Arbitration: Pathalogical Clauses / Vague Clauses

Held: Where intention to arbitrate exists, the clause is not vague.

INFERRING THE INTENTION TO ARBITRATE

Also see: Perma Container (UK) Line Ltd, Bombay High Court in ARBITRATION

PETITION NO. 490 OF 2009 decided on September 9, 2009.

In Nandan Biomatrix v. DI Oils, available on 2009 (5) Mh.L.J. 153, the Supreme Court decided an interesting issue pertaining to vagueness in arbitration agreements. The alleged arbitration clause in question in the agreement between the parties read:

15.1 Any dispute that arises between the parties shall be resolved by submitting the same to the institutional arbitration in India under the provisions of Arbitration and Conciliation Act, 1996.

The question before the Court was whether the clause was vague and uncertain (and therefore void) as it did not specify any particular institution.

Courts will usually uphold the validity of inaccurately worded or imprecise arbitration clauses if the intention of both parties can be ascertained from the text. It appears that the position of law is that an arbitration agreement, though required to be in writing, need not be in any specific

form. What matters is the substance of the agreement,. The question to be asked in such cases is – can an intention to arbitrate be demonstrated from an interpretation of the agreement?

On the facts of the case, the Supreme Court held that the clause in the agreement was sufficiently precise to indicate an intention to arbitrate; and accordingly the matter was referred to arbitration before the Singapore International Arbitration Centre (SIAC). The reasoning of the Court was that although no institution was specified, the intention to settle the dispute by arbitration was clear.

This reasoning is slightly problematic if it is extended to mean that the "intention to arbitrate" must be determined in the abstract. Often, an intention to arbitrate will be closely tied to an intention to arbitrate before a specific forum. Thus, it is entirely conceivable that parties want

their disputes to be arbitrated only before a particular institution. For instance, let us assume that an agreement says that disputes are to be arbitrated before an ICC panel. Additionally, let us assume that just before the agreement, the ICC has decided to discontinue its arbitration

activities. Can the Court now say that the parties had an intention to arbitrate, and therefore the dispute can be arbitrated before another arbitral institution, given that the ICC was no longer an option? The presumption must be that the parties intended to arbitrate only before the

specifically named institution; and failing that institution there is no intention to arbitrate at all.

The Court noted, "…the parties unequivocally agreed for resolution of the disputes through Institutional Arbitration and not through an ad hoc arbitration". It would appear, however, that the parties could at best be stated to have agreed for the resolution of the disputes between them through institutional arbitration in India in accordance with the Indian Arbitration Act in force. The factor that parties in an international commercial transaction have agreed to a specified forum must assume importance. Accordingly, the reference to the SIAC seems slightly

problematic – even assuming an intention to arbitrate is inferred, that intention must have meant an intention to arbitrate before an institutional body in India.