Chanakya National Law University: Project Work On Arbitration Agreement
Chanakya National Law University: Project Work On Arbitration Agreement
Chanakya National Law University: Project Work On Arbitration Agreement
SUBJECT- ADR
PROJECT WORK ON
ARBITRATION AGREEMENT
SUBMITTED TO
Mr. HRISHIKESH MANU
(FACULTY OF adr)
SUBMITTED BY
Akanksha dipankar
ROLL NO. 14121005
6th semester
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ACKNOWLEDGEMENT
Making a project is one of the most significant academic challenges I have ever faced. Any
attempt at any level can't be satisfactorily completed without the support and guidance of learned
people. I am overwhelmed with my gratitude to acknowledge all those who have helped me put
these ideas, well above the level of simplicity and into something concrete effectively and
moreover on time.
I am very thankful to my subject teacher Mr. Hrishikesh Manu for his valuable help. He was
always there to show me the right track whenever I needed his help. He lent his valuable
suggestions, guidance and encouragement, on different matters pertaining to the topic. He has
been very kind and patient while suggesting me the outlines of this project and clearing my
doubts. I thank him for his overall support without which I would not have been able to
complete this project. I would also like to thank my colleagues, who often helped and gave me
support at critical junctures, during the making of this project. Last but not the least, I would like
to thank my family members for their emotional support.
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RESEARCH METHODOLOGY
The researcher has adopted doctrinal method of research. The researcher has made extensive use
of the available resources at library of the Chanakya National Law University and also the
internet sources.
The project revolves around the concept of Arbitration Agreement. It is aimed at getting an
insight into intricacies of an Arbitration Agreement, emphasis being laid on the essential
ingredients of a valid Arbitration Agreement, its special attributes and rules of termination. The
project has also thrown light upon the enforcement of an Arbitration Agreement as well as the
criteria for determining the law applicable to it with reference to UNCITRAL Model Law and
New York Convention.
SOURCES
The following secondary sources of data have been used in the project-
1. Case-laws
2. Books
3. Journals
Table of Content
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s
1. Introduction.......................................................................................................................................5
1.1 Definition: Arbitration agreement, arbitration clause and submission agreement.....................5
1.2 Enforcement of an arbitration agreement.....................................................................................6
1.2.1 Negative enforcement: Lack of jurisdiction..........................................................................6
1.2.2 Positive enforcement: the “submission agreement”............................................................6
1.3 Enforcement of an arbitration agreement under the UNCITRAL Model Law and the New York
Convention........................................................................................................................................8
2. The Law Applicable to the Arbitration Agreement............................................................................9
2.1 Criteria for determining the law applicable to the arbitration agreement..................................9
2.2 The Model Law..........................................................................................................................10
2.3 The New York Convention.........................................................................................................10
3. Requirements for the Arbitration Agreement.................................................................................12
3.1 It Must Arise out of mutual consent..........................................................................................12
3.2 The Parties Must Have Legal Capacity.......................................................................................13
3.2.1 Consequences of lack of capacity.......................................................................................13
3.2.2 Law Applicable to the Legal capacity..................................................................................14
3.2.3 The legal capacity to enter into an Arbitration Agreement................................................14
3.3. The Agreement must be made in writing.................................................................................15
3.3.1 Must the agreement be contained in the same document?...............................................15
3.3.2 Are signatures necessary for the validity of the Arbitration Agreement?...........................16
3.3.3 Is tacit consent to Arbitration Valid?..................................................................................18
3.3.4 Can Arbitration be agreed upon “by reference”?...............................................................18
3.4 It must arise out of a defined legal relationship........................................................................18
3.5 Arbitration Agreement should be capable of being ascertained...............................................19
3.5.1 Certainty of existence of a dispute or difference................................................................19
3.5.2 Certainty as to consent of the parties to an arbitration agreement...................................20
3.5.3 Certainty about Arbitral Tribunal and its composition........................................................21
4. Termination of Arbitration Agreement............................................................................................21
4.1. Doctrine of Frustration.............................................................................................................22
4.2. Grounds for Termination of the Arbitration Agreement...........................................................23
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1. Introduction
1.1 Definition: Arbitration agreement, arbitration clause and submission
agreement
In general, the arbitration agreement provides the basis for arbitration. Section 2(a) of the
Arbitration act of 1940 defined ‘arbitration agreement’, the same has been defined in sec 7 of
Arbitration and conciliation act, 1996, which is very much identical to Art II(1) of the New York
convention as an agreement by the parties to submit to arbitrator all or certain disputes which
have arisen or which may arise between them in respect of a defined legal relationship, whether
contractual or not.
b) An agreement by which the parties to a dispute, that has already arisen, submit the dispute to
arbitration (submission agreement).
The arbitration clause therefore refers to disputes not existing when the agreement is executed.
Such disputes, it must be noted, might never arise. That is why the parties may define the subject
matter of the arbitration by reference to the relationship out of which it derives.
On the other hand, the submission agreement refers to conflicts that have already arisen. Hence,
it can include an accurate description of the subject matters to be arbitrated.
Some national laws require the execution of a submission agreement regardless of the existence
of a previous arbitration clause. In such cases, one of the purposes of the submission agreement
is to complement the generic reference to disputes by a detailed description of the issues to be
resolved.
By entering into an arbitration agreement, the parties commit to submit certain matters to the
arbitrators’ decision rather than have them resolved by law courts.
These two main effects of the agreement may be referred as “negative” and “positive”,
respectively.
An arbitration agreement precludes judges from resolving the conflicts that the parties have
agreed to submit to arbitration. If one of the parties files a lawsuit in relation to those matters, the
other may challenge the court’s jurisdiction on the grounds that the jurisdiction of the courts has
been waived.
The judge’s lack of jurisdiction is not automatic, nor can it be declared ex officio. Instead, it
must be raised by the defendant no later than when filing the answer to the complaint. That is so
because arbitral jurisdiction is waivable, and the waiver would be presumed if the plaintiff filed a
complaint and the defendant failed to challenge the court’s jurisdiction.
To sum up, once a conflict has arisen over any of the subjects included in the arbitration
agreement, the courts will have no jurisdiction to resolve it unless both parties expressly or
tacitly agree to waive the arbitration agreement.
The negative enforcement of the arbitration agreement is universally accepted and does not
depend on the kind of agreement. Conversely, the positive enforcement is inextricably linked to
the applicable law. That is so because some local arbitration laws still do not grant the arbitration
clause an autonomous status. In fact, some traditional laws require that, even when there is a
previous arbitration clause, the parties execute a new agreement called “submission agreement”,
which must contain the names of the arbitrators and clearly identify the matters submitted to
them.1
1
This is the case of Argentine and Brazilian laws.
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When a submission agreement is required, the arbitration clause becomes insufficient. Once
there are concrete issues in dispute, the parties must enter into an agreement, whether or not they
have previously signed an arbitration clause. Under those laws, the arbitration clause at best
compels the parties to sign the submission agreement. However, since this obligation is not
always complied with voluntarily, such laws provide for a court’s intervention to enforce the
arbitration clause. The judge must supplement the content of the submission agreement, and his
judgment – which replaces the will of the party who has refused to sign it – is treated as a
submission agreement. Lack of cooperation by one of the parties in the execution of the
submission agreement or insuperable differences between the parties as to what should go into it
are settled by a court.2
The legal requirement of the submission agreement as a condition to arbitrate has been
considered one of the main obstacles to arbitration, even in the cases in which it could be
supplied by a court. In fact, if one of the parties resists arbitration, the refusal to execute the
submission agreement allows it to obstruct the constitution of the tribunal and delay the
arbitration itself. This forces the opposite party to enter into a judicial process to obtain the
submission agreement. Arbitration is therefore deprived of one its main comparative advantages,
i.e. expeditiousness.
That is why, taking the concept from the Geneva Protocol on Arbitration Clauses,3 the New York
Convention and the new arbitration laws, modelled upon the Model Law, do not require a
submission agreement and grant full and immediate enforcement to the arbitration agreement,
regardless of whether or not it refers to future or present controversies. The arbitration laws that
still require the submission agreement are deemed to be outmoded and should be revised in order
to make their provisions congruent with the modern trends on international arbitration.
2
As an example, Article 7 of Arbitration Law of Brazil states: “There being an arbitration clause and reluctance to
submit to arbitration, the interested party may request that the other party be summoned to appear before a court in
order to conclude the submission agreement, to which effect the judge shall set a special hearing. The judgment
granting the request shall be treated as a submission agreement”.
3
Article 1 of the 1923 Geneva Protocol on Arbitration Clauses establishes that each of the Contracting States
recognises the validity of an agreement whether relating to existing or future differences.
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The Model Law defines the arbitration agreement as: “An agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may arise between them in respect
of a defined legal relationship, whether contractual or not”.4
According to the New York Convention, “Each Contracting State shall recognize an agreement
in writing under which the parties undertake to submit to arbitration all or any differences which
have arisen or which may arise between them in respect of a defined legal relationship, whether
contractua1 or not, concerning a subject matter capable of settlement by arbitration”5
Concerning the enforcement of an arbitration agreement, the Model Law establishes that6:
(1) A court before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party so requests not later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null
and void, inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral
proceedings may nevertheless be commenced or continued, and an award may be made, while
the issue is pending before the court.
Article 8.1 of the Model Law mostly follows the text of Article II.3 of the New York
Convention.7 However, the provision of the Model Law is more specific, since it establishes that
the request must be made “not later than when submitting his first statement on the substance of
the dispute”. The Convention, on the other hand, does not say when the petition must be made.
4
Article 7.1 of the Model Law
5
Article II.1 The New York Convention
6
Article 8 of The Model Law
7
“The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an
agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration,
unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
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The law applicable to the arbitration agreement governs the formation, validity, enforcement and
termination of the arbitration agreement. It deals with such aspects as the formal requirements of
the arbitration agreement, the arbitrability of its subject matter, its autonomy in relation to the
contract in which it is contained, the arbitrators’ capacity to rule on their own jurisdiction and the
extent to which judicial review is admissible. The applicable law also determines whether or not
the submission agreement is required.
There are different criteria for determining the law applicable to the arbitration agreement. The
most common ones are:
Some laws allow the parties to choose the law applicable to the arbitration agreement,
irrespective of the law governing other question relating to the arbitration.
Some authors claim that the law applicable to the arbitration agreement is usually the law
applicable to the contract that contains the clause.8 These authors nevertheless admit that the law
applicable to the agreement could be different, since the arbitration agreement is separable from
the main contract.
Another criterion consists of applying to the arbitration agreement the procedural law that
governs the arbitration. In the absence of an agreement the procedural law is in principle the law
of the place of arbitration. Although rare in practice, the parties have the right to choose a
procedural law other than the law of the place of arbitration.
8
SUTTON, David St. John, KENDALL, John & GILL, Judith, “Russel on Arbitration”, 25th edition,Sweet &
Maxwell, London, 1997, p. 71.
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Parties seldom indicate either a special law applicable to the arbitration agreement or a specific
procedural law. Consequently, the place of arbitration becomes important because it will then
determine the law applicable to the arbitration agreement.
In this connection, the Model Law does not contain rules of choice of law to determine the law
applicable to the arbitration agreement. When adopted by any country, the issue of the applicable
law is solved, because the Model Law sets forth the validity requirements for an arbitration
agreement providing for international commercial arbitration in that State.
The New York Convention adopts, to a greater extent than does the Model Law, the principle
that the parties are free to determine a law different from the law of the place of arbitration as the
law applicable to the arbitration agreement.
The question of the existence and validity of the arbitration agreement may arise in two different
situations:
a) Initially, when one of the parties requests a court to recognize the arbitration agreement (for
instance, by requesting the court to decline its jurisdiction or to appoint an arbitrator); or
The New York Convention provides rules of conflicts of law for this last situation, but is silent
about the first case.
When a dispute regarding the existence or validity of the arbitration agreement arises at the stage
of enforcing an award, Article V.1 provides that recognition and enforcement of the award may
be refused, at the request of the party against whom it is invoked, only if that party furnishes to
the competent authority where the recognition and enforcement is sought, proof that: (a) The
parties to the agreement referred to in Article II were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under the law to which the parties have
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subjected it or, failing any indication thereon, under the law of the country where the award was
made.
Under this provision, the parties are free to determine the rules to which they submit the validity
and scope of the arbitration agreement. The parties’ free will in this sense, however, is not
unlimited, since it is generally required that the rule of law chosen must have some connection
with some of the elements (the legal transaction or the controversy). If nothing has been agreed
upon by the parties, the Convention refers to the local rules of the country where the award was
made. Thus, the determination of the place of arbitration becomes particularly important
inasmuch as the award is considered made at that place.
For the situation described in a) above, Article II.3 of the Convention establishes: “The court of a
Contracting State, when seized of an action in a matter in respect of which the parties have made
an agreement within the meaning of this Article, shall, at the request of one of the parties, refer
the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or
incapable of being performed”
Article II.3 of the Convention establishes: “The court of a Contracting State, when seized of an
action in a matter in respect of which the parties have made an agreement within the meaning of
this Article, shall, at the request of one of the parties, refer the parties to arbitration, unless it
finds that the said agreement is null and void, inoperative or incapable of being performed”.
As Article II does not contain any choice-of-law directive, as does article V.1.a, opinions by
commentators on the Convention vary:
For some, the choice of the rule that govern at the award enforcement stage under Article
V should apply at the earlier agreement enforcement stage under Art II.9
For others, an autonomous interpretation of Article II is possible
The formal requirements for the validity of an arbitration agreement, laid down in Article
II.2, should supersede national law.10
9
VAN DEN BERG, Albert J.: The New York Arbitration Convention of 1958, Kluwer Law and Taxation
Publishers, 1981, p. 126
10
SANDERS, Pieter: “A twenty-year’s review of the Convention on the recognition and enforcement of foreign
arbitral awards”, The International Lawyer, Vol. 13, No. 2, 1979.
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As the applicable law is not indicated, courts may under this wording be allowed some
latitude: they may find an agreement incapable of performance if it offends the law or
the public policy of the forum.11
The standards that the Convention intends to establish for determining enforcement or
arbitral agreements are international standards.12
In order to determine the validity requirements for an arbitration agreement, account should be
taken of the specific conditions required by the applicable law. This is important, as the
invalidity of an arbitration agreement is one of the grounds for requesting the setting aside of an
arbitral award or challenging its enforcement. Notwithstanding other specific requirements laid
down by specific legislation, the most common are the ones described in this section.
The parties’ consent is the basic requirement for the arbitration agreement. Their intention to
submit to arbitration must unequivocally arise from the agreement. The New York Convention
(article II.1) requires that in their agreement the parties “undertake to submit to arbitration” their
disputes. This expression means that:
The agreement must contain a mandatory, rather than permissive, undertaking, and
The agreement must provide for arbitration, rather than another process of dispute
resolution.
The agreement must have originated from the parties’ free will. Therefore, if one of them has
acted induced by error or as a consequence of fraud, coercion or undue influence, there has been
no real consent and the agreement to arbitrate is not valid.
11
HAIGHT, George: “Convention on the recognition and enforcement of foreign awards: summary analysis of
record of United Nations Conference” cited by FRIEDLAND, Paul D. and HORNICK, Robert N.: “The relevance of
international standards in the enforcement of arbitration agreements under the New York Convention”, The
American Review of International Arbitration, The Parker School of Foreign and Comparative Law, Columbia
University, New York, 1995, Vol. 6, No. 2.
12
FRIEDLAND, Paul D. and HORNICK, Robert N.: “The relevance of international standards in the enforcement
of arbitration agreements under the New York Convention”, The American Review of International Arbitration, The
Parker School of Foreign and Comparative Law, Columbia University, New York, 1995, Vol. 6, No. 2.
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The parties’ lack of capacity to submit to arbitration entails the invalidity of the arbitration
agreement. Broadly speaking, the manifestation of will by a party who is not legally entitled to
assume obligations has no legal effects. Capacity is one of the general requirements to enter into
any agreement. The arbitration agreement is subjected to the same rules applicable to the validity
of contracts in general, which means that the lack of capacity usually makes the whole act void.
If the arbitration agreement is invalid or null and void, this could be declared in the following
stages:
Article 8.1, Model Law: “A court before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party so requests not later than when submitting his
first statement on the substance of the dispute, refer the parties to arbitration unless it finds that
the agreement is null and void, inoperative or incapable of being performed”.
Article II.3, New York Convention: “The court of a Contracting State, when seized of an action
in a matter in respect of which the parties have made an agreement within the meaning of this
article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that
the said agreement is null and void, inoperative or incapable of being performed”.
Article 34(2), Model Law: “An arbitral award may be set aside by the court specified in article 6
only if: (a) the party making the application furnishes proof that: (i) a party to the arbitration
agreement referred to in article 7 was under some incapacity; or the said agreement is not valid
under the law to which the parties have subjected it or, failing any indication thereon, under the
law of this State.”
Article 36(1), Model Law: “Recognition or enforcement of an arbitral award, irrespective of the
country in which it was made, may be refused only: (a) at the request of the party against whom
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it is invoked, if that party furnishes to the competent court where recognition or enforcement is
sought proof that: (i) a party to the arbitration agreement referred to in article 7 was under some
incapacity; or the said agreement is not valid under the law to which the parties have subjected it
or, failing any indication thereon, under the law of the country where the award was made.”
Article V, New York Convention: “Recognition and enforcement of the award may be refused, at
the request of the party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that: (a) The parties to the
agreement referred to in article II were, under the law applicable to them, under some incapacity,
or the said agreement is not valid under the law to which the parties have subjected it or, failing
any indication thereon, under the law of the country where the award was made.”
The New York Convention establishes that the parties’ capacity is governed by the “the law
applicable to them.13” This concept does not appear in the Model Law.
There is no uniform understanding concerning the law applicable to the legal capacity of
individuals. It will depend on the system of conflicts of law of the forum called to consider the
arbitration agreement. The prevailing criterion is that legal capacity should be governed by the
personal law of each party.14 This, in turn, opens a new range of possibilities since that “personal
law” may be the one governing either the parties’ nationality or their domicile.15
Laws usually contain specific provisions on the capacity of the parties to an arbitration
agreement. In domestic arbitration, the question has to do with the capacity of the parties to carry
out business transactions16; or to compromise17; or to dispose of assets.18 In international
arbitration the most common problems related to the issue of legal capacity are those referred to
13
Article V.I.a
14
The Spanish Arbitration Law (No.36, 1988) states: “The capacity of the parties to enter into an arbitration
agreement shall be the same as the one required by their own personal law to dispose of in the controverted subject
matter (article 60).
15
Argentina, for example, provides in articles 6 and 7 of the Civil Code that the capacity or incapacity of individuals
is strictly ruled by the domicile, regardless of their nationality and the place in which those acts are performed
16
Argentina: article738, Procedural Code; Ecuador: article 4, Arbitration Law of 1997.
17
Belgium: article 1676, Judicial Code, amended 1998.
18
France: article 2059, Civil Code.
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the ability to act on behalf of legal entities (usually corporations or governments) by the persons
who execute the arbitration agreement. The provisions of the laws vary: some require that the
signatory agent be entrusted with special proxy to submit to arbitration 19; while in others the
arbitration agreement is subject to the same requirements as those to enter into the agreement
that is the subject matter of the arbitration.20
Both the Model Law and the New York Convention require that the agreement be made “in
writing”. However, the notion of “in writing” is broad and includes situations in which the
agreement has not been printed on paper and signed by the parties.
The New York Convention provides that “The term ‘agreement in writing’ shall include an
arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an
exchange of letters or telegrams”.21
The Model Law is even more precise: “An agreement is in writing if it is contained in a
document signed by the parties or in an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement, or in an exchange of statements of
claim and defence in which the existence of an agreement is alleged by one party and not denied
by another. The reference in a contract to a document containing an arbitration clause constitutes
an arbitration agreement provided that the contract is in writing and the reference is such as to
make that clause part of the contract.”22
According to the New York Convention, the term “agreement in writing” shall include an
arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an
exchange of letters or telegrams.23
19
Argentina: article 1882, Civil Code.
20
Belgium, article 1676, Judicial Code.
21
Article II.2
22
Article 7.2
23
Supra 20.
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Following a similar rule, the Model Law defines that “An agreement is in writing if it is
contained in a document signed by the parties or in an exchange of letters, telex, telegrams or
other means of telecommunication which provide a record of the agreement.”24
3.3.2 Are signatures necessary for the validity of the Arbitration Agreement?
The Model Law and the New York Convention require that the agreement be signed. Some
commentators have considered this circumstance as a disadvantage in relation to more modern
laws that do not consider the signature a validity requirement. For example, the English
Arbitration Act (1996) states that there is an agreement in writing if the agreement is made in
writing, whether or not it is signed by the parties. 25 Without the signature, however, it may be
more difficult to prove that the party against whom it is invoked consented to it.
The Model Law provision was nevertheless understood as having a wide meaning.
In High Court of Hong Kong, July 30, 1992, Pacific International Lines (PTE) Ltd. & Another v.
Tsinlien Metals and Minerals Co. Ltd.26 It was held that article 7 of the Model Law requiring a
written agreement to arbitrate had been complied with and gave the defendant seven days to
appoint a second arbitrator; otherwise the court would appoint him.
Moreover, the signature requirement is not as obsolete as it may seem if it is interpreted together
with others set forth by UNCITRAL. Specifically, what is being referred to is the UNCITRAL
Model Law on Electronic Signatures (2001). Its Article 6 states:
1. Where the law requires a signature of a person, that requirement is met in relation to a data
message if an electronic signature is used that is as reliable as was appropriate for the purpose for
which the data message was generated or communicated, in the light of all the circumstances,
including any relevant agreement.
2. Paragraph 1 applies whether the requirement referred to therein is in the form of an obligation
or whether the law simply provides consequences for the absence of a signature.
24
Supra 20
25
Section 5.2.a
26
Published in English: 1992, Hong Kong Law Digest, G5; excerpts of judgement in The Arbitration and Dispute
Resolution Law Journal, Part 4, December 1992, 240
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(a) The signature creation data are, within the context in which they are used, linked to
the signatory and to no other person;
(b) The signature creation data were, at the time of signing, under the control of the
signatory and of no other person;
(c) Any alteration to the electronic signature, made after the time of signing, is detectable;
and
(d) Where a purpose of the legal requirement for a signature is to provide assurance as to
the integrity of the information to which it relates, any alteration made to that information
after the time of signing is detectable.
(a) To establish in any other way, for the purpose of satisfying the requirement referred to
in paragraph 1, the reliability of an electronic signature; or
Article 2 defines “Electronic signature” as data in electronic form in, affixed to or logically
associated with, a data message, which may be used to identify the signatory in relation to the
data message and to indicate the signatory’s approval of the information contained in the data
message.
Accordingly, then, even though the Model Law on Arbitration sets out the signature requirement,
its interpretation in the context of the UNCITRAL model provisions makes it possible to
significantly broaden the concept of “signature” for the purposes of the arbitration agreement.
It is important to point out that the Working Group II of UNCITRAL has been working to update
this rule. There is general agreement that the writing requirement as it is currently drafted in the
Model Law, but more importantly in the New York Convention, reflects a distrust of arbitration
that was common in 1958 when the New York Convention was adopted that is no longer
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appropriate at a time when international commercial arbitration has become the preferred mode
of international dispute resolution. There is, however, lack of consensus as to how far it would be
appropriate to go in admitting various techniques for showing that an agreement to arbitrate had
been concluded. A more difficult problem is whether the Model Law should recognize
arbitration agreements that would probably not qualify as written arbitration agreements under
the most widely accepted interpretations of the New York Convention. As a result of these
conceptual and practical difficulties, at its Thirty-fifth session the Commission considered that
time should be given for consultations before the matter was taken up again. As of the time of
writing, the Working Group has not been able to return to the subject.27
There is also general consensus that the arbitration agreement arises from the exchange of
statements of claim and defence in which the existence of an agreement is alleged by one party
and not denied by the other. This principle, expressly recognized in some laws, is based on the
general legal principle whereby consent can be validly assumed when a party “does what he
would not have done, or does not do what he would have done if he did not intend to accept the
proposal.” The plaintiff’s decision to submit the case to arbitration, consented to by the
defendant, may validly be considered a tacit agreement to arbitrate.
The Model Law admits a third form equivalent to a written arbitration agreement: the reference
in a contract to a document containing an arbitration clause, provided that the contract is in
writing and the reference is such as to make that clause part of the contract. The provision does
not require the existence of a specific reference to the arbitration clause. If the other two
27
Report of the United Nations Commission on the work of its Thirty-fifth Session, 17-28 June 2002
(A/57/17).
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requirements are fulfilled (i.e., the contract has been made in writing and the reference
unequivocally states that the clause is part of it), it is enough for the clause to make a general
reference to the document.
Both the New York Convention28 and the Model Law29 establish that the arbitration agreement
must refer to differences which have arisen or which may arise between them in respect of a
defined legal relationship, whether or not contractual.
In addition to those generic requirements, the arbitration agreement must refer to a concrete and
specific legal relationship between the parties. The parties must have a legal link, which has
given or may give rise to the controversies submitted to arbitration. Although this legal
relationship will most frequently be of a contractual nature, it may well be non-contractual,
provided that it can be identified and delimited.
An arbitration agreement written in terms too ambiguous or generic, which does not restrict its
scope to the disputes arising from a particular juridical relation, would not be acceptable. For
instance, the parties could not agree to submit to arbitration “any dispute that could arise between
them.” Such clause could be questionable, as it would entail waiving the court’s jurisdiction in
too generic and indiscriminate terms.
The law requires that arbitration agreement must not be uncertain and it should be capable of
being ascertained. However, in case there is any uncertainty in the agreement, it is curable and
therefore, it does not render the agreement void ipso facto. In other words, there should be
certainty as to the (1) dispute, (2) consent of parties and (3) identity of the arbitral tribunal and its
composition in the arbitration agreement.
The agreement must clearly indicate as to what disputes or differences are to be referred to and
resolved through arbitration. Like disputes, difference may also be referred to arbitration. The
28
Article II.1.
29
Article 7.1.
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term ‘differences’ has a much wider connotation as compared with the word ‘dispute’. Parties to
transaction may have difference of opinion as to the interpretation of a particular clause in the
contract. Therefore, the matter may be resolved by reference to an arbitration tribunal.30
It must be stated that although existence of a dispute present or future, is an essential requirement
for an arbitration agreement, the subject-matter of the dispute must be lawful. Where the subject
matter of the dispute is unlawful, it is not referable to arbitration. Thus where the main contract
itself is void ab initio or non-existent, the plaintiff could not be compelled to refer the case to
arbitration.31 Likewise, where a contract became incapable of performance due to Act of
God32(Vis Major), or some fraud33 or bias is alleged or the contract relates to purely criminal
matters, the arbitration clause contained in contracts cannot be enforced. Again, where the
arbitration appears to be collusive 34 to defeat or delay the claims of the creditor, the Court may
refuse to enforce such an award.
It must, however, be noted that in case of a contract becoming incapable of performance due to
repudiation or frustration, the validity of that plea and the consequential question of claim of
damages or breach shall still constitute the dispute covered by the arbitration clause which still
survives even after the end of the original contract.35
Another essential requisite of an arbitration agreement is that the parties should intend to make a
reference to arbitration in case of any dispute or difference relating to the terms of the contract.
Thus they agree to accept whatever decision the arbitrators may pronounce on the difference or
dispute referred to them or resolution.
It needs to be pointed out that mutuality being the sine qua non of the validity of a contract, it
would equally apply to an arbitration clause as well. A reference to arbitration requires the assent
of both of the parties. The arbitration clause should be so worded as to give bilateral rights of
reference to the parties. That is, either party should have right of reference to arbitration in the
30
Gulam Qadir Baksh v. State of J& K, AIR 1972 J& K 44.
31
I.T.C Ltd. v. G.J. Fernandez, AIR 1989 SC 839.
32
Heyman v. Darwins, (1942) AC 356.
33
U.P. Cooperative Federation v. Sunder Das, AIR 1967 SC 245.
34
Akram-un-nissa Bibi v. M. Bibi, ILR (1929) 51 All 395.
35
Union of India v. Kishori Lal, AIR 1974 SC 158.
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event of any dispute or difference arising between them.36 Thus there should be mutuality with
regard to initiation of arbitral proceedings as also the bindingness of the award between the
parties.
It is permissible for the parties to stipulate in the arbitration clause that in the event of a future
dispute arising on a specified issue, it is only the privileged party who will have right to make a
reference.37 But the privileged party can also render the arbitration agreement infructuous by not
exercising its option. Thus, the privileged party can alone can refer the dispute provided there is
a clause to this effect in the arbitration agreement and since this unilateral right to make a
reference flows from advanced consent by the other party and agreed terms in the contract, such
an arbitration agreement would be perfectly valid and enforceable.
The arbitration agreement to be valid must spell out the arbitral forum to which disputes,
differences, questions or claims relating to the agreement will be submitted for redressal. Thus
‘forum selection clause’ constitutes one of the essential elements of the arbitration agreement.
Any of the following modes may be adopted for the appointment of arbitrator:
In case the arbitration clause empowers a public body or authority to appoint an arbitrator to
determine any future disputes of the parties, such designated officer or body owes his authority
to the parties and therefore he is expected to exercise his power, “bona fide, reasonably and
honestly.”
36
Baron v. Sunderland Corporation, (1966) 2 QBD 56.
37
Russell on Arbitration, (20th ed), p.39
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If there is any ambiguity or uncertainty in the agreement regarding arbitrator, such an arbitration
agreement shall be void. Thus, where the arbitration agreement stated that the disputes will be
referred to either A or B, such an agreement was held void for uncertainty.
An arbitration agreement is separate and severable from the substantive contract in which it
is engrafted, so that termination of the latter will not amount to termination of the former.
There must, therefore, be a distinct agreement to terminate the agreement to arbitrate.38 A valid
agreement to terminate an arbitration agreement prevents either party from commencing fresh
arbitration proceedings on the issues in question. Any agreement to terminate an arbitration
agreement is subject to the same vitiating factors as other agreements. Thus, if a party is
induced to agree to terminate the arbitration agreement by fraud, duress or misrepresentation,
or there is a fundamental mistake affecting the parties, the termination agreement may be set
aside.
The doctrine of frustration applies to the arbitration agreement inasmuch as it applies to the
underlying contract. However, the arbitration agreement has to be terminated by a separate and
distinct agreement of the parties. An arbitration agreement could be frustrated either by mutual
default of both parties or repudiatory breach by one party to refer the dispute to arbitration if
the delay caused by the mutual default or the conduct of one party was such char a fair
arbitration was impossible.39 The decision of the Privy Council in Hirji Mulji v Yue Steamship
Co40 is the leading authority on the application of the doctrine of frustration to an arbitration
agreement. Here, a vessel due to be chartered under a charter-party was requisitioned by
government action before the commencement of the charter-party. The arbitrators held that the
owners were in breach of contract, and awarded damages to the charterers. However, in appeal,
the Privy Council overturned the award on the ground that the charter-party had been frustrated
by the requisition, with the effect that the charter-party as a whole-including the arbitration
clause ceased to have effect and the award, therefore, was void.
38
Robert Merkin, Arbitration Law, edn 2004, p 568, para 5.69.
39
Andre et Cie SA v. Marine Transport Ltd., The Splendid Sun [1981] 2 All ER 993 (CA).
40
[1926] AC 497.
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This decision, however, predates the affirmation of the principle of severability of the
arbitration clause and its survival even after the annulment of the substantive contract in
which it is embedded, as adumbrated by the House of Lords in Heyman v Darwins Lt412
Here, the House of Lords assumed that frustration of the underlying contract did not
automatically put an end to the arbitration clause. Subsequent cases have proceeded on
the basis that allegations of frustration and consequential issues are capable of being
arbitrated.42 This principle has now been given statutory recognition in s 16(1) of the
Arbitration and Conciliation Act 1996.
No doubt, the established position of the present law is that an arbitration clause is severable
from the underlying contract and also survives it. That is, the frustration of the underlying
contract will not frustrate the arbitration clause. Nevertheless, if on account of intervening
circumstances beyond the control of the parties, the performance of the arbitration
agreement itself becomes impossible, the arbitration agreement will be frustrated. A typical
illustration of this principle is the decision of the Punjab High Court in Gian chand Valaiti
Ram v Kishart Chand43. Here, the arbitration agreement provided that venue of the
arbitration agreement will be Okara and the award will he filed in the court in Montgomery.
The performance of the arbitration agreement became impossible after the partition of the
country because both Okara and Montgomery fell in Pakistan and the agreement was
frustrated. Likewise, an award became void on account of impossibility of performance due
to four hundred percent increase in the prices.
Section 32(2)(a) provides that if the claimant withdraws his claim and the respondent does not
object, the arbitral tribunal shall order termination of the arbitral proceedings because the
parties, by a tacit agreement, have terminated the arbitration agreement. If, however, the
respondent objects to such order, the tribunal may refuse to make the order, if it recognizes a
legitimate interest on the part of the respondent in obtaining a final settlement of the dispute.
41
[1942] AC 356.
42
Kruse v questier and Co. Ltd., [1953] 1 QB 669.
43
AIR 1951 Simla (Punj) 231.
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Section 32(2)(b) further provides that the parties, by agreement, may terminate the arbitration
agreement and consequently the arbitral tribunal shall order the termination of the
arbitration proceedings.
Just as arbitration arises out of an agreement, the parties may terminate it by mutual consent.
This new agreement can be express or tacit. It is express when the new agreement between the
parties is executed in accordance with the provisions previously agreed upon. Implied waiver
operates when one of the parties files a lawsuit about matters contained in the arbitration
agreement, and the other does not timely object to the court’s lack of jurisdiction.
As an example, the Spanish arbitration law provides that the arbitration agreement shall be
deemed discharged if a complaint is filed and the defendant does not raise lack of jurisdiction as
a defence.44
In Union of India v Kishorilal Gupta and Bros45, there were three contracts between the parties for
supply of military stores. Each one of the contracts contained an 'arbitration clause’.
Subsequently, some disputes, which arose between the parties, were resolved by a
comprehensive settlement. In this situation, the Supreme Court held that the settlement
abrogated all the earlier three contracts along with the arbitration clauses in them. Hence, there
was no dispute that could be referred to arbitration on the basis of the arbitration clause in any
one of the original contracts. This holding was followed by a single Judge of the Delhi High
Court in MP Jain v Bennett Colman and Co Ltd.46 Here, the parries entered into a supplementary
agreement which contained not only the arbitration clause but also other terms of the contract
similar to the original contract, and the original contract had neither been rescinded nor
suspended. The court held that the parties did not intend to substitute or rescind the earlier
contract.
44
Art. 11.2.
45
AIR 1959 SC 1362, 1370.
46
1997 (2) Arb LR 94, 99 (Del).
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4.3.1.1 Repudiation
Section 39 of the Indian Contract Act 1872 provides that 'when a party to a contract has refused
to perform, or disabled himself from performing his promise in its entirety, the promisee may put
an end to the contract, unless he has signified, by words or conduct, his acquiescence in its
continuance'. The crux of the concept of repudiation is that a party to the contract makes it plain
to the other party that he has no intention to perform his part of the contract. However, mere
failure to make one of a series of payments will not generally, in the absence of a prospective
refusal, discharge the other party from proceeding with the contract.
In New Bihar Bin Leaves Co v State of Bihar, 47 the Supreme Court stated that 'if a person of his
own accord, accepts a contract on certain terms and works out the contract, he cannot later be
allowed to rely on some other terms of the contract which are advantageous to him and repudiate
the terms of the same contract which might be disadvantageous to him. This is based on the legal
maxim qui approbat non reprobate (one who approbates cannot reprobate). In other words, a
party to an instrument or transaction cannot take advantage of one part of a document or
transaction and reject the rest. That is to say, no party can accept and reject the same instrument
or transaction.
4.3.1.2. Rescission
Section 64 of the Indian Contract Act 1872 provides: 'When a person at whose option a
contract is voidable rescinds it, the other party thereto need not perform any promise therein
contained in which he is promisor. The party rescinding a voidable contract shall, if he had
received any benefit thereunder from another party to such contract, restore such benefit, so
far as may be, to the person from whom it was received.’
A contract is voidable at the option of a party whose consent has been obtained by coercion,
undue influence, fraud or misrepresentation. When such party rescinds the contract, the other
party to the contract is absolved of the liability to perform his part of the contract.
47
(1981) 1 SCC 537.
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If however, the party rescinding the contract has received any benefit under it from another
party to such contract, he shall be liable to restore such benefit, so far as may be, to the person
from whom he has received it48 and a person rightfully rescinding a contract is entitled to
compensation for any damage which he has suffered through non-fulfillment of the contract.49
It is to be noted that an unjustified recession does not always amount to repudiation and
when deciding the question, the court has to consider the conduct of the party as a whole.
That is, erroneous or unsuccessful rescission does not amount to repudiation.
It is evident that both ‘repudiation’ and ‘rescission’ of a contract are unilateral acts of a party, but an
arbitration agreement cannot be unilaterally abrogated by a party. It cannot be abrogated,
because the remedy for breach of the arbitration agreement is not damages, but is its
enforcement. The arbitration clause can be specifically enforced by the machinery of the
Arbitration Act. It survives for the purpose of measuring the claims arising out of the breach,
and the arbitration clause survives for determining the mode of their settlement. The purposes
of the contract have failed, but the arbitration clause is not one of the purposes of the contract.
Therefore, it is not open to a party to an arbitration agreement to repudiate or rescind the
arbitration clause in a contract.
4.3.2. Death
The death of one of the parties does not, as a rule, cause the termination of the arbitration
agreement. Under legal systems that adopt the principle of universal succession, the mortis
causae successor to a person inherits all the rights and duties of the deceased, except those that
could have only been exercised or performed personally (intuitu personae). However, this is a
question to be solved under the applicable law:
Prior to the year 2000, the Paraguayan Procedural Code (article 793) provided that if one of the
parties died before the rendering of the award, the arbitration proceeding would be terminated
and the parties or their successors could go to court.50
48
The Indian Contract Act, 1872, s 64.
49
Ibid, s 75.
50
This provision was abolished by the new Arbitration Law No.1,879 of 2002.
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(1)Unless otherwise agreed by the parties, an arbitration agreement is not discharged by the
death of a party and may be enforced by or against the personal representatives of that party.
(2)Subsection (1) does not affect the operation of any enactment or rule of law by virtue of
which a substantive right or obligation is extinguished by death.”
‘An arbitration agreement shall not be discharged by the death of any party thereto either as
respects the deceased or as respects any other party, but shall in such event be enforceable by or against
the legal representative of the deceased.’51 Furthermore, 'the mandate of an arbitrator shall not be terminated
by the death of any party by whom he was appointed’.52 However, these provisions shall not affect
the operation of any law by virtue of which any right of action is extinguished by the death of a
person’.53 On the death of a person, any cause of action which survives a death and which vests
in his heirs and legal representatives, may be referred by them to arbitration even in the absence
of an arbitration clause in the original agreement.
4.3.3. Insolvency
If a contract to which an insolvent is a party, provides a term that any dispute arising thereof
or in connection therewith shall be submitted to arbitration, the term shall, if the receiver
adopts the contract, be enforceable by or against him so far as it relates to any such
decision.54 However, where a person who has been adjudged as an insolvent had, before the
commencement of the insolvency proceedings, become a party to an arbitration agreement,
and any matter to which the agreement applies is required to be determined in connection
with, or for the purposes of, the insolvency proceedings, then, if the case is one to which s
41(1) does not apply, any other party or the receiver may apply to the judicial authority
having jurisdiction in the insolvency proceedings for an order directing that the matter in
question shall be submitted to arbitration in accordance with the arbitration agreement, and the
judicial authority may, if it is of the opinion that, having regard to all the circumstances of the
case the matter ought to be determined by arbitration, make an order accordingly.
51
The Indian Contract Act, 1872, s 40(1).
52
Ibid, s 40(2).
53
Ibid, s 40(3).
54
Ibid, s 41(1).
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In English law, the bankruptcy of a person who had earlier entered into an arbitration
agreement does not have an automatic discharging effect upon the contract to which the
arbitration agreement relates or upon the arbitration agreement itself. However, a trustee in
bankruptcy has a general power to disclaim unprofitable contracts55 and his decision to
affirm or to disclaim a contract to which an arbitration clause relates will generally
determine the fate of that clause. Section 349A(2) of the Insolvency Act 1986 56 applies
where the trustee in bankruptcy chooses to affirm the contract.57
Historically, it was held that an arbitration agreement contained in a contract was accessory to
the main contract and that the invalidity of the contract also entailed the invalidity of the
arbitration agreement. On the basis of that interpretation, arbitral jurisdiction was frequently
restricted by challenges to the validity of the contract, since those challenges involved the
arbitrators’ jurisdiction as well.
If the main contract is null and void, so is the arbitration agreement that is accessory to it;
If the arbitration agreement is considered null and void, arbitrators lack jurisdiction to
solve any of the question relating to such contract, including whether the contract is
invalid or not;
As the validity of the arbitration agreement is being questioned, arbitrators must not
intervene until a court decides the matter.
In this way, the mere filing of such a defence would entail an obstacle to arbitration.
55
Robert Merkin, Arbitration Law, ed 2004, p 87, para 3.30.
56
Inserted by the Arbitration Act 1996 Sch 3, para 46.
57
Supra 55.
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In order to avoid that situation, most laws and regulations on arbitration have included two very
important principles:
The two principles mentioned refer to different situations. The “Kompetenz -Kompetenz”
principle aims at giving arbitrators the possibility to examine and decide in first instance on any
objection to their jurisdiction. According to the principle of “separability of the arbitration
clause”, if the arbitrators decide, within the scope of their jurisdiction, that the contract
containing the arbitration clause is null and void, that does not entail the loss of their jurisdiction.
In practice, however, the two principles complement one another, since the contentions are
usually made at the same time. The invalidity of the contract, the invalidity of the arbitration
agreement and the consequent lack of jurisdiction of arbitrators are often part of a common
defence strategy.
The principles described have been upheld by the authors, accepted in case law and recognized
by statutes. Their purpose is to enable arbitrators to retain jurisdiction and solve the disputes,
even those related to the validity or invalidity of the contract. Otherwise, the mere contention of
invalidity of the contract would imply neutralizing the effects of the arbitration agreement. This
would, in turn, mean invalidating the method chosen by the parties to settle the conflict.
The ultimate argument of these provisions is that the arbitration clause is not just another clause
within a contract. Its special purpose –to confer jurisdiction upon those who must solve the
differences arising under the contract– entails empowering arbitrators to rule on all questions
related to the contract, even those relating to their own jurisdiction.
There are also other reasons behind these rules. The possibility of removing the arbitrators by
just raising a plea that the contract is invalid would constitute a simple way of avoiding
arbitration. If the matter of the arbitrator’s jurisdiction was dependant on a previous court
decision on the validity of the contract, arbitrators’ intervention could easily be avoided. This
would entail disregarding the original common intention of the parties to submit conflicts arising
out of the contract to arbitration.
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Although these principles are widely accepted, recourse to the courts is usually provided to
review the arbitrator´s ruling on competence, either through a direct right to review (when the
issue of competence was subject to a previous partial award) or at the stage of setting aside the
award (when the issue was part of the final award).
Article 16 of the Model Law upholds these two principles when it says:
(1)The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to
the existence or validity of the arbitration agreement. For that purpose, an arbitration clause
which forms part of a contract shall be treated as an agreement independent of the other terms of
the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail
ipso jure the invalidity of the arbitration clause.
(2)A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the
submission of the statement of defence. A party is not precluded from raising such a plea by the
fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the
arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter
alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The
arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
(3)The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a
preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary
question that it has jurisdiction, any party may request, within thirty days after having received
notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be
subject to no appeal; while such a request is pending, the arbitral tribunal may continue the
arbitral proceedings and make an award.”
As can be seen, this rule does not confer upon arbitrators full powers to rule on the contention of
lack of jurisdiction. They are allowed to decide this matter initially, as a way of preventing the
mere raising of the plea from causing their removal. By examining the background to the case,
the arbitral tribunal may decide to what an extent the defences raised by the parties are legally
32 | P a g e
effective. In the meantime, however, the arbitration clause must be considered valid in order to
allow arbitrators to rule on its existence, validity or duration.
In Ontario Superior Court of Justice, July 29, 1999, NetSys Technology Group AB v. Open Text
Corp.58 the court concluded that the adoption of the Model Law in Ontario signalled a significant
trend to circumscribe judicial intervention in arbitral proceedings. The Court thus ordered a stay
of judicial proceedings to remain in force until the final disposition of the jurisdictional issue by
the arbitral tribunal, whether as a preliminary decision or in the final award.
However, as is laid down in paragraph 3, this arbitrators’ decision is subject to judicial review. In
this connection –the commentators of the Model Law explain– the issue is not the finality of the
arbitrator’s decision on their jurisdiction and the consequent ouster of the jurisdiction of the
courts, but rather when and the conditions under which the courts may play their role as the final
authority on the question of arbitral jurisdiction. The basic problem is how to reconcile the
realization of the objectives of commercial arbitration, which would be defeated if an arbitral
tribunal would have to suspend or cease its proceedings every time a party pleaded invalidity of
the arbitration agreement, with an effective measure of court supervision to ensure that the
arbitral tribunal does not finally confer on itself a jurisdiction that by reason of the contractual
nature of arbitration can only derive from the parties’ agreement.59
In most of the cases, arbitration agreements are part of main contract containing terms and
conditions dealing with other matters. Many a times the parties continue their relationship even
after the expiry of the duration of the contract. The question, therefore, arises whether arbitration
clause would also be deemed to be surviving in such cases or it terminates with the expiry of the
original contract.
This issue came up for consideration before the Supreme Court in Bharat Petroleum Ltd v. The
Great Eastern Trading Co.60 which involved maritime arbitration. The BPLCL hired certain
number of vessels owned by Great Eastern Co. for a period of two years. The Charter party
contained an arbitration clause to resolve disputes arising under it. Even after the expiry of the
58
[1999] O.J. No. 3134 (Ont. S.C.J.).
59
BROCHES, Aron, Commentary on the UNCITRAL Model Law.
60
2007 (12) SCALE 247.
33 | P a g e
specified period of two years, the ships were continued to be used by the hirer (BPCL), but no
fresh agreement was entered into despite several requests from Great Eastern Trading Co.
Dispute arose between the parties on payment of hire charges during the extended period of two
years. Great Eastern Trading Co. demanded payment of hire charges only at the revised rate.
Therefore, the matter was referred to an Arbitration Tribunal which made an award holding that
it had no jurisdiction to decide the dispute as the arbitration clause under the original contract
had already expired. The respondent (Eastern Trading) challenge the said award holding that
Arbitration Tribunal had the jurisdiction to adjudicate as the vessels were continued to be hired
by BPCL even after the expiry of two years. The appellant BPCL went in appeal against this
order of the High Court. The Supreme Court took note of the conduct of BPCL in not responding
to specific letters from Great Eastern Co. on the issue of hire charges for the extended period,
applied the principle of sub silentio and disallowed the appeal holding that BPCL’s conduct
amounted to acceptance of proposal of Great Eastern to continue application of the terms and
conditions of the original contract until it was renewed.
It has been generally seen that in case of govt. contracts, an employee is entrusted with the duty
of certifying the quality or performance of the works and it is often written that his decision shall
be ‘final’. Difficulty that arises whether to interpret such a clause as ‘arbitration’ or it should be
treated as mere certification as an administrative act. The available case law on the point favours
the view that such matters should be excluded from arbitration, that is such contracts are non-
arbitrable.
In Food Corporation of India v. Surendra, 61the contract stipulated that decision of the Principal
Officer shall be final in matters relating to quality and quantity of works and pursuant to that
stipulation, the Officer adjudicated upon a dispute. The Supreme Court held that the same could
no longer be arbitrated in absence of the agreement clause in the contract.
Where the agreement clause contained that “in the event of a dispute, the decision of the
Superintending Engineer of the Circle shall be final,” such unilateral condition could not be
imposed through an arbitration clause.62 Likewise, in K. Shashidharan v. Kerala State
61
AIR 1988 SC 734.
62
Prabartak Commercial Corporation v. Chief Administrator, Dandokaranya Project, AIR 1991 SC 957.
34 | P a g e
Corporation,63 the Supreme Court declined to order arbitration under the Arbitration Act as it
found that the subject-matter was excluded from the arbitration clause.
In M/S GAIL (India) Ltd. v. Nagarjuna Cerachem Pvt. Ltd.,64 the contract for supply of gas itself
provided for a mode of settlement of disputes arising from contract by reference to arbitration
and arbitrators were authorised to decide both questions of fact and questions of law. Therefore,
the Andhra Pradesh High Court held that there was no reason why the parties should not follow
and adopt that remedy and invoke the extraordinary jurisdiction of the High Court under Art.226
of the Constitution. The existence of an effective alternative remedy in the contract itself was a
valid ground for the Court to decline exercise of its jurisdiction under Art.226 and the prayer for
issuance of a writ of mandamus was wholly misconceived in this case. The writ petition was
therefore not maintainable.65
6. Concluding Remarks
It is settled that getting resolution of a dispute by arbitration is a matter of contract between the
parties and so long as the contract does not vitiate any provision of the Arbitration Act, there is
nothing in law to prevent the arbitration agreement between the parties being given effect in full.
However, it is to be noted that where parties by an arbitration agreement agreed that the arbitral
proceedings would be conducted in accordance with the Rules of Indian Council of Arbitration
(ICA), it does not mean that the parties have not retained power of appointment with themselves.
In other words, parties were free to adopt procedure for appointment of arbitrator and were not
bound by the procedure of appointment of arbitrator as laid down under ICA Rules that an
arbitration clause in a contract should be distinguished from an arbitration agreement.
63
AIR 1994 SC 2534.
64
AIR 2005 AP 151.
65
State of U.P. v. Bridge & Roof Co. (India) Ltd. AIR 1996 SC 3515.
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While arbitration clause being a part of the contract, it is an agreement collateral to the main
contract and therefore it perishes with the termination of the contract. But an arbitration
agreement has a separate existence because it is separately executed. It, therefore, follows that a
separate existing agreement provides more strength and vitality to the validity of arbitration
proceedings and the arbitration award. Again, a separate arbitration agreement will not be
assignable being in the nature of a personal covenant, but as against this, an arbitration clause in
a contract, being collateral to the main contract, is transferred when the main contract is
assigned.
The arbitration agreement is an exception to the general principle that agreement in restraint of
legal proceeding is void. The Arbitration agreement in the Arbitration and Conciliation Act,
1996 is different in many aspects from Arbitration Act, 1940 wherein it was not essential that
agreement shall be in writing. The word used in Arbitration Act, 1940 is ‘difference’ instead of
‘dispute’, which has larger ambit than that of the word ‘difference’. Hence, it can be said that in
some aspects, the new Act is development of the old one but it is very similar to UNCITRAL
Model Law and the New York Convention.
7. Bibliography
Books
SUTTON, David St. John, KENDALL, John & GILL, Judith, “Russel on Arbitration”,
25th edition, Sweet & Maxwell, London, 1997.
D. Caron, L. Caplan, The UNCITRAL Arbitration Rules: A Commentary (Oxford
Commentaries on International Law), (2013).
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Websites
www.washingtonpost.com/...arbitration-agreements/.../gIQAg4L.
www.wipo.int/amc/en/arbitration/egeda/recommended-agreement/
https://www.arbfile.org/af-static/.../RulesAndAgreements/agreement-ir.pd
www.cfjblaw.com/kyle-whitehead-authors-article-discussing-arbitration-...