in the early stages of development.
Having established the legaility of online arbitrations, its benefits are many. Online arbitration is efficient and cost-effective. The costs and time pertaining to travel is reduced. The procedure may commence from anywhere in the world at any time at the convenience of the parties. This not only helps in maintain social distancing due to obviating the need for travel, but reduces cost substantially- thereby allowing for better management of time and cost as well as flexibility [8]. Furthermore, asynchronous communication facilities ensure that no impulsive outburst is made a part of procedure due to the option of editing [9].
Parties in search of tailor-made solutions for their commercial disputes must consider virtual arbitration. Virtual arbitration is here to stay. The Centre for Arbitration and Research, MNLU Mumbai has recently come up with a guide on virtual arbitration. This guide will be very useful to parties, lawyers and arbitrators who want to solve their disputes virtually. The techno-legal requirements of virtual arbitration are vividly discussed in the report.
Online arbitration may be in its nascent stages, but it has undeniable advantages which make it a serious contender against traditional arbitration. In times of COVID- it is especially advantageous. Today, one needs to acknowledge the likelihood of spread of COVID-19 due to lack of physical barriers. Thereby considering the need to follow social distancing protocols and maintain physical proximity as much as possible, an online solution proves nifty as inspite of SCAORA’s request to resume physical functioning as COVID-19’s volatility continues to pose a risk. At the same time, the continuing advantages of online arbitration do not run dry with the end of the pandemic. Scholars, practitioners as well as clients are considering this as a serious alternate to traditional methods. It becomes paramount that the legal system does not take a decision in haste, for it to continue with traditional methods would be to err.
Download the guide here
REFERENCES
[1] Gail A. Lasprogata, ‘Virtual Arbitration: Contract Law and Alternate Dispute Resolution Meet in Cyberspace’, 19 J. Legal Stud. Educ. 107 (2001).
https://heinonline.org/HOL/PDFsearchable?handle=hein.journals/jlse19&collection=journals§ion=7&id=&print=section§ioncount=1&ext=.pdf&nocover=
[2] Department of Justice, Government of India https://doj.gov.in/sites/default/files/Online%20Dispute%20Resolution%20.pdf
[3] Thomas Schultz. ‘Online Dispute Resolution: An Overview and Selected Issues’. Economic Commission for Europe (2002) https://ssrn.com/abstract=898821
[4] Id at 1
[5] Vivek Shukla, ‘Online Arbitration’. NLSIU (Unknown) https://www.international-arbitration-attorney.com/wp-content/uploads/arbitrationlawOnline-Arbitration-Vivek-S.pdf
[6] Id
[7] Id
[8] Moghe, ‘Online Dispute Resolution Mechanism: Prospects and Challenges in India’. LegalServiceIndia.com (Unknown) http://www.legalserviceindia.com/legal/article-839-online-dispute-resolution-mechanism-prospects-and-challenges-in-india.html
[9] Id at 1
[10] Image Credits: https://lawtech.asia/tag/online-dispute-resolution/
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