Highlights of the Arbitration Act in Nepal

I. Introduction to Arbitration Act in Nepal

The Arbitration Act of Nepal, enacted in 1999, serves as the primary legal framework governing arbitration proceedings in the country. This legislation aims to provide an efficient and cost-effective alternative to traditional litigation for resolving commercial disputes. The Act aligns with international standards and practices, making Nepal an increasingly attractive destination for both domestic and international arbitration.

The Arbitration Act of Nepal draws inspiration from the UNCITRAL Model Law on International Commercial Arbitration, which has been widely adopted by many countries worldwide. This alignment with international norms enhances Nepal’s position in the global arbitration landscape and promotes foreign investment by providing a familiar legal framework for dispute resolution.

II. Provisions of the Arbitration Act

The Arbitration Act of Nepal encompasses a wide range of provisions that govern various aspects of the arbitration process. Some key provisions include:

Scope of Application

Section 3 of the Act defines its scope, stating that it applies to both domestic and international arbitration proceedings conducted within Nepal. This broad application ensures consistency in arbitration practices across different types of disputes.

Arbitration Agreement

Section 4 outlines the requirements for a valid arbitration agreement. It stipulates that such agreements must be in writing and can be in the form of a separate agreement or a clause within a contract. This provision aligns with international best practices and ensures clarity in the parties’ intent to arbitrate.

Appointment of Arbitrators

Sections 5 and 6 detail the process for appointing arbitrators. The Act allows parties to determine the number of arbitrators and the method of appointment. In the absence of agreement, a default mechanism is provided, typically resulting in a three-member arbitral tribunal.

Arbitral Proceedings

Sections 17 to 24 govern the conduct of arbitral proceedings. These provisions cover aspects such as the place of arbitration, language to be used, submission of claims and defenses, and the power of the arbitral tribunal to determine its own jurisdiction.

Arbitral Award

Sections 25 to 30 address the making of arbitral awards, including the decision-making process, form and content of the award, and the possibility of correction or interpretation of the award.

Enforcement of Award

Sections 31 to 33 deal with the recognition and enforcement of arbitral awards, including both domestic and foreign awards. This provision is crucial for ensuring the effectiveness of the arbitration process.

III. Arbitration Procedure Under the Act

The Arbitration Act of Nepal outlines a structured procedure for conducting arbitration. This process typically involves the following steps:

A. Step 1: Arbitration Agreement

The arbitration process begins with a valid arbitration agreement between the parties. This agreement can be made before or after a dispute arises. Section 4 of the Act requires that the agreement be in writing, which can include electronic communications.

B. Step 2: Appointment of Arbitrators

Once a dispute arises, the parties proceed to appoint arbitrators as per their agreement or the default mechanism provided in the Act. Section 6 allows parties to determine the number of arbitrators, failing which a three-member tribunal is appointed.

C. Step 3: Arbitration Proceedings

The arbitral tribunal conducts the proceedings in accordance with the Act and any rules agreed upon by the parties. This includes:

• Determining the place of arbitration (Section 18)
• Deciding on the language of proceedings (Section 19)
• Receiving statements of claim and defense (Section 20)
• Conducting hearings and receiving evidence (Section 21)

D. Step 4: Arbitral Award

After considering all evidence and arguments, the arbitral tribunal renders its decision in the form of an award. Section 25 requires that the award be in writing and signed by the arbitrators. The award must state the reasons upon which it is based unless the parties have agreed otherwise.

E. Step 5: Enforcement of Award

The final step involves the enforcement of the arbitral award. Under Section 31, a domestic arbitral award is enforceable as if it were a decree of a court. For foreign awards, Section 34 provides for their recognition and enforcement in accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which Nepal is a signatory.

IV. Requirements for Valid Arbitration in Nepal

To ensure the validity and enforceability of arbitration in Nepal, several key requirements must be met:

1. Written Agreement: As per Section 4 of the Act, the arbitration agreement must be in writing. This can include electronic communications, provided they are accessible for subsequent reference.
2. Arbitrability: The dispute must be capable of settlement by arbitration. Section 9 of the Act excludes certain matters from arbitration, such as those relating to criminal offenses.
3. Capacity of Parties: The parties entering into the arbitration agreement must have the legal capacity to do so under Nepali law.
4. Proper Notice: All parties must be given proper notice of the arbitration proceedings, as required by Section 21 of the Act.
5. Due Process: The arbitration must be conducted in accordance with the principles of natural justice and the provisions of the Arbitration Act.
6. Compliance with Public Policy: The arbitral award must not contravene the public policy of Nepal, as stipulated in Section 32 of the Act.

V. Arbitration Services in Nepal

Nepal offers a range of arbitration services to cater to various types of disputes:

1. Nepal Council of Arbitration (NEPCA): Established in 1991, NEPCA is a premier institution for commercial arbitration in Nepal. It provides rules and facilities for both domestic and international arbitration.
2. Federation of Nepalese Chambers of Commerce and Industry (FNCCI): The FNCCI offers arbitration services for commercial disputes through its Arbitration Council.
3. Ad Hoc Arbitration: Parties can also opt for ad hoc arbitration, where they determine their own rules and procedures in compliance with the Arbitration Act.
4. International Arbitration Centers: While not based in Nepal, international arbitration centers like the Singapore International Arbitration Centre (SIAC) or the International Chamber of Commerce (ICC) are often chosen by parties for disputes involving Nepali entities.

VI. Typical Timeframe for Arbitration Process

The duration of the arbitration process in Nepal can vary depending on the complexity of the case and the efficiency of the parties and arbitrators. However, a typical timeline might look like this:

1. Initiation of Arbitration: 1-2 months
2. Appointment of Arbitrators: 1-2 months
3. Preliminary Meeting and Procedural Order: 1 month
4. Written Submissions: 3-4 months
5. Hearings: 1-2 weeks
6. Deliberations and Award: 2-3 months

In total, the process may take anywhere from 9 to 18 months. However, Section 24 of the Arbitration Act requires that the arbitral award be made within 120 days from the date of submission of the statement of claim and defense, unless the parties agree to extend this period.

VII. Costs Associated with Arbitration

The costs of arbitration in Nepal can vary widely depending on the complexity of the case, the fees of the arbitrators, and the institutional charges if an arbitration center is used. Typical costs may include:

1. Arbitrators’ Fees: These can range from a few thousand to several hundred thousand Nepali Rupees, depending on the arbitrators’ experience and the amount in dispute.
2. Administrative Fees: If using an institution like NEPCA, there will be administrative charges based on the amount in dispute.
3. Legal Representation: Parties typically engage lawyers, whose fees can form a significant portion of the overall costs.
4. Venue Costs: If not using an institutional facility, costs for hiring a venue for hearings may be incurred.
5. Expert Witness Fees: If expert testimony is required, this can add to the overall costs.
6. Translation and Interpretation: In international arbitrations, these services may be necessary.

It’s worth noting that Section 29 of the Arbitration Act empowers the arbitral tribunal to determine the costs of arbitration and their apportionment between the parties.

INGO Registration in Nepal | Merger and Acquisition of Company in Nepal | Register a Polyclinic Diagnostic Center in Nepal

VIII. Relevant Authorities and Courts

Several authorities and courts play crucial roles in the arbitration process in Nepal:

1. District Courts: Under Section 7 of the Act, District Courts have the authority to appoint arbitrators if the parties fail to do so.
2. High Courts: High Courts have jurisdiction to hear appeals against arbitral awards under Section 38 of the Act.
3. Supreme Court: The Supreme Court of Nepal is the final appellate authority for arbitration-related matters.
4. Nepal Council of Arbitration (NEPCA): While not a court, NEPCA is a key institution in administering arbitrations in Nepal.
5. Ministry of Law, Justice and Parliamentary Affairs: This ministry is responsible for proposing amendments to the Arbitration Act and related policies.

IX. Arbitration Practices in Nepal

Arbitration practices in Nepal have been evolving, with a growing recognition of its benefits over traditional litigation. Some notable practices include:

1. Increasing Use in Commercial Disputes: Arbitration is becoming the preferred method for resolving commercial disputes, especially in sectors like construction, energy, and international trade.
2. Adoption of International Best Practices: Many arbitrations in Nepal now follow international best practices, such as the IBA Rules on the Taking of Evidence in International Arbitration.
3. Growing Pool of Arbitrators: Nepal is developing a pool of experienced arbitrators, including former judges, senior lawyers, and industry experts.
4. Confidentiality: Arbitration proceedings in Nepal are generally confidential, as implied by Section 21 of the Act, which allows the arbitral tribunal to determine the manner of taking evidence.
5. Party Autonomy: There is a strong emphasis on party autonomy in Nepali arbitration practice, with courts generally respecting the parties’ choice of arbitration rules and procedures.

X. Conclusion

The Arbitration Act of Nepal provides a robust framework for alternative dispute resolution, aligning with international standards while addressing local legal requirements. As Nepal continues to attract foreign investment and engage in international trade, the importance of efficient and reliable arbitration mechanisms cannot be overstated.

The Act’s provisions for both domestic and international arbitration, coupled with the growing expertise in arbitration services within the country, position Nepal as an emerging hub for arbitration in South Asia. However, there is still room for improvement, particularly in areas such as the speed of enforcement of arbitral awards and the development of specialized arbitration courts.

As businesses and legal practitioners become more familiar with arbitration processes, it is likely that arbitration will continue to grow as a preferred method of dispute resolution in Nepal. This trend will not only benefit the business community but also contribute to reducing the burden on the country’s court system.

FAQs:

1. What disputes can be resolved through arbitration? Most commercial disputes can be resolved through arbitration in Nepal. However, Section 9 of the Arbitration Act excludes matters relating to criminal offenses, divorce, and certain other personal matters.
2. How are arbitrators selected in Nepal? Arbitrators are typically selected by mutual agreement between the parties. If the parties cannot agree, the Arbitration Act provides a default mechanism, often resulting in a three-member tribunal with each party appointing one arbitrator and the two appointed arbitrators selecting the third.
3. Is arbitration binding in Nepal? Yes, arbitration is binding in Nepal. Section 31 of the Arbitration Act states that an arbitral award shall be enforced as if it were a decree of a court.
4. Can foreign arbitration awards be enforced in Nepal? Yes, foreign arbitration awards can be enforced in Nepal. Nepal is a signatory to the New York Convention, and Section 34 of the Arbitration Act provides for the recognition and enforcement of foreign arbitral awards.
5. What are the advantages of arbitration over litigation? Arbitration often offers advantages such as faster resolution, confidentiality, flexibility in procedures, and the ability to choose arbitrators with specific expertise.
6. How long does the arbitration process typically take? The arbitration process in Nepal typically takes 9 to 18 months, although complex cases may take longer. The Arbitration Act requires awards to be made within 120 days of the submission of statements of claim and defense, unless extended by agreement.
7. Are arbitration proceedings confidential? While not explicitly stated in the Act, arbitration proceedings in Nepal are generally considered confidential. The arbitral tribunal has the power to determine the manner of taking evidence, which often includes provisions for confidentiality.
8. Can the government be a party to arbitration? Yes, the government can be a party to arbitration in Nepal. However, specific regulations may apply to government contracts, and it’s advisable to consult with legal experts in such cases.