Having worked on drafting infallible arbitration clau-ses, on the one hand, and seeking to interpret arbitration clauses to either establish or demolish the arbitra-bility of a reference of dispute under an extant contract, on the other, like most lawyers, I have often pondered on what are the ingredients of a perfect arbitration clause and how should it be structured. At the same time I have wondered why is it that the arbitration clause is so neglected; with a standard language cut-copy-paste job from the first available template being inserted in a hurry, usually at a point of time when energy and concentration levels are both at a low ebb.
At the time of the drafting of an agreement, and international contracts in particular, parties are in a consensual mode and, therefore, are free take into account the exigencies of the relationship, identify and anticipate the grey areas. In doing so, the lawyer has to work closely with the clients’ team to combine his experience with their specific knowledge of the subject to devise mechanisms which can contain or provide quick solutions to potential disputes.
There are excellent standard clau-ses available under the rules of the international arbitration institutions such as ICC, LCIA and SIAC. The parties may also wish to adopt the above established alternative dis-pute resolution programmes. But, just as the best of standard forms don’t work for all contracts, there are differing considerations which apply in crafting the dispute resolution process as well.
Project Agreements, for example, usually adopt a three-tier ADR for resolving performance and related issues and for implementation iss-ues, for which courts are not a viable option. Any large project involves several contracts, ranging from financing contracts, design and engineering contracts, EPC contracts, project management contracts, to name a few. As part of the same package, very often parties prefer to have a Master Arbitration Agreement which is applicable to each separate contract by reference. Even if this is not addressed specifically, and even if an ancillary or related contract has a separate arbitration clause, Arbitral tribunals and the Indian Courts have held that the arbitration clause in the primary contract would apply to other agreements between the same parties if the agreements pertain to the same project. Therefore, the correlations, cross references and exclusions have to be structured with utmost clarity, to the extent to which contract and arbitration clauses would prevail in case the cause of action and the reference encompasses both.
Arbitration is a preferred option for several reasons, of which party autonomy, secrecy, and speedy disposal are most important. While secrecy is guaranteed, the same cannot be said of the other two items. Most agreements do not deal with the rules of arbitration procedure, leaving them to be devised by the Tribunal. Section 19 of the Indian Arbitration and Conciliation Act, 1996 (the Act) provides for the parties to devise the procedure, but most clauses do not go beyond a standard language of:
“in accordance with the provisions of the Act.” Not only does this create an ambiguity about the applicability of the Code of Civil Procedure and the Indian Evidence Act, the number of hearings keep multiplying and, at the end, parties often feel that only the lawyers are making money, while their reliefs are nowhere in sight. This can be avoided if the procedure for submissions and sanctity of hearings are specified in the arbitration agreement itself.
Finally, the choice and selection of the Tribunal. High value contracts normally opt for a three member tribunal, possibly because it is the norm, or to have the benefit of safety in numbers, which is a legitimate assessment. The problem is that the members of these tribunals are usually former Judges of the High Courts and the presiding Arbitrator a retired Supreme Court Judge, all of whom are very busy and face problems in synchronising dates. Also, three sets of fees, even if shared, can prove to be very expensive. To the extent possible, in the less complex contracts, it is advisable to appoint a sole arbitrator, preferably named; and if not, or parties do not concur, by recourse under Section 11 of the Act. It is also possible to have both options: the three member Tribunal for claims involving a valuation of say, Rupees 10 crore and above, and the sole arbitrator for ones below the threshold.
The bottomline
Arbitration is not the only option, for domestic contracts at least. It is important to evaluate what will meet your client’s requirements and budget best. There are many alternative dispute resolution processes, nota-bly Mediation. And there is always litigation, which in certain circumstances can be the best option. It is the lawyer’s responsibility to take a call on this and not just take the path of least resistance.
(The Author is a Partner at Bharucha & Partners, Delhi Office ) Email: kumkumsen@bharucha.i