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Shaneen Parikh
Partner, Cyril Amarchand Mangaldas, Mumbai
shaneen.parikh@cyrilshroff.com

Jeet H Shroff
Principal Associate, Cyril Amarchand Mangaldas, Mumbai
jeet.shroff@cyrilshroff.com

Many dispute resolution clauses today are multi-tiered, setting out a consultation process that includes an amicable settlement of disputes prior to commencement of arbitration or litigation. The consultation process may be relatively informal (for instance, between designated representatives of the parties) or more formal (for instance, with a third-party mediator/dispute resolution board). Tiered dispute resolution clauses aim to minimise costs and save time, by allowing parties multiple chances to resolve their disputes without proceeding to arbitration or litigation proceedings. This article analyses the law on tiered dispute resolution clauses in India, Singapore and England to answer the question: Are pre-arbitration procedures mandatory and required to be strictly followed?

General rule in favour of strict enforcement

General principles of contract interpretation are as relevant to dispute resolution provisions as they are to any other provision in a contract. Where the wording of a clause is clear and unambiguous, the provision must be applied as it reads.¹ It is settled law in most jurisdictions that only when the language is ambiguous can surrounding circumstances and the commercial purpose of a contract be used as an aid to interpretation. Courts have applied the same principles of interpretation to dispute resolution and pre-arbitration consultation clauses. Such clauses are strictly enforceable as pre-conditions to the commencement of arbitration, if they are sufficiently specific and drafted in mandatory terms.²

Earlier cases under English law³ treated consultation clauses as unenforceable because they lacked certainty and were impossible for courts to police.⁴ This position began to change with the decision in Cable & Wireless v IBM United Kingdom5 in which the court ruled that pre-arbitral consultation clauses would be enforced if they were ‘sufficiently defined’ and set out tangible obligations capable of enforcement by courts (such as requiring parties to initiate mediation, appoint a mediator and present their case). However, even absent an ‘identifiable procedure’ such clauses would be enforced so long as there was ‘an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find’.

In the more recent case of Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd,⁶ the English High Court upheld a tiered clause which required parties to attempt to resolve their dispute by ‘friendly discussion’ for a continuous period of four weeks before initiating arbitration. The court enforced the clause because it was complete and certain in that it required ‘fair, honest and genuine discussions’. The court cautioned against conflating the difficulty of proving a breach with uncertainty and further held that such clauses were in the public interest (in helping parties avoid an ‘expensive and time-consuming arbitration’).

Courts in Singapore have applied similar principles.⁷ In HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd,⁸ the Singapore Court of Appeal held that a requirement that parties ‘in good faith endeavour to agree’ was mandatory because it was in the public interest and because a breakdown of negotiations would cause no harm to the parties, since the dispute could still be resolved by other means. The decision in HSBC Institutional Trust Services was followed by the Singapore Court of Appeal in International Research Corp Plc v Lufthansa Systems Asia Pacific Pte Ltd.⁹In Lufthansa, parties had provided for a four-tier dispute resolution clause requiring consultation by three different committees followed by arbitration as the final step. The court rejected the argument that seven meetings conducted between the parties constituted compliance with the clause because ‘the precise persons required to be involved pursuant to the clause 37.2 process were not so involved’.¹⁰ The court ruled that where parties have stipulated a ‘specific set of dispute resolution procedures as preconditions for arbitration’,¹¹ substantial compliance with such preconditions would not be sufficient, actual compliance must be proved.

Therefore, as a general rule courts strictly enforce clauses requiring pre-arbitral consultation if the clause provides for a specific, defined and clear dispute resolution process.

Nuances under Indian law

Indian law adheres to the general rule on interpretation. In a robust decision, the Indian Supreme Court has given primacy to party autonomy by enforcing a tiered dispute resolution clause that provided for an appeal against a first-tier arbitration before another panel of arbitrators.¹²

Indian courts also recognise, however, that certain clauses may require a more nuanced position, ruling in certain cases that the requirement of pre-arbitration consultation can be treated as non-mandatory¹³ and can be dispensed with in certain scenarios. Indian courts appear to have carved out three identifiable exceptions to the general rule:

• The Empty Formality exception: Indian courts have upheld the commencement of arbitration even if the requirement of pre-arbitral consultation is not met if the process has been reduced to an ‘empty formality’ because parties are unresponsive or have already adopted a rigid stand which they are unwilling to alter¹⁴ and which would render any attempt at consultation a nullity.
• The Parallel Consultation exception: Indian courts have also held that instead of treating a failure to complete pre-arbitral consultation as a bar to the commencement of arbitration, parties should be directed to continue negotiation even after the commencement of, and in parallel to, the arbitration. This is based on a recognition that it would make little sense for a court to dismiss a reference to arbitration only to have parties recommence the arbitral process all over again should consultations fail.¹⁵
• The Interim Relief exception: In the context of interim relief, Indian courts have held that non-completion of pre-arbitration consultation cannot be used to defeat a party’s substantive rights by blocking a party’s access to urgent interim reliefs¹⁶ or to frustrate a party’s claim and render further arbitration proceedings infructuous.¹⁷

Each of the exceptions under Indian law have received support in academic literature and are increasingly being adopted in actual practice as well. For instance, in support of the empty formality exception, Gary Born and Marija Šcekic¹⁸ have argued that pre-arbitration procedures ‘should not ordinarily constitute jurisdictional bars’¹⁹ because such procedures are ‘imperfect and uncertain obligations’[1] which result in a wastage of time and money both prior to arbitration and at an enforcement stage.²¹ Supporting the Empty Formality exception, Born and Šcekicargue that a party suffers no injury from being denied participation in negotiations that will produce no resolution of the dispute, particularly if the same party may be partly responsible for the futility of the negotiations.²² Indeed, Born and Šcekicgo so far as to suggest that pre-arbitral consultation provisions should generally be treated as ‘non-mandatory and aspirational’23 because their breach affects parties’ rights only minimally²⁴ and can in any event, be remedied by the grant of damages or other procedural relief.²⁵

Similarly, the Interim Relief exception has found acceptance in practice before emergency arbitrators. The ICC Commission Report on Emergency Arbitrator Proceedings²⁶ published in April 2019, which analyses the first 80 ICC emergency arbitration cases found (at paragraph 88) that emergency proceedings were objected to in six of the first 80 cases on the ground that pre-arbitration consultation had not been completed. In three of these six cases, the emergency arbitrators dismissed this objection on the basis that to allow the objection would mean to ‘deprive the parties of interim relief at the time it was most necessary’.²⁷

The above stands to reason. Emergency procedures were incorporated into institutional rules to provide a substitute to national courts by allowing parties to seek ‘emergency interim relief before a Tribunal is constituted’²⁸ because awaiting the constitution of a tribunal took ‘too much time in urgent cases and thereby undermine the very utility of seeking emergency relief’.²⁹ Therefore, making emergency interim reliefs contingent on completion of pre-arbitration consultation defeats their very purpose.

The way forward

Party autonomy and settled principles of contractual construction demand that clauses mandating pre-arbitral consultation be enforced. However, any bright-line rule in favour of pre-arbitration consultation is capable of being misused to defeat the rights of a party. A purposive, business common sense approach is likelier to do justice and protect the rights of parties.

Away from the complexities of legal doctrine, however, practitioners could draw valuable lessons on how to draft consultation clauses:

• detailed, specific provisions are preferable;
• parties should clearly identify the persons (by designation) required to participate in the negotiations. Ideally, such a person must have the authority to make a decision on behalf of the party;
• specific timelines should be set out, which could be made extendable for a specific duration, after which consultation is deemed to have failed; and
• finally, clauses could themselves specify that access to urgent, interim reliefs would not be barred pending completion of the consultation process.

A well-crafted dispute resolution clause that anticipates the requirements of parties and spells out their obligations in sufficient detail is usually the most cost-effective solution.

Notes

1 Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Nabha Power Ltd. v Punjab State Power Corporation Ltd 2017 (12) SCALE 241.
2 Cable & Wireless v IBM United Kingdom [2002] EWHC 2059 (Comm).
3 Nigel Blackaby, Constantine Partasides et al, Redfern and Hunter on International Arbitration. 6th Edn (Kluwer Law International; Oxford University Press 2015) (hereinafter ‘Redfern and Hunter’), paras 2.90–2.91.
4 Walford v Miles [1992] 2 WLR 174.
5 Cable & Wireless (see n 2 above).
6 [2014] EWHC 2104.
7 BNA v BNB [2019] SGHC 142.
8 [2012] SGCA 48.
9 [2013] 1 SLR 973.
10 Ibid, para 57.
11 Ibid, para 58.
12 Centrotrade Minerals and Metals Inc v Hindustan Copper Ltd (2017) 2 SCC 228.
13 Ravindra Kumar Verma v M/s BPTP Ltd, 2014 SCC OnLine Del 6602, paras 7–11; Mphasis Ltd v M/S Strategic Outsourcing Services Pvt Ltd, CMP No 238/2018, para 9.
14 VISA International Ltd v Continental Resources (USA) Ltd (2009) 2 SCC 55, para 38; Demerara Distilleries Pvt Ltd v Demerara Distilleries Ltd (2015) 13 SCC 610, para 5;Siemens Ltd v Jindal India Thermal Power Ltd, 2018 SCC OnLine Del 7158, para 19.
15 Rajiv Vyas v Johnwin, 2010 (6) MhLJ 483, paras 12A, 12B.
16 Bell South International v Crompton Greaves Lt,. Original Application Nos 103 and 104 of 2000, para 15.
17 Techman Shleter Pvt Ltd v Vinay Choudhary,2009 SCC Online Del 2808, paras 9–11.
18 Gary Born and Marija Šcekic, ‘Pre-Arbitration Procedural Requirements: “A Dismal Swamp”’ in David D Caron et al (ed) Practising Virtue (Oxford), 253–254.
19 Ibid, at 228.
20 Ibid, at249.
21 Ibid, at 228.
22 Ibid, at 253.
23 Ibid, at 228.
24 Ibid, at 249.
25 Ibid, at 249.
26 ICC Commission Report on Emergency Arbitrator Proceedings, see https://iccwbo.org/publication/emergency-arbitrator-proceedings-icc-arbitration-and-adr-commission-report/accessed 27 October 2020.
27 Ibid, at para 88.
28 The Emergency Arbitrator and Expedited Procedure for SIAC: A New Direction for Arbitration in Asia’, see www.siac.org.sg/2013-09-18-01-57-20/2013-09-22-00-27-02/articles/420-the-emergency-arbitrator-and-expedited-procedure-in-siac-a-new-direction-for-arbitration-in-asiaaccessed 31 October 2020.
29 ICC Commission Report (see n 26 above), at para 4.’

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