Alternate Dispute Resolution has been the most sought-after means for resolving disputes, especially in a world of transactions. Modern-day arbitration agreements have seen a great influx of parties incorporating provisions that require them to take certain steps before resorting to the adjudicatory process of Arbitration. Such clauses often described as "multi-tiered" clauses, set out a sequence for invoking the arbitration agreement. Typically, pre-arbitration steps include procedures such as time-bound mediations, amicable settlements, cooling-off periods, and other forms of non-binding determinations.
Nonetheless, despite being a recurrent feature in dispute resolution clauses, the legality of pre-arbitration procedures in India is unclear and an overview of the judgments shows that the courts have often rendered conflicting decisions. Broadly, the courts have taken two views. A majority of the courts have given effect to the plain meaning of the arbitration clause (on a case-by-case review) and have held that pre-arbitration procedures are mandatory and go to the jurisdiction of tribunals, while other courts (the minority view) have characterized (as a matter of general principle) pre-arbitration steps as optional and non-mandatory.
This article shall deal with these perplexities that envelop a contract with a dispute resolution clause setting out pre-arbitration procedures as a condition precedent and addressing the effectiveness of such a clause.
Pre-arbitration procedures are colloquially known as escalation clauses or "ADR first" clauses. Parties opting for the incorporation of such clauses have an understanding that, if an issue arises, they shall use this process-based approach, which may include negotiation, mediation, or conciliation, before resorting to arbitration. These preliminary procedures are designed to help both parties to resolve any disputes before taking the subject to arbitration. The adjudicatory process of Arbitration is the final tier of these clauses to fasten the resolution of disputes, and it is employed only if the initial stages have failed.
The inclusion of such clauses in transactional documentation is governed by recognition of the understanding that all disputes do not require to undergo the rigorous of the adversarial dispute resolution process and scripting a pre-arbitration procedure is intended to nudge parties to seek alternative modes of dispute resolution before moving towards the more cumbersome and judicial process of arbitration. But it's of prime importance to understand the jurisdictional acceptability of such clauses both on the domestic and international front to scope out their effectiveness for one's consideration.
The Pre-Arbitration Procedures - India- UK – Singapore Optional vs Mandatory
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.