THE ESSENTIALS OF AN ARBITRATION AGREEMENT

AUTHORS:

Puja Mistry, GLC Mumbai

Simmi, MM(DU), Mullana

Ramya, Alliance University, Bengaluru

EDITOR: Tanya Kanchan Soni, HNLU Raipur



Many people are unaware of the term Arbitration, which is not imaginable by the first sight of anyone. So, for making the content understandable we should know that Arbitration works as a negotiator between two people to seek the dispute between them. Like in case of divorce courts have many disputed cases pending from times, so in that case, the court allows a non-biased and preferably an expert in the subject matter and resolving them. Now, this is not as simple as it looks like, there has to be a proper agreement between the parties during a business to go before any arbitrator.

Special Elements

A term called Ad-hoc arbitration - Which is regarding all the terms of arbitration which will be considered by the parties themselves. No administration by 3rd party is required.

Institutional arbitration - There are certain established institutions which deal with resolving disputes, these are ruled by themselves with their own formal terms.

Specimen of Arbitration Agreement to Refer the Dispute of 2 arbiters

Format of 2 Arbitrators Agreements consists of-

Name of the parties

Type of General Agreement

Date of Agreement

No. of days in which either of the party demanded arbitration proceeding in writing to commence with details of the dispute and the details of the arbitrator

No. of days in which other party supplied details of the arbitrator also No. of days in which they decided Presiding arbitrator. In case the third arbitrator is not agreed upon, it shall be appointed by the Arbitration Committee.

Matter of Dispute

Consent of both the parties to go for Arbitration

Name of the Arbitrators and name of the party who nominated

Clause for selection of umpire by the arbitrators in case there arises a difference between them also, parties consent over this.

The time limit for the settlement by arbitrators or umpire

Provisions of the Arbitration and Conciliation Act, 1996 shall apply to this reference to arbitration.

Language of the arbitration hearing.

Consent of the parties for cooperation and in case of any kind of breach the arbitrators would be at liberty to proceed with the reference ex parte.

Arbitration cannot be revoked.

Clause determining no right or authority to change, amend, modify, add, alter can take place in any provisions as provided in the primary agreement

Agreement of Arbitration should function as a full defence to any suit, action or proceeding instituted in any court or administrative tribunal with reference to any dispute arising during the time of this agreement and which shall be referred to the arbitral tribunal.

Amendment, addition, or modification can only take place in case it is in a written clause and signed by the parties.

The terms of agreement function as a bar to any suit, action, or proceeding instituted in any court about the disputes which require being mentioned to arbitration as per agreement.

Expiry date

In case of any circumstances where arbitrators are incapable of performance then parties can take substitutes wherein no fresh agreement is required.

Parties, their heirs, executors and legal representatives would be bound to agree to the award passed by arbitrators.

Name and designation of both the parties.

Signature of both parties followed by date and place.

Copy should be delivered to both the parties


Essentials of Arbitration Agreement-

The essential characteristics of an arbitration agreement, as defined in clause (b) of S.2 (1) read with S.7 of arbitration and conciliation Act of 1996, are as follows

1.) Arbitration Agreement’s sole purpose should be to resolve disputes between the parties.

2.) The award is valid and binding on both the parties

3.) There can be a reference to arbitration only in case when arbitration agreement exists

4.) The Source of the jurisdiction of the arbitrator is the arbitration clause mentioned in the agreement.

5.) An agreement must be in writing

6.) Arbitration needs not to be signed by the parties but contracts should be signed

7.) An arbitration clause is binding only if it by the free consent of the parties

8.) Institutions can administer the arbitral process as per institutional rules on payment of administrative fees by the parties.

9.) An arbitration agreement is subject to the discretion of the court.

10.) No. of arbitrators should not be an even number

11.) Failing determination of arbitration leads to a sole arbitrator by an arbitral tribunal.

12.) A party has a right to object to the composition of the arbitral tribunal in case it is not according to the act

13.) The Act enables the Arbitral Tribunal to act according to their jurisdiction.

14.) Parties can choose the no. of arbitration according to Act.

15.) Parties are liberal to comply with the nationality of the arbitrator.

Appointment Process

1) The parties should point out the contract, agreement, its content, or law containing the parties’ agreement to refer the dispute to arbitration under the ICSID Additional Facility Rules. This will help them to settle the dispute (in case) with the help of an arbitration agreement.

2) Absent a previous agreement, ICSID invites the parties to agree on the no. of arbitrators and further select the method of their appointment when it registers the request for arbitration.

3) A Tribunal always includes a sole arbitrator or any uneven number of arbitrators.

4) The Parties are free to select any method of appointment, including provisions of time limits and special procedures.

5) The parties may not appoint arbitrators from the ICSID Panel of Arbitrators.

The most common agreements for three-member Tribunals are:

Case 1-Each party appoints one arbitrator, and the parties attempt to agree on the third arbitrator as an umpire, the President of the Tribunal. If the parties fail to agree, the Secretary-General (or the Chairman of the Executive Council) of ICSID appoints the President.

Case 2- Each party appoints one arbitrator, and the arbitrators attempt to agree on the third arbitrator, the President of the Tribunal. If both arbitrators fail to agree, the Secretary-General (or the Chairman of the Administrative Council) of ICSID appoints the President.

As a part of their agreement on the tactic constituting the Tribunal, the parties may comply with adopting an inventory procedure concerning proposed candidates. List procedures may also be used for a sole arbitrator, the President of the Tribunal, or all members of the Tribunal. Commonly used list procedures include:

1.)The parties exchange a list of candidates; each party informs the other party of the candidate(s) whom it accepts or rejects.

2.)The parties request that ICSID provide them with a list of candidates. Parties can check a certain number of candidates and rank the remaining candidates. The candidate with the best ranking is appointed.

3.)ICSID supports parties’ efforts to agree on the tactic appointment and will follow the agreed method and facilitate the method to the fullest extent possible.


Default Mechanism

If no agreement is there for the no. of arbitrators and also for the method of their appointment is reached within 60 days after registration of the request for arbitration, either party may request the application of ICSID’s default formula under Article 6(1) and Article 9 of the Arbitration Rules. The formula provides that:

1.)The first party to appoint an arbitrator also proposes a candidate to serve as President of the Tribunal.

2.)The other party then appoints an arbitrator and either agree to the appointment of the arbitrator proposed for President or proposes another candidate.

3.)If a counterproposal is formed, the party making the primary appointment then indicates whether it agrees to the new proposal for President.

4.)The parties are not limited in the number of proposals or counter-proposals that can be made

Rule of 'incorporation by reference-

The rule of 'incorporation by reference' asserts that, albeit the contract between the parties doesn’t have a provision for arbitration but is contained in an independent document it will be imported and engrafted in the contract between the parties, by reference to such independent document in the contract, if the reference is such as an intention to make the clause in such document, is a part of the contract.


Qualification of arbitrators:

If the procedure for appointing arbitrator as agreed between the parties does not works and an application is filed in court for an appointment, the court cannot ignore provisions contained in Clause (a) of Sub-section (8) of section 11 of the Act wherein it’s differently mentioned that the Chief Justice, person or institution offered by him, in appointing an arbitrator, shall have due reference to any qualifications required of the arbitrator by the agreement of the parties.


Named person or authority as arbitrator:

If the person named therein or person holding the designation refuses to act as arbitrator and therefore the parties haven’t intended that the vacancy shouldn’t be supplied, in that event the court will have jurisdiction to appoint another arbitrator otherwise the clause would be rendered inoperative.

If the agreement mentions a "named arbitrator", he must be identified by name, designation, and office. Reference of such an individual by class, description, or within the generic sense wouldn’t amount to naming the arbitrator within the arbitration agreement.

In Nandan Biomatrix Ltd. v. D1 Oils Ltd.,2009 it had been contended that the appointment of a sole arbitrator only by one party to the dispute violates the equitable principle that no man can become a judge in his cause. Rejecting the contention the Court held that the petitioner has

"Notice of Arbitration" and "Commencement of Arbitration"

According to the Act, arbitral proceedings would commence on the date of service of a notice for appointment of an arbitrator. Request to appoint an arbitrator need not be in the express and precise language, it may be implied.

Requirements of a letter of invocation:

(i) It must clearly evince the intention of the sender for the appointment of an arbitrator.

(ii) Should specify the contract under which the arbitration clause is being made.

(iii) Should record compliance with the pre-condition for the invocation of the arbitration clause.

(iv) If parties under the contract are required to resolve the disputes amicably after notice of invocation is given, the party issuing the notice should call upon the other party for a meeting.

(v) If arbitration is to be referred to three arbitrators one to be appointed by each party and the third arbitrator by the nominated arbitrators, the party invoking the arbitration clause should also nominate his arbitrator.


Requirements for filing an application:

(i) An arbitration clause in the contract in terms of section 7 should be mentioned;

(ii) Name of the party filing the application is important to the arbitration agreement;

(iii) Matter of the dispute between the parties in relation to the contract containing the arbitration agreement.

(iv)There should be a notice invoking the arbitration clause has been issued and received by the other party.

(v) In a multi-tier arbitration agreement, the steps preceding the invocation of the arbitration agreement have been complied with.

Court intervention:

The Act limits court intervention in the arbitral process to the minimum in order to preserve the sanctity of the agreement of the parties to have their disputes settled by a forum of their choice.


Anti-suit proceedings:

A party seeking to stay the suit and have the disputes referred to arbitration would have to establish that the arbitrator is competent or empowered to decide the dispute. An application would recline only where there is already a judicial proceeding pending even though parties had agreed to refer the disputes to arbitration. The pendency of the proceeding itself is evidence of dispute. All that the court needs to ensure is whether the subject matter of the dispute is covered by the arbitration agreement


Appointment of arbitrator through Court assistance:

In the absence of an arbitration agreement or mutual consent of both parties. The Supreme Court, in that case, identified and differentiated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is:

(i) Chief Justice or his designate is bound to decide;

(ii) He can also decide, that is, issues which he may choose to decide;

(iii) Should be left to the Arbitral Tribunal to decide.

Section 11 of the Act falls under the procedure for appointment of arbitrator or arbitrators with court intervention.

Refusal by or failure of one party to appoint arbitrator:

If the party having the responsibility under the arbitration agreement refuses or fails to appoint an arbitrator or arbitrators as the case may be as per the agreed procedure for appointment, within 30 days of the demand being made by the other party, the party having the right to make such appointment can be said to have forfeited his right and it will be open to the other party to approach the court and seek the appointment of the arbitrator in accordance with the agreed procedure.


Limitation for filing an application seeking appointment:

The limited-time span for the commencement of an arbitration runs from the date on which, had there been no arbitration clause, the cause of action would have accrued, just as in the case of actions the claim is not to be taken after the expiration of a specified number of years from the date on which the cause of action accrued. In arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued.

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