Delhi High Court
National Highways Authority Of ... vs Pati -Bel (Jv) on 8 January, 2019
$~9
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 08.01.2019
+ O.M.P. (COMM) 314/2017
NATIONAL HIGHWAYS AUTHORITY OF INDIA
..... Petitioner
Through Ms. Padma Priya and Mr. Mukesh
Kumar, Advs.
versus
PATI -BEL (JV)
..... Respondent
Through Mr. Vivek Chib, Mr. Asif Ahmed,
Ms. Ruchika Goel, Ms. P. Kar, Mr.
Vikramditya and Ms. Kaushal
Sharma, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J. (ORAL)
1 This is a petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996 (in short „1996 Act‟) to assail the Award dated
13.04.2017.
2 The record shows that a three member Arbitral Tribunal was
constituted. The petitioner i.e. National Highways Authority of India
(hereafter referred to as „NHAI‟), referred three claims to the Arbitral
Tribunal.
O.M.P. (COMM) 314/2017 Pg.1 of 25
2.1 The three claims referred were (i) recovery of Rs.3,54,29,325/-
crores from the respondent i.e. M/s PATI-BEL (JV) (hereafter
referred to as „contractor‟) on account of balance amount of Worker's
Welfare Cess; (ii) recovery of excess payment made on account of
price adjustment; and (iii) recovery on account of deduction against
the royalty paid.
2.2 These three claims were captured by NHAI in its notice
invoking arbitration. The notice issued in this behalf is dated
13.03.2015.
3. The Arbitral Tribunal, however, has declined to deal with the
merits of the matter, primarily, on the ground that NHAI had failed to
approach the Dispute Review Board (in short „DRB‟) as required
under Clause 67.1 of the Conditions of Particular Application (in
short „COPA‟).
3.1 Furthermore, the Arbitral Tribunal has also held that what was
referred to it was only claim No.1 and, therefore, it could not rule on
Claim No.2 and 3.
4. To my mind, if the Arbitral Tribunal was inclined to hold that it
would not decide upon the merits of the case as NHAI had not
O.M.P. (COMM) 314/2017 Pg.2 of 25
approached the DRB, it ought not to have made any observation as to
whether or not Claim No. 2 and 3 were referred to it. In other words,
that the reference made to it was confined only to Claim No.1. It
may, however, be relevant to note that NHAI before this Court has
confined its challenge to the Award in respect of the observations
made vis-a-vis Claim No.1 and 2 only.
5. Therefore, in sum, what I am required to examine is: as to
whether the Arbitral Tribunal was right in coming to a conclusion that
the provision made in Clause 67 of COPA was mandatory, inasmuch
as before NHAI could trigger the arbitration agreement, it ought to
necessarily have taken recourse to the DRB mechanism.
5.1 For this purpose, it may be relevant to extract Clauses 67.1,
67.3 & 67.4 of COPA:
Sub Clause 67.1 67.1 If any disputes arises between the Employer and the
Contractor in connection with, or arising out of, the Contract
Disputes Review or the execution of the Works, whether during the execution
of the Works or after their completion and whether before or
Board after the repudiation or other termination of Contract,
including any disagreement by either party with any action,
inaction, opinion, instruction, determination, certificate or
valuation of the Engineer, the matter in dispute shall, in the
first place, be referred to the Disputes Review Board.
The Board shall be established when each of the three Board
Member has signed a Board Members Declaration of
Acceptance as required by the DRB's rules and procedures
(which, along with the declaration of acceptance form, are
attached as Annex "A" to these Conditions of Particular
O.M.P. (COMM) 314/2017 Pg.3 of 25
Applications"- Para 12.)
The Board shall comprise three Members experienced with
the type of construction involved in the Works and with the
interpretation of contractual documents. One Member shall
be selected by each of the Employer and the Contractor and
approved by the other. If either of these Members is not so
selected and approved within 28days of the date of the Letter
of Acceptance, then upon the request of either or both parties
such members shall be selected as soon as practicable by the
Appointing Authority i.e. Chairman of the Executive
Committee, Indian Road's Congress. The third Member shall
be selected by the other two and approved by the parties. If
the two Members selected by or on behalf of the parties fail
to select the third Member within 14 days after the later of
their selections or if within 14 days after the selection of the
third member, the parties fail to approve that Member shall
be selected promptly by the same Appointing Authority
specified in the Appendix to Bid who shall seek the approval
of the proposed third Member by the parties before selection
but, failing such approval, nevertheless shall select the third
Member. The third Member shall serve as Chairman of the
Board.
In the event of death, disability, or resignation of any
member, such Member shall be replaced in the same manner
as the Member being replaced was selected. If for whatever
other reason a member shall fail or be unable to serve, the
Chairman (or failing the action of the Chairman then either
of the other Members) shall inform the parties and such non-
serving Member shall be replaced in the same manner as the
member being replaced was selected. Any replacement made
by the parties shall be completed within 28 days after the
event giving rise to the vacancy on the Board, failing which
the replacement shall be made by the Appointing Authority in
the same manner as described above. Replacement shall be
considered completed when the new Member signs the Board
Member's Declaration of Acceptance. Throughout any
replacement process the Members not being replace shall
continue to serve and the board shall continue to function
and its activities shall have the same force and effect as if the
vacancy had not occurred, provided, however that the Board
shall not conduct a hearing nor issue a Recommendation
until the replacement is completed.
Either the Employer or the Contractor may refer a dispute to
the Board in accordance with the provisions of Annex A to
these Conditions of Particular Application.
O.M.P. (COMM) 314/2017 Pg.4 of 25
The recommendation of the Board shall be binding on both
parties who shall promptly give effect to it unless and until
the same shall be revised as herein after provided, in an
arbitral award. Unless the Contract has already been
repudiated or terminated, the Contractor shall in every case,
continue to proceed with the Works in accordance with the
contract.
If , either the Employer or the Contractor is dissatisfied with
the Recommendation of the Board, or if the Board fails to
issue as Recommendation within 56 days after receipt by the
Chairman of the Board of the written Request for
Recommendation, then either the Employer or the Contractor
may, within 14 days after the expiry of the said 56 days
period, as the case may be give notice to the other party, with
a copy for information to the Engineer of his intention to
commence arbitration herein provided, as to the matter in
dispute. Such notice shall established the entitlement of the
party giving the same to commence arbitration as hereinafter
provided, as to such dispute and, subject to Sub-Clause 6 7 .4
arbitration in respect thereof may be commenced unless such
notice is given.
If the Board has issued a Recommendation to the Employer
and the Contractor within the said 56 days and no notice of
intention to commence arbitration as to such dispute has
been given by either the Employer or the Contractor within
14 days after the parties received such Recommendation
from the Board, the Recommendation shall become final and
binding the Employer and the Contractor.
Whether or not it has become final and binding upon the
Employer and the Contractor, a Recommendation shall be
admissible as evidence in and subsequent dispute resolution
procedure, including any arbitration and litigation having
any relation to the dispute to which the Recommendation
relates. All Recommendations which have become final and
binding shall implemented by the parties forthwith, such
implementation to include relevant action of the Engineer.
If during the contract period, the Employer and the
Contractor the opinion that the Dispute Review Board is not
performing its functions properly, the Employer and the
Contractor may disband the Disputes Review Board and
reconstitute it. A new board shall then be selected in
accordance with the provisions applying to the selection of
the original Board as specified above, except that words
"within 28 days after the letter of Acceptance" shall be
replaced by the words "within 28 days after the date on
O.M.P. (COMM) 314/2017 Pg.5 of 25
which notice disbanding the original Board became
effective."
The Employer and the Contractor shall jointly sign a notice
specifying that the Board shall stand disbanded with effect
from the date specified in the notice. The notice shall be
posted by a registered letter with AD or delivered personally
to each Member of the Board. A Member shall be deemed to
have received the delivery of the letter even if he refuses to
do so.
Sub Clause 67.3 Sub-Clause 67.3 is modified to read as follows:
"Any dispute in respect of which the Recommendation(s). if
Arbitration any, of the Board has not become final and binding
pursuant to Sub- Clause 67.1 shall be finally settled by
arbitration as set forth below. The arbitral tribunal shall
have full power to open-up, review and revise any decision,
opinion, instruction, determination, certificate or valuation
of the Engineer and any Recommendation(s) of the Board
related to the dispute.
67. A dispute with an Indian Contractor shall be
finally settled by arbitration in accordance with
the Arbitration & Conciliation Act. 1996, or any
statutory amendment thereof. The arbitral
tribunal shall consist of 3 arbitrators, one each
to be appointed by the Employer and the
Contractor. The third Arbitrator shall be chosen
by the two Arbitrators so appointed by the
Parties and shall act as Presiding arbitrator. In
case of failure of the two arbitrators, appointed
by the parties to reach upon a consensus within
a period of 30 days from the appointment of the
arbitrator appointed subsequently, the Presiding
arbitrator shall be appointed by the Chairman of
the Executive Committee of the Indian Roads
Congress. For the purposes of this Sub-
Clause, the term "Indian Contractor" means a contractor
who is registered in India and is a juridical person created
under Indian law as well as a joint venture between such a
contractor and a Foreign Contractor.
(ii) In the case of a dispute with a Foreign Contractor, the
dispute shall be finally settled in accordance with the
provisions of UNCITRAL Arbitration Rules. The arbitral
tribunal shall consist of three Arbitrators one each to be,
appointed by the Employer and the Contractor. The third
O.M.P. (COMM) 314/2017 Pg.6 of 25
Arbitrator shall be chosen by the two Arbitrators so
appointed by the Parties, and shall act as presiding
arbitrator. In case of failure of the two arbitrators
appointed by the parties to reach upon a consensus within a
period of 30 days from the appointment of the arbitrator
appointed subsequently, the Presiding Arbitrator shall be
appointed by the Chairman of the Executive Committee of
the Indian Roads Congress. For the purposes of this Clause
67, the term "Foreign Contractor" means a contractor who
is not registered in India and is not a juridic person created
under Indian Law.
(iii) Neither party shall be limited in the proceedings before
such evidence or arguments before the Board for the
purpose of obtaining its Recommendations(s) pursuant to
Sub-Clause 67.1. No Recommendation shall disqualify and
Board Member from being called as a witness and giving
evidence before the arbitrator(s) on any matter whatsoever
relevant to the dispute.
(iv) Arbitration may be commenced prior to or after
completion of the works provided that the obligations of the
Employer, the Engineer, Contractor and the Board shall not
be altered by reason of the arbitration being conducted
during the progress of the Works.
(v) If one of the parties fail to appoint its arbitrator in
pursuance (i) and (ii) above, within 30 days after receipt of
the notice of the appointment of its arbitrator by the other
party, then the President of the Institution of Engineers
(India) both in cases of foreign country as well as Indian
Contractors, shall appoint the arbitrator. A certified copy
of the order of the President of the Institution of Engineers
(India) making such an appointment shall be furnished to
each of the parties.
(vi) Arbitration proceedings shall be held at Delhi India,
and language of the arbitration proceedings and that of all
documents and communication between the parties shall be
English.
(vii) The decision of the majority of arbitrators shall be
final and binding upon both parties. The cost and expenses
of Arbitration proceedings will be paid as determined by the
arbitral tribunal. However, the expenses incurred by each
party in connection with the preparation, presentation etc.
of its proceedings as also the fees and expenses paid to the
arbitrator by such party or on its behalf shall be borne by
each party itself.
Sub-Clause 67.4 67.4 Where neither the Employer nor the Contractor has
O.M.P. (COMM) 314/2017 Pg.7 of 25
given notice of intention to commence arbitration of a
Failure to Comply dispute within the period stated in Sub-Clause 67.1 and the
with related Recommendation has become final and binding,
Recommendation either party may, if the other right it may have party fails to
comply with such Recommendation and without prejudice to
any other right it may have, refer the failure to arbitration
in accordance with Sub-Clause 67.3. The provisions of Sub-
Clause 67.1 shall not apply to any such reference.
(emphasis is mine)
5.2 A perusal of Clause 67.1 would show that while it is prolix, it
has the following salient features:
(i) First, where any dispute arises between the employer (in this case
NHAI) and the contractor, in connection with the contract or
execution of any works, it is, in the first instance, referred to the
DRB.
(ii) Second, the DRB, as per the clause, comprises three members.
One member is selected by the employer/NHAI and the other is by
the contractor. The two members are vested with power to agree on
the appointment of a third member. In case of failure to arrive at an
agreement, the third member is to be appointed by the authority,
specified in the appendix to the bid, which is the Chairman of the
Executive Committee of Indian Roads Congress.
(iii) Third, under the clause, either party, that is, the
O.M.P. (COMM) 314/2017 Pg.8 of 25
employer/NHAI or the contractor, can refer the dispute to the DRB.
(iv) Fourth, as per the clause the recommendations made by the
DRB would be binding on both parties, who, in turn, are required to
promptly give effect to the same unless they are revised by an arbitral
award.
(v) Fifth, there are timelines set as to the period within which the
DRB is to give its recommendation. The clause provides that the DRB
is required to give its recommendation, within a period of 56 days,
after receipt by the Chairman of the DRB, a written request in that
behalf.
(v)(a) In case, a recommendation is made, the aggrieved party
has the power to trigger the arbitration agreement, albeit, within a
period of 14 days after the expiry of 56 days period by serving a
notice of its intention to commence arbitration on the other party with
a copy for information to the Engineer appointed under the contract.
A similar procedure can be followed by the aggrieved party where no
recommendation is made, albeit, within the defined timeline.
(v)(b) What is important is that the clause provides that whether
or not the recommendation of the DRB has become final or binding
O.M.P. (COMM) 314/2017 Pg.9 of 25
either on the employer or the contractor, the said recommendation is
admissible as evidence in any subsequent dispute resolution
procedure, which includes any arbitration or litigation having any
relation to the dispute to which the recommendation relates.
(v)(c) Furthermore, the clause also provides that all
recommendations which have become final and binding shall be
implemented by parties forthwith. Such implementation would
include any relevant action which the Engineer may be required to
take.
(v)(d) Provision is also made in the clause for reconstitution of
the DRB where the DRB is not performing its functions properly.
The employer and the contractor have been given the right to seek
disbandment of the DRB and have the same reconstituted. How the
reconstituted DRB or the new DRB, is required to be selected, is
provided in the clause itself.
(v)(e) Insofar as the disbandment of the DRB is concerned, the
employer and the contractor are required to submit a joint notice in
that behalf. The DRB shall stand disbanded thereafter from the date
specified in such notice. The notice is required to be posted via a
O.M.P. (COMM) 314/2017 Pg.10 of 25
registered letter with acknowledgement due or delivered personally to
each member of the DRB. A member is deemed to have received
such notice even if he refuses to do so.
5.3 Insofar as Clause 67.3 is concerned, it, broadly, provides for
triggering of the arbitration mechanism in respect of any dispute
where recommendations, if any, of the DRB have not become final
and binding. The Arbitral Tribunal, has been given powers under the
said clause to open up, review and revise any decision, opinion,
instruction, determination, certificate or valuation of the Engineer and
any recommendation of the DRB.
5.4 Clause 67.4 provides for an eventuality (after referring the
matter to arbitration in accordance with clause 67.3) where neither the
employer/NHAI nor the contractor has given notice of intention to
commence arbitration of a dispute within the period stated in clause
67.1 and on account of this situation obtaining, related
recommendation has become final and binding. In such an
eventuality, either party is provided with a right to refer such failure
to arbitration in accordance with the aforesaid clause i.e. Clause 67.3
where the other party fails to comply with the recommendation.
O.M.P. (COMM) 314/2017 Pg.11 of 25
5.5 If one were to juxtapose clause 67.1 with Clauses 67.3 and
67.4, it would emerge that reference to DRB is a condition precedent
in order to trigger the arbitration mechanism.
5.6 The reason, I say so, is that the recommendations made by the
DRB are, as per Clause 67.1, admissible as evidence not only before
the Arbitrator but also before any other forum or in any other
litigation that the parties may embark upon. The parties appear to
have given the views of the DRB a certain kind of pre-eminence and
weight which it may not have but for such a provision in Clause 67.1.
6. I must indicate, at this juncture, that it has been argued on
behalf of NHAI that reference to the DRB is not mandatory and that
even if reference is not made to DRB, once an Arbitral Tribunal has
been constituted, it can decide the matter on merits. In this behalf,
learned counsel for the petitioner has drawn my attention to that part
of Clause 67.3, which empowers the Arbitral Tribunal to review and
revise the recommendations given by the DRB.
6.1 Mr. Vivek Chib, who, appears on behalf of the contractor, on
the other hand, contends that the clause is mandatory and the
arbitration mechanism cannot get triggered without parties taking
O.M.P. (COMM) 314/2017 Pg.12 of 25
recourse to DRB. In a sense, learned counsel for the contractor
supports the view, which I have expressed hereinabove.
7. In my opinion, the submission of the learned counsel for the
petitioner cannot be accepted in view of the manner in which clause
67.1 has been framed. The frame of the said clause, as delineated,
persuades me to hold that the parties have in fact agreed that
reference to DRB would be a crucial first step, prior to the dispute
being referred to an Arbitral Tribunal. The reason why parties have
chosen to do so has already been articulated hereinabove by me.
8. I must also indicate herein that the learned counsel for the
parties have placed before me three judgments, in which, broadly, the
view taken is that the prior proceedings in the nature of conciliation,
as envisaged in the contracts under examination, before kick starting
the arbitration mechanism, are not mandatory in nature.
8.1 The three judgments, which were referred to, are the judgments
of the Single Judges of this Court; these being: (i) Ravindra Kumar
Verma Vs. BPTP Ltd & Anr., 2015 (147) DRJ 175; (ii) Saraswati
Construction Company Vs. East Delhi Co-operative Group Housing
Society Ltd., (1995) 57 DLT 343; and (iii) M/s Halidram
O.M.P. (COMM) 314/2017 Pg.13 of 25
Manufacturing Company Pvt. Ltd. Vs. M/s DLF Commercial
Complexes Limited, 193 (2012) DLT 410.
8.2 A perusal of the judgment Ravindra Kumar Verma would
show that there is a reference to the other judgment referred to above
which is Saraswati Construction Company.
8.3 Furthermore, a perusal of Saraswati Construction Company
would show that in coming to the conclusion as whether reference to
an expert (i.e. an Architect in that case) prior to the arbitration
agreement being triggered would be necessary, it was held that the
provision in issue was directory in nature. Importantly, the
conclusion reached in this case was based on the view taken in
Sikand Construction Co. Vs. State Bank of India, ILR (1979) Delhi
364.
8.4 Pertinently, both Saraswati Construction Company and Sikand
Construction Co. were matters which were decided under the
Arbitration Act, 1940 (in short „1940 Act‟).
8.5 The Court in Saraswati Construction Company was called
upon to render its decision with respect to a petition filed under
Section 20 of the 1940 Act. In the context of Section 20 of the 1940
O.M.P. (COMM) 314/2017 Pg.14 of 25
Act, the Court ruled that all that it was required to examine was
whether the parties had entered into an arbitration agreement and if
so, whether there was any sufficient ground or not for referring the
matter to arbitration.
8.6 A close perusal of the arbitration clause, which came up for
consideration before the Court would show that in crucial parts its
framework was quite different from clause 67.1.
8.7 For the sake of convenience, the said clause is extracted
hereafter:-
"All disputes and differences of any kind whatever
arising out of or in connection with the contract of the
carrying out of the works (whether during the progress of
the works or after their completion, and whether before
or after the determination, abandonment or breach of the
contract) shall be referred to and settled by the architects
who shall state their decision in writing. Such decision
may be in the form of a final certificate or otherwise. The
decision of the Architects with respect to any of the
excepted matters shall be final and without Appeal as
stated in Clause No. 35. But if either the Employer or the
Contractor be dissatisfied with the decision of the
Architects or any matter, question of the dispute of any
kind (except any of the excepted matters) or as to the
withholding by the Architect of any certificate to which
the contractor may claim to be entitled, then and in any
such case either party (the Employer or the Contractor)
may within twenty eight (28) days after receiving notice
of such decision give a written notice to the other party
through the Architects requiring that such matters in
O.M.P. (COMM) 314/2017 Pg.15 of 25
dispute be arbitrated upon. Such written notice shall
specify the matters which are in dispute and such dispute
or difference of which such written notice has been given
and no other shall be and is hereby referred to the
arbitration and final decision of a single arbitrator being
a Fellow of the Indian Institute of Architects to be agreed
upon and appointed by both the parties or in case of
disagreement as to the appointment of a single
arbitration of two Arbitrators being both Fellows of the
Indian Institute of Architects one to be appointed by each
party, which Arbitrators shall before taking upon
themselves the burden of reference appoint an Umpire."
8.8 A perusal of the aforementioned clause would show that before
the dispute could be referred to arbitration, a determination would be
made by an Architect, there was no provision of the like as obtaining
in Clause 67.1 which is that the decision rendered could be used as
evidence in the arbitration proceedings. To my mind, this singular
aspect, which obtains in clause 67.1, apart from anything else would
distinguish clause 67.1 from the clause which was under
consideration in Saraswati Construction Company.
8.9 Insofar as the Ravindra Kumar Verma case is concerned, the
Court, in that matter, was dealing with a petition under Article 227 of
the Constitution. The plaintiff had approached the Court for setting
aside an order passed by the trial Court while dealing with the
defendant‟s application under Section 8 of the 1996 Act. The Court
O.M.P. (COMM) 314/2017 Pg.16 of 25
made certain observations with regard to the arbitration clause
obtaining in that matter. The said clause is set out in paragraph 4 of
the judgment. For the sake of convenience, the same is extracted
hereafter:
"All and any disputes arising out of or touching upon or
in relation to the terms of this application and/or
Standard Floor Buyer's Agreement including the
interpretation and validity of the terms thereof and the
respective rights and obligations of the parties shall be
settled amicably by mutual discussion failing which the
same shall be settled through arbitration. The arbitration
proceedings shall be governed by the Arbitration &
Conciliation Act, 1996, or any statutory
amendments/modifications thereof for the time being in
force. The arbitration proceedings shall be held at an
appropriate location in New Delhi by a sole arbitrator
appointed by the Company. The applicant(s) hereby
confirms that he/she shall have or raise no objection to
this appointment. The Courts at New Delhi alone shall
have the jurisdiction in all matter arising out of/touching
and/or concerning this application and/or Floor Buyers
agreement regardless of the place of execution of this
application which is deemed to be at New Delhi."
9. Once again, to my mind, the clause, which obtained in
Ravindra Kumar Verma is quite different from the one, which
obtains in the instant matter. Therefore, in my view, the said judgment
is distinguishable and not applicable to the facts of the instant case.
9.1 Insofar as the judgment rendered in Halidram Manufacturing
O.M.P. (COMM) 314/2017 Pg.17 of 25
Company Pvt. Ltd.‟s case is concerned, this judgment, as a matter of
fact, contains observation in paragraph 13, which, in a sense, support
the conclusion reached by me hereinabove. In this case, the arbitration
clause required the parties to attempt a settlement in the matter by
amicable discussion. The Court observed that this was mandatory.
The relevant observations made in paragraph 13 of the judgment are
extracted hereafter:
"The controversy in hand does not come to an end here
as the arbitration clause under consideration has another
dimension. It would be manifest on perusal of the above
arbitration clause that the disputes arising between the
parties at the first instance were to be mandatorily settled
amicably by mutual discussion as the word used is shall
in the clause and it is only on the failure of any
settlement arrived at between the parties after the mutual
discussion, the other alternative was the settlement of the
disputes through arbitration. Hence, clearly the first step
stipulated in the said clause is the settlement of disputes
through mutual discussion and second step is the
settlement through arbitration. The Forum of Arbitration
was, therefore, made dependent on the outcome of the
first step that is of mutual settlement."
(emphasis is mine)
10. Having referred to the judgments cited on behalf of NHAI, I
must also advert to a judgment referred to by learned counsel for the
contractor in the matter of: Channel Tunnel Group Ltd. and Another
Vs. Balfour Beatty Construction Ltd. and Others, (1993) 2 W.L.R.
O.M.P. (COMM) 314/2017 Pg.18 of 25
262.
10.1 This was a contract where the plaintiff had employed the
defendants, a consortium of English and French companies, to build a
tunnel under the English Channel between England and France.
Variation was brought in the contract which required construction of a
cooling system. In that contract, there was a provision, which required
initial reference of disputes and differences including the disputes as
to the valuation of variations to a panel of experts and, thereafter, for
final settlement via arbitration in Brussels. Incidentally, the clause
obtaining in this matter was also numbered as Clause 67. The
observations made by the House of Lords in that case as to why the
parties should not be allowed to depart from their agreement being
apposite are extracted hereafter:
"My Lords, I also have no doubt that this power should
be exercised here. This is not the case of a jurisdiction
clause, purporting to exclude an ordinary citizen from his
access to a court and featuring inconspicuously in a
standard printed form of contract. The parties here were
large commercial enterprises, negotiating at arms length
in the light of a long experience of construction
contracts, of the types of disputes which typically arise
under them, and of the various means which can be
adopted to resolve such disputes. It is plain that clause
67 was carefully drafted, and equally plain that all
concerned must have recognised the potential
O.M.P. (COMM) 314/2017 Pg.19 of 25
weaknesses of the two-stage procedure and concluded
that despite them there was a balance of practical
advantage over the alternative of proceedings before the
national courts of England and France. Having made
this choice I believe that it is in accordance, not only
with the presumption exemplified in the English cases
cited above that those who make agreements for the
resolution of disputes must show good reasons for
departing from them, but also with the interests of the
orderly regulation of international commerce, that
having promised to take their complaints to the experts
and if necessary to the arbitrators, that is where the
appellants should go. The fact that the appellants now
find their chosen method too slow to suit their purpose, is
to my way of thinking quite beside the point.."
(emphasis is mine)
11. To my mind, the observations are relevant to the present case as
well. The parties should be able to show good reason, as to why they
should not be held to, what they have agreed between themselves.
The parties, in this case, had agreed that before they trigger the
arbitration agreement, they would agitate their grievance before the
DRB. The DRB is constituted in a manner whereby each party is
entitled to select a nominee and the two nominees can decide upon the
Chairperson of the DRB. It is only when there is no agreement as to
the Chairperson of the DRB that another Authority has been given the
right to select the Chairperson. Furthermore, the decision of the DRB
has been given pre-eminence and, as noted hereinabove, is factored in
O.M.P. (COMM) 314/2017 Pg.20 of 25
the final adjudication, in case of one of the parties refuses to accept
the decision of the DRB.
12. Therefore, in my view, the language of Clause 67.1 gives an
enforceable right to the parties to insist that the opposite party should,
in the first instance, take their grievance to the DRB before it embarks
upon the arbitration route. The clause, apart from anything else,
provides for a defined structure and the timeline within which the
DRB is to process the matter, once it is placed before it.
12.1 As noticed above, the outcomes reached by the DRB are given
due weight in the final adjudication proceedings. Therefore, the
overall sense, which, one gets upon reading Clause 67.1, is that it is
mandatory in nature and that the parties cannot opt out from this
preliminary step and not have their grievance examined by the DRB
in the first instance.
13. Clause 67.1 is a typical multi-tier clause, which is found in
many domestic and international arbitration agreements. The
language of the multi-tier clause determines as to whether or not the
preliminary step(s) indicated therein would form a condition
O.M.P. (COMM) 314/2017 Pg.21 of 25
precedent before the aggrieved party is able to escalate the matter to
the next stage, that is, have its disputes adjudicated upon by an
Arbitral Tribunal. Therefore, where the clause is so structured that it
does give rise to a binding obligation, it may not be possible to
contend that the preliminary step provided in the concerned clause is
not a condition precedent.
14. A case in point is the judgment of the Queens Bench Division
(Commercial Court) in the matter of Cable & Wireless PLC and IBM
United Kingdom Ltd., (2002) EWHC 2059 (Comm.). This was a case
where a clause1 in the contract obtaining between the parties required
them, before they proceeded to arbitration, to resolve their disputes
through negotiations entered into between their respective senior
executives who had the necessary authority to settle the matter and if
for any reason, the dispute was not resolved through negotiations, the
parties were required to attempt, in good faith, resolution of the
disputes via Alternative Dispute Resolution („ADR‟) mechanism as
The parties shall attempt in good faith to resolve any dispute or claim arising out of or relating to this
Agreement or any Local Services Agreement promptly through negotiations between the respective senior
executives of the Parties who have authority to settle the same pursuant to Clause 40.
If the matter is not resolved through negotiations, the Parties shall attempt in good faith to resolve the
dispute or claim through an Alternative Dispute Resolution (ADR) procedure as recommended to the
Parties by the Centre for Dispute Resolution. However, an ADR procedure which is being followed shall
not prevent any party or Local Party from issuing proceedings."
O.M.P. (COMM) 314/2017 Pg.22 of 25
recommended to the parties by a body known as Centre for Dispute
Resolution.
14.1 The Court, inter alia, observed2 that it was the mutual intention
The dispute resolution structure to be found in clauses 40 and 41 of the GFA leaves no doubt that when
the parties negotiated that agreement it was the mutual intention that litigation was to be resorted to as a
last resort in the event that negotiation by means of the escalation process so specifically set out in clause
40 or, failing that, ADR under clause 41 were unproductive. The reference in the last sentence of clause
41.2 does not qualify this conclusion. It is to be compared with the last sentence of clause 40.1 which
excludes the commencement of proceedings until the escalation process "has been completed" which, in
the context must mean that the parties have not resolved their dispute by negotiation. That provision
contemplates that a party may initiate proceedings before the escalation process is complete if that party
has reasonable cause to do so in order to avoid damage to its business or to protect or preserve any right of
action. Although not expressly referred to, this provision appears to be designed to provide for such
eventualities as the need to apply for injunctive or other preservative or interim relief in cases so urgent that
they cannot await the outcome of the various stages of negotiation. Upon the failure of the escalation
process to achieve a settlement of the dispute, clause 41.2 is triggered and the parties engage to refer the
issue to ADR. However, the last sentence of clause 41.2 introduces a similar but now unqualified
opportunity to commence litigation. That does not detract from the weight which the parties attached to the
agreement to refer their dispute to ADR. That method of dispute resolution is usually speedier than
litigation except where there is resort to the courts for pre-trial relief. The mere issue of proceedings is thus
not inconsistent with the simultaneous conduct of an ADR procedure, such as mediation, or with a mutual
intention to have the issue finally decided by the courts only if the ADR procedure fails. Accordingly,
there is, in my judgment, no basis for the submission that the last sentence of clause 41.2 suggests that the
parties did not mutually intend that clause 41.2 should be a binding agreement to refer disputes to ADR.
There is, however, another basis for the submission that the reference to ADR is of no binding effect.
Essentially the question that arises is whether that reference is in substance nothing more than an
agreement to negotiate and, as such, an agreement incapable of enforcement in English Law as decided by
the Court of Appeal in Courtney & Fairbairn Ltd v. Tolaini Brothers, supra.
The starting point is the wording of the reference to ADR in clause 41.2. It is to be observed that the
parties have not simply agreed to attempt in good faith to negotiate a settlement. In this case they have
gone further than that by identifying a particular procedure, namely an ADR procedure as recommended to
the parties by the Centre for Dispute Resolution to which I refer as "CEDR". That is one of the best known
and most experienced dispute resolution service providers in this country. It has over the last 12 years
made a major contribution to the development of mediation services including mediation methodology and
consultative services available to parties to disputes who need advice on both a choice of mediator and on
appropriate procedures for mediation.
xxxx
However, the clause went on to prescribe the means by which such attempt should be made, namely
"through an (ADR) procedure as recommended to the parties by (CEDR)". The engagement can therefore
be analysed as requiring not merely an attempt in good faith to achieve resolution of a dispute but also the
participation of the parties in a procedure to be recommended by CEDR. Resort to CEDR and participation
in its recommended procedure are, in my judgment, engagements of sufficient certainty for a court readily
to ascertain whether they have been complied with. Thus, if one party simply fails to co-operate in the
appointment of a mediator in accordance with CEDR's model procedure or to send documents to such
mediator as is appointed or to attend upon the mediator when he has called for a first meeting, there will
clearly be an ascertainable breach of the agreement in clause 41.2.
O.M.P. (COMM) 314/2017 Pg.23 of 25
of the parties that litigation was to be resorted to as a last recourse and
that if negotiations failed, they would resort to an ADR mechanism.
In sum, the Court held the preliminary first step (before parties could
proceed to arbitration) was a binding obligation.
15. Thus, for the reasons stated above in the instant case, I am
clearly of the view that placing the matter before DRB was a
condition precedent, a condition which NHAI, failed to fulfil.
16. Therefore, for the foregoing reasons, in my view, the Arbitral
Tribunal was right in concluding that they could not enter upon the
merits of the matter since NHAI had not approached the DRB.
17. As noted above, the Arbitral Tribunal having reached this
conclusion, in my opinion, ought not to have made any further
observations as to whether or not claims No. 2 & 3 were within their
remit.
xxxx
Before leaving this point of construction I would wish to add that contractual references to ADR which did
not include provision for an identifiable procedure would not necessarily fail to be enforceable by reason of
uncertainty. An important consideration would be whether the obligation to mediate was expressed in
unqualified and mandatory terms or whether, as is the case with the standard form of ADR orders in this
court, the duty to mediate was expressed in qualified terms - "shall take such serious steps as they may be
advised". The wording of each reference will have to be examined with these considerations in mind. In
principle, however, where there is an unqualified reference to ADR, a sufficiently certain and definable
minimum duty of participation should not be hard to find.
O.M.P. (COMM) 314/2017 Pg.24 of 25
18. Therefore, given the aforesaid discussion, the petition is
partially allowed and thus, disposed of with the following directions
in place:
(i) NHAI would be free to approach the DRB in terms of clause
67.1 of COPA
(ii) NHAI will also be free to refer claims No. 1 & 2 to the DRB.
As noted above, claim No. 3 is not the subject matter of the
instant petition.
(iii) The DRB will decide the matter in accordance with the
provisions of Clause 67.1 of the COPA.
19. Parties shall, however, bear their own costs.
RAJIV SHAKDHER, J
JANUARY 08, 2019
A
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