ARBITRATION AGREEMENT/CLAUSE
The court process behind any dispute resolution event has always been intimidating and tiring. Even after numerous amendments and insertion of relevant laws or statutes, the lacuna in the accuracy, as well as urgency of the matters to a great extent, is still the same. Alternate dispute mechanism has evolved mostly for quick resolution of private disputes. An increase in the adaption of Alternative Dispute Resolution (ADR) practices tends to emphasize such insufficiency of the system. It has called to attention the concept of due diligence by expanding the practice of entering into contracts with optimum terms and conditions and enhancing the same with a robust and fair dispute resolution system. Out of the various ADR mechanisms, arbitration is the most comprehensive and cooperative way for resolving disputes arising from the domestic and international commercial relationships whereby the parties mutually agree to reconcile the dispute by agreeing. Parties incorporate their intention to move the disputes to arbitration by including a separate agreement or a clause within the contract defined as “Arbitration Clause” which binds a party to a type of resolution outside the court. An arbitration agreement is what forms the basis of an arbitration mechanism since the mechanism isn’t statutory and cannot be invoked without any agreement. Section 7 of the Arbitration Act[1] enshrines the essentials of an Arbitration Agreement. It states that the Agreement should be in writing and it can either be a separate agreement or be a part of the clauses of the Principal Agreement. This does not necessarily have to be a separate agreement and can simply be a clause as a part of that or any other agreement.
TYPES OF ARBITRATION AGREEMENT/ CLAUSE
The parties entering into the contract out of which any future may arise can choose to include the arbitration clause by-
- A separate arbitration agreement refers to a set of contracts.
- A clause in the agreement
- An agreement
All commercial contracts mostly contain a dispute resolution clause which in case of arbitration may be the arbitration clause. This facilitates the performance of any contract by aggregating all the relevant details in one place. The other ways of drafting an arbitration agreement/clause are seldom due to the development of the doctrine of separability. Earlier due to the vagueness in separation and severability people feared that on the termination of any contract the arbitration clause will terminate along with it therefore, the other methods were more in common.
The doctrine of separability underlines the potential width of an arbitration agreement because it establishes that an arbitration agreement has a separate life from the matrix contract for which it provides the means of resolving disputes. This enables the arbitration agreement to survive breach or termination of the matrix contract of which it forms part.[2] The arbitration agreement is treated as a distinct agreement, separate from the underlying agreement. This principle prevents the validity of one agreement from being affected by the other one; it effectively establishes the full autonomy of an arbitration agreement and the integrity of the arbitral process. Nonetheless, the two may be assessed together. The arbitration agreement is a distinctive agreement that provides the basis for arbitration as defined under the principle of separability. It is defined as an agreement to submit present or future disputes between the parties to a dispute to appoint a particular arbitrator to resolve their disputes arising out of a particular business relationship. The main focus is given to the choice of law as determined by the parties to the contract which is binding for the arbitration agreement with utmost care and caution.
FAULTY ARBITRATION CLAUSE
Defective arbitration clauses are infrequent though do appear on a recurring basis. Some of the common faults which have been witnessed in arbitration clauses are stated here. An arbitration clause is taken into account to be ambiguous when the parties don’t express clearly that just in case of conflict the tactic to use so as to settle the disagreements will be arbitration. Hence, parties are compelled to refrain from signing confusing agreements to arbitrate, because the overall rule is that arbitration is prompted out of the contract, and if there’s not an explicit arbitration clause within the contract it would not be an agreement to arbitrate.[3] Similarly, if the parties have been negligent while drafting the clause such as when mentioning the rules to be adopted or choosing the suitable arbitral institution, it is supposed to have caused “negligence error”. Construction of an abusive clause that is the one drafted manifestly favouring the interest of one of the parties is also strictly prohibited as sometimes, such stipulations are so unequal that the courts refrain from enforcing them. However, the most interesting defective arbitration clauses are those where parties submit their disputes to courts of arbitration that don’t exist, or which are designated wrongly, making it impossible to know to which specific one they meant to refer.
All of these defects though are not concluding can create huge chaos at later stages and may result in unsatisfying awards. The premier importance is given to the fact that the arbitration agreement shall be in writing, in ignorance of which court cannot refer the dispute to dispute.[4]
CONCLUSION
When compared to litigation, arbitration is a more effective and efficient remedy for settling disputes. Instead of lengthy and perplexing procedures, it takes very little time to resolve the matter at an affordable cost. The paramount part of arbitration is the drafting of its initiating clause which should anticipate various important factors. It’s crucial to include points like the panel of arbitrators and the procedure to appoint them, the scope of the matter, seat or venue of arbitration, and which rules will it be governed by. It is always suggested to have a conscious approach towards the incorporation of an arbitration clause in an Agreement to prevent the parties from facing invalidity in later stages or face long court hearings discussing the intention of the parties.
Author(s) Name: Vasusdha Tewari & Rahul Agarwal (Student, Amity University, Lucknow)
References:
[1] Arbitration and Conciliation Act, 1996, § 7, No. 26, Acts of Parliament, 1996.
[2] Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd., 2013 SCC Online Bom. 1048.
[3] John M. Townsend, DRAFTING ARBITRATION CLAUSES: Avoiding the 7 deadly sins, Dispute Resolution Journal, February-April 2003 Vol. 58, Issue 1, p. 30.
[4] Kerala State Electricity Board and Ors. v. Kurien, E. Kalathil and Ors., AIR 2018 SC 1351.
