Nepal Arbitration Law And Procedure

Arbitration is becoming more prominent as a means of conflict settlement in Nepal. The Arbitration Act, 2055 (1999) governs arbitration in Nepal. Arbitration is also recommended as a default dispute resolution mechanism for government procurement agreements by the Public Procurement Monitoring Office.

Model Law of the UNCITRAL

Is the arbitration legislation based on the Model legislation of the UNCITRAL?

Although the Nepalese Arbitration Law is influenced by the UNCITRAL Model Law, it is not notably based on it.

Agreements on Arbitration

What are the formal requirements for a legally binding arbitration agreement?

Arbitration agreements must be in writing to be enforceable, and the parties must have an established legal connection, whether contractual or not. The need that an agreement be in writing will be met by:

• a separate contract for arbitration;
• a provision for arbitration in the underlying contract; or• a letter, telex, or email exchange in which the parties agree to arbitrate.

If a party submits to an arbitration action as a respondent without contesting the initiation of arbitration, the parties are presumed to have entered into an arbitration agreement.

Arbitrator Selection

How many arbitrators will be selected and how will they be appointed if the arbitration agreement and any relevant rules are silent on the subject? Is the right to oppose the appointment of an arbitrator restricted?

Three arbitrators must be selected if the arbitration agreement and related rules are silent. The parties must begin the process of selecting an arbitrator within three months of the occurrence of the cause of the dispute. Each side is required to choose one arbitrator, and the two arbitrators will choose a chair.

• have no legal capacity to make a contract;

• been convicted of a moral turpitude-related crime;

• are bankrupt or insolvent;

•  have a personal stake in the outcome of the disagreement; or

• You do not satisfy the qualifications outlined in the contract.

If the parties are unable to agree on the appointment of arbitrators in accordance with the arbitration agreement, either party may petition to the relevant high court for appointment. The court will select arbitrators from its panel of experts.

The only entity that provides institutional arbitration services is the Nepal Council of Arbitration (NEPCA), a non-profit organization. The parties must appoint their arbitrators within 30 days of the start of proceedings, according to the NEPCA Rules. If the parties are unable to agree on an arbitrator (in the case of a solo arbitrator) or nominate an arbitrator (in the event of multiple arbitrators), either party may request that the NEPCA appoint the arbitrator.

However, the majority of arbitrators listed in the NEPCA lack legal training, which is an unusual practice. Similarly, there are few competent or experienced legal practitioners in Nepal, resulting in a lack of candidates to meet the needs of sophisticated arbitration.

Arbitration process

Is there any substantive requirement for the procedure to be followed in domestic law?

The arbitration agreement’s arbitration procedure must be followed. If no procedure has been agreed upon, the parties must follow the Arbitration Act 1999. If there are procedural issues that are not addressed in the agreement or the statute, the parties may decide how to continue. 

If the parties cannot reach an agreement, the arbitrators will decide on the procedural issues. However, in arbitrations controlled by the Arbitration Act, the following steps must be followed:
 Once a claim, response, counterclaim, and rejoinder are filed, the arbitration must begin immediately.
The arbitrator must create a timeline for the proceedings and provide it to the parties ahead of time.

• If either party fails to appear in the hearing by the deadline, the arbitration can proceed and an order can be issued.
• Once the hearings are completed, the arbitrator must issue an end of hearing order, after which no more hearings or evidence can be taken.
• Ex aequo et bono and affable compositeur can only be used if both parties openly agree.
• Each party must be given an equal and sufficient opportunity to state their case.
• Each side must be allowed to be represented by legal counsel and representatives.

Intervention of the courts

Can the court interfere during an arbitration on what grounds?
According to the Arbitration Act of 1999, the high courts have the authority to:

 Appoint an arbitrator if the arbitration agreement is silent on the subject if the parties are unable to reach an agreement;

• make a final decision on whether to remove an arbitrator if the parties disagree; or
• make a final decision on an arbitrator’s jurisdiction and rights.

The parties can override these procedures by agreeing to a controlling law other than Nepalese law or by specifically specifying the arbitral procedures (or rules) in the arbitration agreement. On the request of the arbitrator or a party to the proceedings, district courts can assist arbitrators in gathering evidence.

Temporary relief

Do arbitrators have the authority to award interim relief?

Arbitrators do have the authority to give interim remedies. To quash the interim relief, the aggrieved party may submit an appeal with the relevant high court within 15 days after its issuing. The Supreme Court’s decision will be binding and final.

Award

When and how should the award be presented?

In general, the tribunal must render an award within 120 days of receiving the last of the claim, response, counterclaim, and rejoinder. The award must be in writing and include all of the information specified in the arbitration agreement. If there is no consensus, the award must:

• Include a brief explanation of the dispute that has been referred to arbitration;
• establish the arbitration’s jurisdiction;
• include the arbitrators’ ruling as well as the reasons and grounds for the decision;
• include the claims that must be realized as well as the amount that must be rewarded;

Appeal

On what grounds can an award be challenged in court?

A party to an arbitration may file an application with the appropriate high court to vacate an award within 35 days of its issuing if:

• any party lacks the legal ability to enter into the arbitration agreement;
• the arbitration agreement is void under the applicable law;
•  the arbitration agreement is void under Nepalese law since it is unclear whose legislation applies to the parties;

The applicant has not received or has not received in a timely manner a notice to appoint its arbitrator.

• the arbitration rules on problems not referred to it;
• the arbitrator issues an order that is not within the scope of the arbitration agreement;
• the arbitration violates the arbitration agreement’s terms; or
• the nomination of the arbitrator or the arbitration proceedings are not completed in accordance with the agreement or, in the absence of an agreement, the Arbitration Act.

The high courts have the authority to either annul the award or order the panel to deliberate. If the verdict is unarbitrable under Nepalese law or is contrary to public good or policy, the courts will vacate the award. There is no alternative way to challenge an arbitration award. However, in situations where the reward

However, if the award infringes a party’s constitutional rights, the party may file a writ petition with the Supreme Court challenging the high court’s decision.

Enforcement

What processes are in place for enforcing international and domestic awards?

Domestic arbitration parties have 35 days from the date of the order’s issuing to comply with the order voluntarily. If the parties do not voluntarily comply, the aggrieved party may file an application with the appropriate district court within 30 days after the day the 35-day time limit expires. The award shall be enforced as the district court’s own decision.

A party may petition the competent high court to vacate the award. If the issue is not arbitrable under Nepalese law, or if the award is contrary to public good or policy, the high court will vacate the award.

A foreign award will be enforced under the Arbitration Act if it meets the following criteria:

• The arbitrators must have been appointed in accordance with the laws or processes outlined in the arbitration agreement.
• The parties must have been properly notified of the proceedings.
• The arbitration must be restricted to the terms of the arbitration agreement or the matters filed to the arbitration.The arbitration award must be final and binding in the seat country, and Nepalese awards must be recognized reciprocally by the applicant’s or seat nation.
• The application for recognition of a foreign award must be lodged within 90 days of the award’s issuing.

The upper courts will decide whether or not the aforementioned conditions have been met. If they have, the award will be enforced by the court, unless the dispute is not arbitrable under Nepalese law or the award is contrary to public policy.

Costs

Can a successful party reimburse its expenses?

The legislation of Nepal is silent on the subject of cost recovery. It is up to the arbitrator and the contract.

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