Arbitration Law in Nepal

Arbitration is a method of dispute resolution that involves the submission of a dispute to one or more impartial persons, known as arbitrators, who render a final and binding decision. Arbitration is an alternative to litigation, which is the resolution of disputes through courts. Arbitration can offer various advantages over litigation, such as speed, flexibility, confidentiality, expertise and enforceability.

Nepal has recently enacted a new law on arbitration, which came into force on 17 April 2020. The new law is called the Arbitration Act 2075 (2019), which repeals and replaces the previous Arbitration Act 2055 (1999). The new law aims to modernize and harmonize the legal framework for arbitration in Nepal, in line with the international standards and best practices. The new law also incorporates some provisions of the UNCITRAL Model Law on International Commercial Arbitration, which is a widely accepted model for arbitration laws around the world.

Main Features of the New Arbitration Law

The new arbitration law introduces several changes and improvements to the arbitration system in Nepal. Some of the main features of the new law are as follows:

• Scope and application: The new law applies to both domestic and international arbitrations that take place in Nepal or are governed by Nepalese law. The new law also applies to arbitrations that are conducted under the auspices of an arbitral institution or under ad hoc rules. The new law does not apply to disputes that are not arbitrable under Nepalese law, such as criminal matters, family matters, constitutional matters and matters relating to public policy.
• Arbitration agreement: The new law defines an arbitration agreement as an agreement between the parties to submit their present or future disputes to arbitration. The arbitration agreement must be in writing, which can be evidenced by a document signed by the parties, an exchange of letters, emails or other means of communication, or a reference to another document that contains an arbitration clause. The arbitration agreement can also be concluded by oral consent if it is recorded by an arbitrator or an arbitral institution.
• Arbitral tribunal: The new law allows the parties to freely determine the number and qualifications of the arbitrators, subject to some limitations. If the parties do not agree on the number of arbitrators, three arbitrators will be appointed by default. If the parties do not agree on the appointment procedure, each party will appoint one arbitrator and the two arbitrators will appoint a third arbitrator as the chairperson. If a party fails to appoint an arbitrator or the two arbitrators fail to appoint a chairperson within 30 days, the appointment will be made by the court upon request of a party. The new law also provides grounds and procedures for challenging, replacing and terminating the mandate of an arbitrator.
• Arbitral proceedings: The new law grants more autonomy and flexibility to the parties and the arbitral tribunal to conduct the arbitral proceedings. The parties can agree on the rules of procedure, the language, the place and the time of arbitration. In the absence of such agreement, the arbitral tribunal will decide these matters. The arbitral tribunal can also determine the admissibility, relevance and weight of the evidence, as well as order interim measures or expert opinions. The new law also requires the arbitral tribunal to ensure equal treatment of the parties and respect their right to be heard.
• Arbitral award: The new law sets out the requirements and effects of an arbitral award. An arbitral award must be made in writing and signed by the arbitrator or arbitrators. It must state the reasons for the decision, unless otherwise agreed by the parties or required by law. It must also state the date and place of arbitration. An arbitral award is final and binding on the parties and has the same effect as a court judgment. The arbitral tribunal can also correct, interpret or supplement its award upon request of a party or on its own initiative.

Recognition and enforcement: The new law facilitates

the recognition and enforcement of arbitral awards in Nepal. A party can apply to the court for recognition and enforcement of an arbitral award within three years from the date of receipt of the award. The court will recognize and enforce an arbitral award unless it finds any ground for refusal under the new law or under any applicable international convention. The grounds for refusal are similar to those provided in Article V of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, which Nepal acceded to in 1998.

Setting aside: The new law limits

the grounds and time for setting aside an arbitral award in Nepal. A party can apply to the court for setting aside an arbitral award within 35 days from
the date of receipt of the award. The court can set aside an arbitral award only if the party proves any of the following grounds:

• The arbitration agreement is invalid or inoperative;
• The party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present its case;
• The arbitral award deals with a dispute that is not contemplated by or does not fall within the terms of the arbitration agreement, or contains decisions on matters beyond the scope of the arbitration agreement;
• The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the law;
• The subject matter of the dispute is not arbitrable under Nepalese law; or
• The recognition or enforcement of the arbitral award would be contrary to public policy or morality.

The court cannot review the merits of the dispute or the arbitral award. The decision of the court on setting aside an arbitral award is final and cannot be appealed.

Conclusion

The new arbitration law in Nepal is a welcome development that aims to promote and facilitate arbitration as an effective and efficient method of dispute resolution. The new law incorporates many international standards and best practices and provides more clarity and certainty for the parties and practitioners involved in arbitration. The new law also addresses some of the shortcomings and challenges of the previous law, such as the lack of distinction between domestic and international arbitrations, the excessive intervention and delay by courts, and the inconsistency with the New York Convention. However, the success and impact of the new law will depend largely on its implementation and interpretation by the courts, the arbitral institutions and the arbitration community in Nepal. Therefore, it is essential to raise awareness and capacity among all stakeholders and to foster a culture of arbitration that respects its principles and values.