This blog gives you an idea of what an arbitration clause usually looks like. You may sometimes also use the examples given here for reference purposes.
We’ve tried to cover important practical topics such as Arbitration Deed or Submission Agreements and Arbitration incorporated by references.
We’ve also discussed in brief the type of disputes which cannot be resolved by Arbitration.
Table of Contents
An arbitration agreement refers to a contract where the parties have agreed not to sue each other in case of dispute but would resolve their differences through arbitration rather than approaching the Court. Arbitration agreement can also be a clause in an existing contract. Therefore, throughout this article arbitration agreement and arbitration clause shall have the same meaning unless anything contrary has been mentioned. Unless otherwise mentioned the provisions mentioned below are those of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act).
In the case of Jayant N. Seth v. Gyaneshwar Apartment Cooperative Housing Society Ltd, the Rajasthan High Court highlighted the essentials of a valid arbitration agreement as per Section 2(1)(b) read with Section 7 of the Act, as mentioned below:
“1. There should be a valid and binding written agreement between the parties.
2. Such an agreement is said to be in writing if it is contained in – a document signed by the parties or an exchange of letters, telex, telegrams or any other means of telecommunication which provide a record of the agreement or an exchange of statements of claims and defenses in which the existence of the agreement is alleged by one party and not denied by the other.
3. Reference in a contract to a document containing an arbitration clause also constitutes an arbitration agreement, provided the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
4. The parties intend to refer to present or future disputes to arbitration.
5. The dispute to be referred to an arbitrator is in respect of a defined legal relationship, whether contractual or not.”
The arbitration agreements or arbitration clauses should be specific and should deal with the following issues:
- Parties to the arbitration proceedings [even third parties can be included (the court can refer a third party to arbitration at the request of either party or any person claiming through or under them)];
- The object of entering into the arbitration;
- Disputes which requires arbitration [this issue can only be dealt in an arbitration agreement];
- Place of arbitration;
- Mode of appointment and number of Arbitrators;
- The signatories or non-signatories who are bound by the agreement; and
- Modifications to the agreement; and
- Consequences of violating the agreement or clause.
This is what an Arbitration Clause reads like:
“Any and all disputes arising from or relating to this agreement shall be submitted to full and final resolution by binding arbitration, to be conducted in New Delhi, India under the laws laid down in the Arbitration and Conciliation Act, 1996. Judgment on the arbitration award may be entered in any court of competent jurisdiction.” [Ad-hoc Arbitration]
“Any and all disputes arising from or relating to this agreement shall be submitted to full and final resolution by binding arbitration, to be conducted in New Delhi, India under the Commercial Rules of the Indian Council for Arbitration. Judgment on the arbitration award may be entered in any court of competent jurisdiction.” [Institutional Arbitration]
“All claims and disputes arising under or relating to this agreement are to be settled by binding arbitration in New Delhi, India or any other location mutually agreed by the parties. The arbitration shall be conducted on a confidential basis pursuant to the Commercial Rules of the Indian Council for Arbitration. Any decision or award as a result of any such arbitration proceeding shall be in writing and shall provide an explanation for all conclusions of law and fact, and shall include the assessment of costs, expenses, and reasonable arbitrator’s fees. Any such arbitration shall be conducted by an arbitrator experienced in [area of expertise] and shall include a written record of the arbitration hearings. The parties reserve the right to object to any individual who shall be employed by or affiliated with a competing organization or entity. The award of arbitration may be confirmed in a court of competent jurisdiction.”
Most of the Arbitration Institutes give a standard arbitration clause in their Rules which the people referring to them should include in their agreements.
NOTE: The appointment of arbitrator will officially take place only after the clause comes into effect. The law is such because if the Arbitrators are named prior to any dispute, the parties may try to develop friendly relations with the Arbitrator and attempt to leverage such relations to get the arbitral award in their favour. Even if such a relation does not exist the Arbitrator cannot deemed to be completely unbiased due to numerous reasons.
The parties can decide upon a specific person and may either name him and give his designation in the clause. If that person later refuses to be appointed as the arbitrator, the court would have jurisdiction to appoint another arbitration (refer Section 11(5) of the Arbitration and Conciliation Act, 1996). The official letter of appointment would be given after the clause of arbitration comes into effect.
SUGGESTION: We suggest that instead of drafting a short and inconclusive clause, you take the time and draft one encompassing the guiding principles for arbitration. For more knowledge, go to How to professionally negotiate or draft an Arbitration Clause/Agreement [EDIT LINK].
- Arbitration Clause
The clause mainly decides how arbitration would be conducted in case any dispute arises in the future. The clause is usually embedded in the original agreement by the parties. The clause should have minimum details and information regarding:
- the arbitration rules that would govern the arbitration proceedings,
- institution, if any, which would administer the process,
- Official legal place of the arbitration,
- number of arbitrators,
- language of arbitration.
Missing out on any single one of them may pave way to delayed proceedings and the process of arbitration would take longer than expected. That in turn may result in a lot of expenditure.
- Arbitration Deeds/Submission Agreements
Submission agreements, also known as ‘arbitration deeds’, are agreements made after the disputes have arisen. They are less common than the arbitration clause. They also tend to be much longer than the arbitration clause. They contain details of the dispute and the issues between the parties, and clearly record that this matter is being referred to arbitration. Submission agreements can be made while the matter is in litigation as long as the court has not issued its judgement yet. It is entered into while pleadings are still taking place.
The purpose of arbitration deed is to specify the scope of arbitration so that later on the Court can determine whether the arbitration award was within the scope of the agreement.
NOTE: Any submission agreements not clearly specifying the disputes and the issues between the parties being referred to arbitration would be considered null and void because they would not fulfill the essentials of Section 10 of the Indian Contract Act, 1872 as their won’t be an object to the agreement.
- Arbitration agreements incorporated by references
If the agreement clearly refers to another document that already has an arbitration clause, then the clause is deemed to be incorporated into the main agreement. It is said to have been incorporated by reference. These are very common in construction contracts.
Section 8 of the Arbitration and Conciliation Act, 1996 obligates the judicial authority to bring about mandatory actions in matter of arbitration agreements. The act does not exclude categories of disputes which cannot be settled by arbitration but in certain cases, courts have refused to refer the matter to arbitration. Some of them include:
- matrimonial disputes; and
- rights and liabilities arising out of criminal offences; and
- guardianship disputes; and
- patent, trademark and copyright; and
- Insolvency; and
- issues regarding eviction of tenants; and
- Jayant N.Seth v. Gyaneshwar Apartment Cooperative Housing Society Ltd2000(1) RAJ 117 (Bom). ↑
- Judgments and Awards, Indian Council of Arbitration. http://www.icaindia.co.in/icanet/judgment.htm . ↑
- The Arbitration and conciliation Act 1996 Section 45 Part II. ↑
- N. Radhakrishnan v. Maestro Engineers & Ors. (2010) 2 SCC 72 held that fraud cases cannot be referred to arbitration. ↑