Introduction
India has been observed as the hub of start- ups and a growing attraction for foreign direct investments. However, this advancement shown in the business world is not the reality of the legal world. For decades, courts have been overloaded with pending cases. Arbitration has become the much approachable way of solving disputes due to its speedier resolution process. These advantages have paved the way for establishment of pro-arbitration regimes in places like London, New York, and Singapore. A pro-arbitration regime gives utmost importance to a party’s autonomy which is reflected through their selection of arbitration and minimal intervention of the judiciary in the arbitration proceedings. The reference to arbitration can be found embedded in the history of India, the same did not translate into a pro-arbitration stance, as can be perceived from the applicability of Arbitration act, 1940 being limited to domestic arbitration. [1] The amendments and the position taken by the system in the recent times has showcased the increased desire of India to join the pro-arbitration league.
The quest for a flexible, quick and less adversarial process of dispute resolution has resulted in more and more parties choosing Alternate dispute resolution mechanisms (ADR) through inclusion of Multi-tier clauses in complex contracts like construction contracts, joint venture agreements and other long-term relationships. [2] Pre-arbitration clauses/Multi-tier clauses/escalation clauses have been a progressive trend in the contracts drafted in the modern times. These clauses are an additional means of resolving disputes through distinct stages and separate definitive procedures prior to arbitration. [3] The intervention of courts in regard to the jurisdiction and admissibility of such clauses has taken India a step backwards from its aim to enter the pro-arbitration regime.
India on Pre-Arbitration Clauses
Pre-arbitration clauses help to avoid expensive arbitration processes and continue their long built relationships unscathed. Even though such clauses are gaining momentum, there exists clouded controversies surrounding the same. The parties are not often aware of the future consequences of such clauses and it may result in futility if not drafted with certainty.
In India, the dilemma regarding the mandatory nature of such clauses has been largely settled by the Supreme Court in two cases being Oriental Insurance Company vs M/s Narbheram Power and Steel Pvt. Ltd. and United India Insurance Co Ltd. vs Hyundai Engineering and Construction Co. Ltd. & Ors which took the view that arbitration clauses must be strictly construed. Thereby, the parties are to adhere to the completion of the ‘pre-conditions’ to arbitration. The clauses so drafted in these cases were mandatory in nature and it was found that in order to trigger arbitration, the pre-conditions had to be mandatorily adhered to.
In a recent case, the Bombay High Court in Quick Heal Technologies Limited Vs. NCS Computech Private Limited and Ors, relying on Visa International Ltd. Vs. Continental Resorts (USA) Ltd held that though the clause was mandatory in nature if from the correspondence between the parties it can be inferred that the pre-condition would have resulted in futility then the invocation of arbitration immediately will be valid. The current India stand is in congruence with the majority view that the pre-arbitration clause will be mandatory and is a pre-condition based on the nature of drafting of the clause. This being said, it has a long way to go in determining the standard of compliance and reducing the intervention of courts in arbitration proceedings.
Admissibility Question by the Arbitration Tribunal
This brings us to a much unacknowledged dilemma regarding the jurisdiction of the courts to address the mandatory nature of the pre-arbitration clause. The stepping stone to limit the intervention of the judiciary thereby, respecting the party autonomy to arbitrate was brought about in the 2015 Amendments. The legislative intent behind this amendment was to make the arbitral tribunal address such issues and not the courts. Moreover, pre-arbitration clauses are considered to be a matter of admissibility and thereby, the tribunal is the forum that has to decide if the pre-conditions are met in order for it to initiate arbitration. The thin line of distinction between jurisdiction and admissibility is that, in the former the outcome of the claim cannot be given by the prescribed forum while in the latter the claims pertaining to merits cannot be heard before the forum. [4] The pre-arbitration procedural requirements should not constitute jurisdictional bars to arbitration proceedings and is to be regarded as matters of admissibility or procedure that can be cured. [5] Thereby, limiting the possibility of interlocutory judicial decisions and annulment of arbitral awards on jurisdictional grounds. [6] The competence- competence principle is internationally recognized and has been provided for in 1996 Act. [7] As per, this principle the arbitral tribunal has the power to address the questions on its own jurisdiction and the same is prerequisite to adjudicate upon the admissibility. [8] There exists no measurable standard to address the fulfilment of the pre-arbitration clause in case of its failure and thereby, barring the jurisdiction of the tribunal will be in violation of the parties’ right to be heard.
Around the World
Arbitration agreements being vital to the distinction of the jurisdiction of the arbitral tribunal is to be construed in the right spirit. The Singapore High Court in Ling Kong Henry v Tanglin Club [2018] SGHC 153 in concurrence with House of Lords in the Channel Tunnel Group v Balfour Beatty Ltd. [1993] 1 All ER 664 and Westco Air-conditioning Ltd v. Sui Chong Construction & Engineering Co Ltd [1998] 1 HKC 254 held that a multi-tier dispute resolution clause is in its entirety an agreement to arbitrate and the obligation to arbitrate is invoked only when the preconditions to the commencement of arbitration have been adhered. These international precedents pave the way for construing a multi-tier arbitration clause as an arbitration agreement. Further, the English High Court in Republic of Sierra Leona v. SL Mining Ltd [2021] EWHC 286 (Comm) held that the alleged non-compliance of a pre-condition to arbitration was a question of admissibility of claim before the arbitral tribunal and not of jurisdiction. The United States Supreme Court provided a similar stand in BG Group v Republic of Argentina 134 S.Ct.1198 and held that the question of compliance is not of jurisdiction to be reviewed by the courts. Thus, implying that the arbitral tribunal is the competent forum to decide the admissibility of the dispute in regard to the fulfilment of pre-conditions to arbitration as the parties had a clear intent to avoid proceedings before the court.
Conclusion
International jurisdictions are unravelling the difference between jurisdiction and admissibility attached to pre-arbitration clauses. The best approach in addressing this issue is to presume absent contrary evidence and proceed with the notion that pre-arbitration compliances are not jurisdictional, but matters that are to be determined by arbitrators. The rationale for this approach is that parties desire a centralised one-stop forum for resolution of disputes and presumptively intend for a single, neutral arbitral tribunal to resolve all the questions regarding conduct and procedural necessities. [9] The Arbitration and Conciliation Act, 1996 though provides provisions for upholding the sanctity of the arbitration tribunal, loses the practical and commercial significance of arbitration agreements due to the intervention of the Courts. Parties intend to include pre-arbitration clauses in commercial contracts in the form of ADR mechanism and not litigation in order to reduce the intervention of the courts. The recent developments of the Indian courts deciding upon the jurisdiction and admissibility of the matter is fundamentally violating the parties’ choice to resort to arbitration. Therefore, India needs to address the line of contradiction prevalent between the admissibility and jurisdiction with respect to the clause at the earliest in order to protect the choice of the parties to arbitrate.
References:
1. Harpreet Kaur, Note, The 1996 Arbitration and Conciliation Act: A Step Toward Improving Arbitration in India, 6 Hastings Bus. L.J. 261, 262 (2010).
2. Didem Kayali, Enforceability of Multi-tiered Dispute Resolution Clauses, 551 Journal of International Arbitration 52 (2010).
3. Michael Pryles, Multi-Tiered Dispute Resolution Clauses, 18(2) Journal Of International Arbitration, 159 (2001).
4. Jan Paulsson, Jurisdiction and Admissibility, 601 Global Reflections on International Law, Commerce And Dispute Resolution, 602–03 (2005).
5. Gary Born and Marija Šćekić , ‘Pre-Arbitration Procedural Requirements -A Dismal Swamp’, Practicing virtue inside International Arbitration (oxford university press), (2015).
6. Jan Paulsson, ‘Jurisdiction and Admissibility’ in Gerald Aksen, Karl Heinz Böckstiegel, Paolo Michele Patocchi et al (eds), Global Reflections on International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (ICC 2005), 617.
7. Arbitration and Conciliation act 1996, § 16.
8. Friedrich Rosenfeld, Arbitral Praeliminaria – Reflections on the Distinction between Admissibility and Jurisdiction after BG v. Argentina, 29 LEIDEN J. INT’L L, 137, 149 (2016).
9. Gary Born, International Commercial Arbitration, 3rd edition (2021).
The authors are Arya Vineeth and Isha Deepak, Fourth Year Students of Institute of Law, Nirma University, Ahmedabad.