June 20, 2017

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- Jyoti Kumar Chaudhary, Associate Partner [ Hammurabi & Solomon, Advocates and Corporate Law Advisors, New Delhi ]

Shweta Bharti, Jyoti Kumar Chaudhary

If potentially contentious issues are governed by predictable rules and effective dispute resolution mechanisms, there is far greater possibility of avoiding litigation or arbitration and achieving reasonable, cost- efficient results

A clear and unambiguous contract/agreement document is the foundation for minimization of conflicts and disputes. In fact, drafting of the contract/agreement is the first foundation step for “dispute management”. In that regard, the dispute resolution clause usually incorporates the process of amicable negotiation/settlement before setting the “dispute resolution” process in motion. If potentially contentious issues are governed by predictable rules and effective dispute resolution mechanisms, there is a far greater possibility of avoiding litigation or arbitration, and achieving reasonable and cost-efficient results.

A, a company incorporated under German law, enters into a Master Umbrella Agreement with B, a company incorporated under Indian law, and C, a company incorporated under US law. The transaction also includes entering into various supplementary Agreements between A, B and C in which they govern the German documents by German Law, US documents by New York law, and Indian transaction documents by Indian law, with the courts of Chennai having jurisdiction in the event of a dispute. Evidently there are complex manifold transactions, and thus arises the need for a well-constructed, enforceable Dispute Resolution Clause. A contract or agreement entered into between parties in relation to a transaction, reflects intention of the parties towards discharging their respective obligations for enabling respective parties claim their respective consideration agreed upon under the contract.

In the event of any conflict of interest between the parties in the matter of discharge of respective obligations or in relation to consideration being looked for by them, the parties may devise ways to manage their dispute, which may either be provided for in the contract or which the parties may agree upon subsequently towards mutual settlement of their interest and thereby manage their conflict of interests. However, in cases where parties fail to reach a point of settlement of their mutual interest and thereby fail to manage their conflicts, their disputes then look towards necessity of resolution by seeking involvement of a third party. Therefore, precisely it is the unmanaged or rather mismanaged disputes which look for a resolution process.

Elements of dispute resolution in multi- jurisdictional perspective

In a multi-jurisdictional perspective, the parties involved are required to be alert to many aspects of dispute resolution. A few such aspects are as follows:

  1. Jurisdiction: Parties belonging to two different jurisdictions in a contract may mutually settle for a neutral jurisdiction in order to avoid raising allegations of partiality on the part of the dispute resolving process.
  2. Ad hoc v institutional mechanism of dispute resolution: Parties may tend to instill more faith in the institutional resolution process than ad-hoc process, and in that perspective, they may look towards a jurisdiction having credible institutional mechanism of dispute resolution process. Further, depending upon the process of institution being cost-effective, the parties may choose an institution suitable to their transaction, jurisdiction, etc.
  3. Cost of dispute resolution: This is an important factor for consideration. At first glance, the institutional resolution process may appear to be costlier than the ad-hoc system of dispute resolution. However, experience over a period of time has shown that the institutional resolution process is more cost-effective and efficient than the ad-hoc process, when seen from the perspective of time consumption, quality of resolution, sustainability of resolution, etc.
  4. Prevailing law: Choosing the applicable law, while entering into a contract, is of wide implication. The choice of law would be on two counts, (i) law applicable to merits of the dispute and (ii) law applicable to the process of dispute resolution, i.e. substantive law and procedural law. In this regard, parties need be vigilant as to the law which secures their interests in a proper manner. Absence of a contract spelling out the applicable law, will invite other methods of ascertaining such applicable laws, which may prolong the resolution process.
  5. Seat v Venue of Arbitration: In the perspective of arbitration being chosen as the mode of dispute resolution, the “seat” of arbitration has special significance, as settled by a plethora of judicial pronouncements. The nexus between the “seat” or the “place” of arbitration vis-à-vis procedural law i.e. the lex arbitri is well settled by judicial pronouncements. Supreme Court has in Enercon (India) Ltd. v Enercon Gmbh taken note of observation of Court of Appeal in England as made in the case A v B [38] to the effect that

    “ agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of arbitration.”

    It stands categorically settled that “venue” of arbitration must not be confused with the “seat” of arbitration. While “venue” may be more than one places where arbitration proceedings may be held having regard to the convenience for such proceedings, the “seat” of arbitration is the one which is the epicenter of the arbitration. The laws prevailing at the “seat” of arbitration are the ones which will apply to the proceedings being conducted at a “venue” even away from such “seat”.
  6. Preliminary relief / emergency arbitrator: With respect to availing immediate interim relief securing the subject matter of arbitration, the parties may look up for some measure of securing their interest in the subject matter of dispute. Availability of relevant mechanism with the institution being looked upon by the parties, for providing such immediate relief, would become very significant. At the same time, the implementation of such interim relief requires the parties to be vigilant about availability of effective lawful mechanism in the chosen jurisdiction, for enforcement of such interim relief.
  7. Drafting of the CONTRACT/AGREEMENT is the first foundation step for “DISPUTE MANAGEMENT”
  8. Choice of language: Chosen language rules across every process of the dispute resolution, i.e. orders in the proceedings, presentation of written pleadings/ testimonies, leading of oral depositions, leading of oral arguments, etc. as the rules governing the resolution process may provide for. Depending upon comfort of the chosen language, for presenting the case of the parties in the best manner, the choice of language may be opted for by the parties. Availability of equipped resources with the institution dealing in the chosen language, is also a factor, the parties need be vigilant about.
  9. Deposition / oral testimony: The facility enabling parties to lead oral testimony would demand cost. It is why, dispute resolution institutions across the globe favor a document-only arbitration, while avoiding requirement of oral testimonies or leading of oral arguments. This in turn shortens the time consumed and the cost involved in the process of dispute resolution. Rules of dispute resolution institutions may often provide for additional cost for leading of oral testimonies inter-alia for making proper arrangement of recording of testimonies, cross- examination, leading arguments, etc. Parties need to be vigilant about cost-effective facilities in that regard, while choosing the institution.
  10. Document discovery: The law relating to “discovery of documents” has varied implications across various jurisdictions. While there are jurisdictions where parties may not be required to produce any document adverse to it, there are other jurisdiction where parties may be required to produce such documents and non-production thereof invites adverse inference against such party. This apart, the dispute resolution institutions dealing with international commercial disputes have adopted strict regulations for use of discovery, to check adverse consequences as well as abuse of such process.
  11. Public policy: The issue of “public policy” has attracted much debate, and jurists across the globe have concurred that the concept of “public policy” is incapable of precise definition. While Lord Justice Burrough 1 in Richardson vs. Mellish (1824-34) All E.R. 258 gave “public policy” the impression of

    “a high and unruly horse” , however, Lord Denning 2 , in Enderyby Town Football Club Ltd. v. Football Association Ltd., [1971] Ch. 591, 606, observed that “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles.”

    Further, in the context of a multi-jurisdictional approach, “public policy” may be understood in the sense that parties in a jurisdiction may be free to contract to those out of jurisdiction, however, at the time of enforcement of award in the said jurisdiction, the courts of that jurisdiction will check that the award is not opposed to any law of that jurisdiction. In such context, one must be concerned as to how much faith of litigants, the judiciary of the given jurisdiction enjoys. Further, time involved in disposal of judicial proceedings in such jurisdiction would remain a key factor for parties to consider in this regard.
  12. Dispute resolution clause: Drafting of the contract/ agreement is the first foundation step for “dispute management”. In that regard, the dispute resolution clause usually incorporates the process of amicable negotiation/settlement before setting the “dispute resolution” process in motion; i.e. the clause governing resolution/management of dispute between parties, stipulate muti-tier approach, whereby parties are initially required to resort to an amicable recourse to resolution by negotiation or discussion at one or more level, within stipulated time at each level. In case the dispute remains unresolved despite efforts being put at each level of negotiation/discussion, recourse is then taken to approaching the dispute resolution forum/ institution, i.e. court process or arbitration.

So far the “dispute resolution” clause is concerned, it has been experienced over the years that much resources and time of the litigating parties has gone only into interpretation of uncertain terms in the “dispute resolution” clause, be it on the aspect of existence of arbitration agreement, jurisdiction or the like. It is, therefore, essential to account for such uncertainties at the time of framing of the foundation document itself. Accordingly, the “dispute resolution” clause needs to clearly identify the jurisdiction, dispute resolution forum, applicable laws, applicable language, seat of dispute resolution, and the like.

1 Lord Justice Burrough was the Third British Justice of the Court of Common Pleas in May 1816. He retired in January 1830. Richardson vs. Mellish (1824-34) All E.R. 258 was one of the Judgments delivered by him, which touched upon the issue of “Public Policy”. 2 Lord Justice Denning was an English lawyer and Judge who has been called “the greatest judge of the century” and “probably the greatest English judge of modern times”. Called to the bar in 1923 as a barrister he became a King’s Counsel in 1938 and became a judge in Enderyby Town Football Club Ltd. v. Football Association Ltd., [1971] Ch. 591, 606 was one of the Judgments he delivered on the issue of “Public Policy”, taking a progressive and positive view on the said issue.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

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