It is a well-known fact that the tribunal must decide its own competence.
Arbitral tribunals can rule on their own jurisdiction under the doctrine of
Kompetenz/ Kompetenz. Such competence is provided in Art. 16(1) Model Law.
Unissi (India) Pvt. Ltd. v. Post Graduate Institute of Medical Education and
Research enunciates where tender offer was accepted by the respondent that
was given by the appellant. The offer included an arbitration clause, the court
took the view that though there was no formal agreement but with reference to
the tender documents the reference to arbitration was proper.
In Walford v. Miles it was contended that the owner was obliged to
continue to negotiate for a reasonable time otherwise he is entitled to
terminate negotiations if he had a proper reason for doing so. Thus, it is right
for a contractor after several reasonable efforts without adequate response to
believe that the employer is not willing to perform negotiations that includes
mediation and conciliation and therefore, opting for arbitration is the only
This can even be substantiated from the case of Visa International Ltd. v.
Continental Resources (USA) Ltd. where the dispute resolution clause was
that if the dispute could not be settled amicably it shall be finally settled
through arbitration. But the Court was of the opinion that the dispute between
the parties could not have been solved amicably because there had been several
correspondences between the parties which eventually lead to failure.
Thus, the request for arbitration was granted. The author would now delve into
the discussion with respect to the pertaining question whether the arbitral
tribunal should hear the claims of a contractor when the steps of the dispute
resolution procedure under the contract have not been followed as alleged by the
Steps Of Dispute Resolution As An Obligation Or Not
Nevis Electricity Company Ltd. v. AF Power Ltd.
asserts where a party
states his claim, refuses to negotiate and seeks to commence arbitration. In
such a case saying that the obligation was uncertain and unenforceable would be
unfortunate. This would mean that a party could ignore his �apparent
obligation�. Moreover, the parties can�t ignore their obligation and blame it on
uncertainty. This is referred to as �astute to accentuate uncertainty�.
The ratio decidendi of Visa International strongly asserts that no party can be
allowed to take advantage of inartistic drafting of the arbitration clause.
Provided the intention of the parties is clear with respect to going for
arbitration in case of any future disputes. Like in Sul America v. Enesa
�prior to a reference to arbitration, they will seek to have the
dispute resolved amicably by mediation� was to be considered as an enforceable
or unforceable obligation. Moore-Bick LJ believed that the intention behind
drafting the clause was to make it enforceable but it lacked the sufficient
certainty. It should also be evident from the agreement and the material record
including surrounding circumstances.
Similarly, in Powertech World Wide Ltd. v. Delvin International General
. where the response to the letter conclusively proved that
Respondent had admitted the existence of an arbitration agreement and consented
to the idea of appointing a common/sole arbitrator to determine the disputes
between the parties.
It can be said that any ambiguity with regards to the clause is removed as soon
as one of the parties exercised their nomination. As in the case of Powertech
the ambiguity stood extinct through the exchange of correspondence. It was thus
held that consensus ad idem with respect to existence of an agreement and
settlement of disputes through arbitration became crystal-clear.
Therefore, as laid down under Section 89 of C.P.C. that even after filing of the
suit it is the duty of the court to encourage settlement by adopting the
procedure such as conciliation and mediation. On the other hand, it is also
necessary to understand the other side of the debate as to why it can not be an
enforceable obligation to follow the dispute resolution procedure.
Problem Of Word Play
The courts have tried to looked on these aspects in a wider manner when the
dispute resolution clause which did not provide for any mandatory Arbitration
Agreement. It provided that if the disputes cannot be resolved within 30 days,
then it �may� be referred to Arbitration. The parties suggested from this term
that there had to be a fresh agreement between the parties to refer the matter
to arbitration. Respecting the light of the facts and circumstances the court
held that since there was no scope for an amicable settlement between the
parties, the invocation of arbitration without complying with pre-arbitration
clause was �not fatal�.
The matter would have to be �referred to arbitration� and concluded with
reference from Jagdish Chander v. Ramesh Chander
that stated that the use
of the word �may� or �shall� was not the decisive factor for referring the
matter to arbitration. Learned Steyn J. emphasized on no enforceable legal
obligation that a mere agreement between parties to settle disputes amicably and
only refer to arbitration in the event of being unable to settle is not a
legally enforceable obligation constituting a condition precedent.
On the other hand, Bombay HC recently stated in the case of Quick Heal
Technologies Ltd. v. NCS Computech Pvt. Ltd
. that only after the failure to
resolve the disputes by conciliation one may agree to refer their dispute to
Arbitration as interpreted by Clause 17 of their contract. Such amicable
discussion did not take place and the petitioner by-passed the agreed procedure,
which is �mandatory/ binding on the parties.� Moreover, the dispute resolution
clauses in few contracts use the term �shall� and �may� in the same vein. Thus,
it makes clear that the parties were aware of the distinction between the words.
Hence, it can be assumed that they chose the words indicating their intent and
make arbitration possible provided fresh consent is obtained. In Emirates
Trading Agency LLC v. Prime Mineral Exports Pte Ltd. supports the use of the
word �shall� that indicates that the obligation is mandatory. The court
concluded that as provided in Clause 11.1 friendly discussions are a condition
precedent to the right to refer a claim to arbitration. Therefore, it is too
pre-mature to make any comment with regards to by passing to arbitration.
Arbitration clauses in commercial contracts are provided in order to facilitate
speedy resolution of disputes. They involve taking pre-arbitral steps like
amicable negotiations, mediation or appointment of experts. But an overview of
many judicial interpretations by the Supreme Court and High Court show that the
legal character of these procedures has been unclear. A Court will only declare
an arbitration agreement invalid if it is inoperative or incapable of being
The objective of such pre-arbitral clauses that is even seconded in Cable &
Wireless and Nevis Electricity is to avoid what might otherwise be an expensive
and time-consuming arbitration. It was also held that it was in public interest
for the courts to give effect to dispute resolution clauses that places a
�requirement� on the parties to seek to resolve their disputes amicably �prior�
to commencing arbitration.
It is contended that incorrect usage of legal terminology should not exclude the
validity of an arbitration clause as the drafters of the contract are not
lawyers. Preference should be given to interpretations that give the clause
effect by asking what a reasonable person would have understood by such
Please Drop Your Comments