The Supreme Court junks technicalities in international arbitration agreements.
The legal fraternity is known to be fond of technicalities and verbiage. International contracts between corporations are polysyllabic monstrosities running into scores of pages. Therefore, the Supreme Court judgment in Great Offshore Ltd vs Iranian Offshore Engineering and Construction Company delivered recently might have sounded sacrilegious to the draftsmen and legal professionals.
In the context of this international arbitration dispute, the court remarked: “Technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want — an efficient, effective and potentially cheap resolution of their dispute.”
This refreshing approach came in the context of the use of modern facilities like fax and other electronic modes of telecommunication routinely used by business offices removed half the globe away. Jurists often say that “procedures are the handmaids of justice and not its mistresses”. In this case, there was a charter party agreement between the two companies to hire vessels to execute an ONGC exploration project. However, disputes arose between the two in the later stages of its execution, and then the correspondence was mainly by fax. There was a bitter dispute over the allegation that one crucial message did not carry either a seal or a signature. Following a flurry of correspondence, one party invoked arbitration and moved the Supreme Court for appointment of an arbitrator. In one of the fax messages, it was mentioned that the provisions of the Arbitration and Conciliation Act should be used. The question, therefore, arose whether there could be an international arbitration based on the fax message. The court said yes, and appointed a former Supreme Court judge as the arbitrator.
Section 7 of the Act says that an arbitration agreement shall be in writing. It could also be an exchange of letters, telex, telegrams or other recent modes of telecommunication, which provide for a record of the agreement. In this case, it was argued that the faxed agreement was a copy, not an original; it was not stamped; it was not signed on every page; and it was merely a fax message which did not have the validity of a written contract. The Supreme Court rejected all these contentions.
The court emphasised that there was no requirement that the arbitration agreement must be an original or that it should carry the stamps of the parties or that they should sign every page. Fax is an accepted mode of telecommunication.
The judgment further underlined that its duty is to translate the legislative intention in the light of its main objectives, which is “to minimise the supervisory role of the courts in the arbitral process”. Therefore, if the court adds a number of extra requirements such as stamps, seals and originals, “we would be enhancing it, not minimising it,” it said. If these formalities are insisted upon, the cost of doing business would increase. “It takes time to implement such formalities,” the judgment stressed, and added: “What is even more worrisome is that the parties’ intention to arbitrate would be foiled by formalities.”
Such a stance, according to the court, would run counter to the very idea of arbitration, wherein tribunals all over the world generally bend over backwards to ensure that the parties’ intention to arbitrate is upheld. Adding technicalities disturbs the parties’ “autonomy of the will” (l’autonomie de la volonti) or their wishes. This principle is embodied in the UN Commission on International Trade Law (UNCITRAL), on which the Indian law is based.
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Another judgment in the same week showed that despite the skills and experience of those who draw up international contracts, the courts have to decide whether there is an arbitration clause at all in the flood of legalese. This case, Indtel Technical Services Ltd vs W S Atkins Rail Ltd, dealt with a dispute between the parties arising from a collaboration agreement for works related to the Indian Railways Crashworthiness Project. The terms of the contract would be governed in accordance with the laws of England and Wales. Disputes shall be “referred to an adjudicator or the courts”. The draftsmen used the word ‘adjudication’ and not arbitration, raising doubt over the intention of the parties. The Supreme Court therefore took a long flight of interpretation and finally decided that the parties meant arbitration when they said adjudication.
This is not the first time that the draftsmen have forgotten to state clearly whether disputes will be solved through arbitration or not. While beating about the contractual bush, this little clause is often forgotten, paving the way for more litigation, legal fees and burden on the courts.