Supreme Court of India: Interpretation of a multi-tier dispute resolution clause in India

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In the case of M/s. Zhejiang Bonly Elevator Guide v. M/s. Jade Elevator Components Arb. Pet (Civil) No. 22 of 2018, the Supreme Court of India, while dealing with an application for the appointment of an arbitrator under Section 11(5) of the Indian Arbitration Act (the Act) interpreted a multi-tier dispute resolution containing a choice to refer the dispute either to arbitration or to Court. Please read the case analysis given below:

Factual Matrix

A Chinese company (Petitioner) entered into supply contract with Indian company (Respondent) in respect of supply of certain products. Dispute arose amongst the parties in the course of performance of the contract and the Petitioner appointed the sole arbitrator. Thereafter, the Petitioner called upon the Respondent to consent the said appointment. The Respondent refused to concur and consent to the appointment of the sole arbitrator. The Petitioner went to the Supreme Court of Indian under Section 11(5) of the Act for the appointment of an arbitrator.

Arbitration Clause

“15 Dispute handling:

Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court.”

Applicable Legal Principle

Section 11(5) of the Act

Section 11 – Appointment of arbitrators

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by 1[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].

Parties Contentions’

The Petitioner argued that on proper scrutinization of the above clause, it ought to be inferred that the disputes are to be settled through consultation and, if the consultation fails by treatment of to the arbitration body for arbitration or Court and, therefore, the matter has to be referred to arbitration. It is further submitted that the clause is not categorically specific that it has to be adjudicated in a court of law. It leads to choices and the choice expressed by the petitioner is arbitration.

Per contra, the Respondent urged that when it is stated arbitration or Court, the Petitioner should knock at the doors of the competent court but not resort to arbitration, for the clause cannot be regarded as an arbitration clause which stipulates that the disputes shall be referred to arbitration.

Analysis

The Court observed that bare perusal of clause infers that the disputes should be settled through consultation and if the consultation fails by treatment of to the arbitration body for arbitration or the court.

The Court further observed that the intention of the parties, as it flows from the clause, is that efforts have to be made to settle the disputes in an amicable manner and, therefore, two options are available, either to go for arbitration or for litigation in a court of law.

The Court relied on its earlier dicta in INDTEL Technical Services Private Limited vs. W.S. Atkins Rail Limited (2008) 10 SCC 308 wherein the Court considered the intentions of the parties to have their disputes resolved by arbitration by relying on the wordings of the clauses in their agreement and referred the matter for arbitration.

Applying the said pronouncement on the given case, the Court found that there is an option in the impugned clause and the Petitioner has invoked the arbitration clause.

Conclusion

The Court appointed the arbitrator concluded that the Court should take into account the intention of the parties to have their disputes resolved by arbitration.

Singapore High Court on Multi-tier Dispute Resolution Clause

In the case of Ling Kong Henry v Tanglin Club [2018] SGHC 153, dealt with the issue of whether a multi-tier dispute resolution clause constitutes an agreement to arbitrate. After citing the English, Hong Kong and Singaporean authorities on the issue the Court held that these authorities concur and holds that such clauses constitute agreements to arbitrate.

Read full case analysis at Singapore High Court: Whether a multi-tier dispute resolution clause constitutes an agreement to arbitrate

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