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Arbitration has been gradually gaining popularlity as a method of dispute resolution Nepal. Arbitration in Nepal is governed by the Arbitration Act, 2055 (1999). Public Procurument Monitoring Office also prescribes arbitration as a default dispute resolution method for government procurement agreement. The following extract from an article titled "Dispute Resolution in Nepal" published by Anjan Neupane in Lexology - Getting the Deal Through provides an overview of arbitration law and practice in Nepal.

UNCITRAL Model Law

1    Is the arbitration law based on the UNCITRAL Model Law?

The Nepalese Arbitration Law is reflective of the UNCITRAL Model Law, but it is not expressly based on it.

Arbitration agreements

2    What are the formal requirements for an enforceable arbitration agreement?

To be enforceable, arbitration agreements must be made in writing and the parties must have a defined legal relationship, whether contractual or not. The obligation for an agreement to be in writing will be met by way of:

•    a separate contract to arbitrate;

•    an arbitration clause in the underlying contract; or

•    an exchange of letters, telex or email in which the parties agree to arbitrate.

If a party surrenders to an arbitration proceeding as a respondent without challenging the commencement of arbitration, the parties are deemed to have an arbitration agreement.

Choice of arbitrator

3    If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?

If the arbitration agreement and relevant rules are silent, three arbitrators must be appointed. The parties must commence the arbitrator selection process within three months of the occurrence of the cause of the dispute. Each party must appoint one arbitrator and the two arbitrators will appoint a chair.

A party can challenge the appointment of an arbitrator before the high courts; the relevant high court’s decision is final.

If the parties fail to appoint the arbitrators, either party can request the relevant high court to appoint the arbitrators with the full names, nationalities, occupations and areas of expertise of the three potential arbitrators, along with a copy of the agreement. The courts will seek the unanimous agreement of the parties to the dispute. If the parties cannot agree, the court will appoint a single arbitrator. The appointment cannot be challenged.

Arbitrator options

4    What are the options when choosing an arbitrator or arbitrators?

Parties are free to choose arbitrators who meet the requirements prescribed by the Arbitration Act 1999 when choosing arbitrators for an ad hoc arbitration. An arbitrator will be disqualified from appointment if they:

•    have no capacity to enter into a contract;

•    have been punished for a crime involving moral turpitude;

•    are insolvent or bankrupt;

•    have any personal interest in the dispute; or

•    do not meet the qualifications specified in the agreement.

If the parties cannot agree on the appointment of arbitrators pursuant to the arbitration agreement, either party can apply to the relevant high court to make the appointment. The court will appoint arbitrators from its list of arbitrators.

The Nepal Council of Arbitration (NEPCA), a non-profit organisation, is the only institution that provides institutional arbitration services. Under the NEPCA Rules, the parties must appoint their arbitrators within 30 days of the commencement of proceedings. If the parties fail to agree on an arbitrator (in the case of a sole arbitrator) or to appoint their arbitrator (in the case of multiple arbitrators), either party can request the NEPCA to appoint the arbitrator. However, the majority of arbitrators listed in the NEPCA have no legal background, which is an odd practice. Similarly, there are few legal professionals in Nepal qualified or experienced in arbitration, leading to insufficient candidates to meet the needs of complex arbitration.

Arbitral procedure

5    Does the domestic law contain substantive requirements for the procedure to be followed?

The arbitration procedure set out in the arbitration agreement must be followed. If no procedure has been agreed, the parties must follow the procedure set out in the Arbitration Act 1999. If there are procedural aspects not defined in the agreement or the act, the parties may decide on how to proceed. If the parties are unable to agree, the arbitrators will decide on those procedural aspects. However, the following procedures must be followed in arbitrations governed by the Arbitration Act:

•    Once a claim, response, counterclaim and rejoinder have been filed, the arbitration must proceed without delay.

•    The arbitrator must make a timeline for the proceedings and inform the parties of this timeline in advance of the proceedings.

•    If either party is not present in the proceeding as per the timeline, the arbitration can proceed and an order can be rendered.

•    Once hearings end, the arbitrator must make an end of hearing order, after which no hearings can take place nor any additional evidence be taken.

•    Ex aequo et bono and amiable compositeur can be applied only if expressly agreed by parties.

•    Each party must be afforded equal and sufficient right to present their case.

•    Each party must be allowed to be represented by their legal representatives and counsels.

Court intervention

6    On what grounds can the court intervene during an arbitration?

Pursuant to the Arbitration Act 1999, the high courts can intervene to:

•    appoint an arbitrator if the arbitration agreement is silent regarding appointment or the parties are unable to reach an agreement in this regard;

•    issue a final ruling on whether to remove an arbitrator if the parties disagree on said removal; or

•    issue a final ruling on an arbitrator’s jurisdiction and rights.

These procedures can be overridden by the parties by agreeing to a governing law other than Nepalese law or by expressly mentioning the procedures (or rules) of arbitration in the arbitration agreement. The district courts can assist arbitrators in collecting evidence, on the request of the arbitrator or a party to the proceedings.

Interim relief

7    Do arbitrators have powers to grant interim relief?

Yes, arbitrators have powers to grant interim relief. The aggrieved party can file an appeal before the relevant high court within 15 days of issuance of such relief to quash the interim relief. The high court’s decision will be final.

Award

8    When and in what form must the award be delivered?

Generally, the tribunal must issue an award within 120 days of the date on which the last of the claim, response, counterclaim and rejoinder is received by the tribunal. The award must be in writing and include the details prescribed in the arbitration agreement. If the agreement is silent, the award must:

•    contain a brief description of the dispute referred for arbitration;

•     establish jurisdiction over the arbitration;

•    contain the arbitrators’ decision and reasons and grounds for reaching the decision;

•    contain claims which must be realised and the amount that must be compensated;

•    set out any interest payable for delayed payment of realised amounts; and

•    contain the place and date of the decision.

Appeal

9    On what grounds can an award be appealed to the court?

A party to an arbitration can apply before the relevant high court to quash an award within 35 days of its issuance if:

•    either party lacks the capacity to conclude the arbitration agreement;

•    the arbitration agreement is invalid under the governing law;

•    the arbitration agreement is invalid under Nepalese law, where it is unclear which law governs the parties;

•    the applicant has not received a notice to appoint its arbitrator or notice is not provided in a timely manner;

•    the arbitration decides on issues not submitted to it;

•    the arbitration gives an order outside the scope of the arbitration agreement;

•    the arbitration violates the conditions of the arbitration agreement; or

•    the arbitrator’s appointment or the arbitration proceedings are not completed pursuant to the agreement or the Arbitration Act, where there is no agreement.

The high courts can either quash the award or order the tribunal to deliberate. The courts will quash the award if the decision is non-arbitrable under Nepalese law or is against public good or policy. There is no other appeal available against an arbitration award. However, in cases where the award violates the constitutional rights of a party, the party can file a writ petition to the Supreme Court against the decision of high court.

Enforcement

10  What procedures exist for enforcement of foreign and domestic awards?

Parties to a domestic arbitration are given 35 days from the date of issuance of the order to voluntary comply with said order. If the parties do not comply voluntarily, the aggrieved party can file an application with the relevant district court within 30 days of the date on which the 35-day time limit elapses. The district court will enforce the award as its own judgment.

A party can file an application with the relevant high court to quash the award. The high court will quash the award if the dispute is not arbitrable pursuant to Nepalese law or if the award is against public good or policy.

A foreign award will be enforced pursuant to the Arbitration Act  if the award fulfils the following:

•    The arbitrators must have been appointed pursuant to laws or procedures prescribed in the arbitration agreement.

•    The parties must have been notified of the proceedings on time.

•    The arbitration must be limited to the conditions set out in the arbitration agreement or limited to the issues submitted to the arbitration.

•    The arbitration award must be final and binding in the seat country, and the applicant’s country or seat country must give reciprocal recognition to Nepalese awards.

•    The recognition of the foreign award application must be filed within 90 days of the issuance of the award.

The high courts will determine whether the above conditions have been met. If they have, the court will enforce the award, unless the dispute is not arbitrable pursuant to Nepalese law or the award is against public policy.

Costs

11  Can a successful party recover its costs?

Nepalese law is silent regarding the recovery of costs. It is left to the arbitrator and the agreement.

You can access the full version of the Dispute Resoluton in Nepal article published at Lexology - Getting the Deal Through Website using the link: GTDT Dispute Resoluton in NepalPlease note that this guide is published for information only and should not be considered as legal advice. You are requested to seek legal advice for specific factual situations. If you need further information on this matter please Contact Us