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Pre-Arbitral Procedures Mandatory Or Not: A Debate

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 viable solution.

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 employer?

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 Engenharis �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 Trading LLC. 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 performed.

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 language.

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