Alternative dispute resolution techniques have gained prominence today as a preferable choice over dispute settlement in courts.
Approaching a court in the event of dispute between private entities can be an intimidating and tiring process for various reasons like very formalized and cumbersome court procedure,inevitable delayshigh cost of litigation.The parties have to wait for years to get a final resolution for their dispute.
Nevertheless, disputes are inevitable in business. Hence, various alternative dispute resolution mechanisms like arbitration, conciliation, negotiation and mediation have evolved for quick resolution of private disputes which helps parties to avoid costly and time consuming litigation’s.
Arbitration always remains a superior venue to resolve disputes due to its speediness, cheapness, convenience, simple procedure, secrecy and the encouragement of healthy and friendly relation between the parties. It is one of the oldest methods of settling disputes between two or more persons by reference of the dispute to a neutral third party, called arbitrator.It is an out-of-court proceeding in which an arbitrator hears evidence and then makes a binding decision.
Arbitration can only be conducted if there is an arbitration agreement or an arbitration clause in an agreement governing the relationship between the parties. It mostly arises out of a contractual relationship between parties.
ARBITRATION AGREEMENT AND ARBITRATION CLAUSE:
An arbitration agreement is a written contract in which two or more parties agree to settle a dispute outside of court.
The arbitration agreement is ordinarily a clause in a larger contract. It is not always necessary to have a separate agreement for arbitration between the parties. As described in 7(2) of the Arbitration and Conciliation Act, 1996, it may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
An arbitration clause contains various rules and regulations regarding the arbitration procedure that requires the parties to resolve their disputes according to those terms and conditions. Like any other clauses, all parties must agree to its use in the contract before the contract is signed.
Settlement of disputes through arbitration is only possible when there is a arbitration clause inserted in the contract itself, clearly providing for settlement of any disputes arising under the contract In future, by arbitration, or if no arbitration clause is included in the contract, an arbitration agreement may be entered into later at any stage before or after a dispute has arisen under the contract.
SOME IMPORTANT POINTS ABOUT ARBITRATION CLAUSE:
- If a contract containing an arbitration clause comes to an end or is avoided on the ground of fraud, misrepresentation, undue influence or coercion the arbitration clause continues to be binding.
- But if the parties are not ad idem, there is no contract at all and the arbitration clause is not binding.
- Same in the case when arbitration agreement is void ab initio or illegal agreement.
- If in a void or illegal agreement, the arbitration clauses were valid, it would have the effect of negating the court’s jurisdiction over the matters covered by the agreement.
- Although the arbitration clauses may or may not specify that arbitration occur within a specific jurisdiction, it always bind the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause.
ESSENTIALS OF ARBITRATION CLAUSE:
These are some important elements that should be kept in mind while framing a valid arbitration clause.
- Written agreement
- Valid agreement
- Number of arbitrators
- Establishment of tribunal
- Ad hoc or institutional arbitration
- Place of arbitration
- Governing law
SAMPLE ARBITRATION CLAUSES:
This is an example of arbitration clauses:
- All claims and disputes arising under or relating to the Agreement made between ABC and Co. and XYZ and Co. are to be settled by binding arbitration in the state of west Bengal by a sole arbitrator.
- In case the parties are unable to agree upon a sole arbitrator within 15 days of the written notice of dispute being received by other party, the dispute shall be decided by an arbitral tribunal comprising 3 members, with one arbitrator appointed by each party , and the two appointees jointly selecting the third arbitrator. The process of appointment shall be completed within 30 days of the notice received by other party.
- The arbitrator shall be a corporate lawyer having 5-8 years of experience in IPR field. The fee for a single arbitrator shall be capped at INR 30000.
- The final order must be passed by the arbitrators within 90 days of the appointment of arbitrators.
- The proceeding and award shall be made in English.
EXAMPLE OF ARBITRATION CLAUSES
This is an example of a standard arbitration clause, in use at Amazon.com.Within Amazon’s Conditions of Use agreement, there is a section titled Disputes. The very first sentence of this section states clearly:
“any dispute or claim relating in any way to your use of any Amazon Service, or to any products or services sold or distributed by Amazon or through Amazon.com will be resolved by binding arbitration, rather than in court….”