Introduction
Law of Arbitration in India
Standard Arbitration Clauses
Standard Arbitration Clause for Domestic Commercial Contracts
Standard Arbitration Clause for International Commercial Contracts
Resolution Prior to Arbitration
Clause Providing for Negotiation in Advance of Arbitration
Clause Providing for Mediation in Advance of Arbitration
Arbitrator's Qualifications
Party Appointed Arbitators
Confidentiality
Fees and Costs to Prevailing Party

Introduction

In today's competitive marketplace, most companies either cannot afford or do not wish to incur the time, expense and adverse business consequences of traditional litigation. Unfortunately, in every business relationship there is the potential for conflict over contractual agreements or business operations. When such conflicts arise, there is no need to incur the onerous expense and delays involved in traditional litigation. There are readily available alternative dispute resolution procedures that will enable you to resolve your disputes relatively quickly, fairly and cost-effectively.

Planning is the key to avoiding the adverse effects of litigation. The optimal time for businesses to implement strategies for avoidance of those adverse effects is before any dispute arises. Therefore, that whenever you negotiate or enter into a contract, you should carefully consider and decide on the procedures that will govern the resolution of any disputes that may arise in the course of the contractual relationship. By doing this before any dispute arises, you avoid the difficulties of attempting to negotiate dispute resolution procedures when you are already in the midst of a substantive dispute that may have engendered a lack of trust on both sides.

Law of Arbitration in India

Law of Arbitration in India is governed by-

Arbitration and Conciliation Act,1996

Section 7 of the Act defines the term, Arbitration agreement.—

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Templates offers sample dispute resolution clauses that may be inserted into a contract prior to any dispute ever arising. These sample dispute resolution clauses are set forth and, in some cases, briefly discussed inside.

STANDARD ARBITRATION CLAUSES

Templates standard clauses separately providing for submission of domestic and international disputes to arbitration. While these clauses set forth no details as to procedures to be followed in connection with any such arbitrations, they provide a simple means of assuring that any future dispute will be arbitrated. An additional benefit is that it is sometimes easier for contracting parties to agree to simple, straightforward clauses than to some of the more complex provisions that are set forth in subsequent sections of this page.

Standard Arbitration Clause for Domestic Commercial Contracts
Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in [insert the desired place of arbitration] before [one/three] arbitrator(s). This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

Standard Arbitration Clause for International Commercial Contracts

Any dispute, controversy or claim arising out of or relating to this contract, including the formation, interpretation, breach or termination thereof, including whether the claims asserted are arbitrable, will be referred to and finally determined by arbitration in accordance with the Arbitration Rules. The Tribunal will consist of [three arbitrators/one arbitrator]. The place of arbitration will be [location]. The language to be used in the arbitral proceedings will be [language]. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

RESOLUTION PRIOR TO ARBITRATION

It is common practice for a contract clause to provide for negotiation and/or mediation in advance of arbitration. Such clauses represent the most cost-effective means of resolving a dispute because they often lead to an early settlement. Unless drafted with care, however, such clauses can also have negative side effects since they can be a vehicle for delay and can result in required but empty negotiations where one or all parties have no intention of moving toward a settlement. Such downsides can be greatly minimized by setting strict deadlines marking the early ends of the negotiation and mediation periods.

Clause Providing for Negotiation in Advance of Arbitration

The parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration of this Agreement. Any party may give the other party written notice of any dispute not resolved in the normal course of business. Within 15 days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include with reasonable particularity (a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the notice, the executives of both parties shall meet at a mutually acceptable time and place.
Unless otherwise agreed in writing by the negotiating parties, the above-described negotiation shall end at the close of the first meeting of executives described above ("First Meeting"). Such closure shall not preclude continuing or later negotiations, if desired.
All offers, promises, conduct and statements, whether oral or written, made in the course of the negotiation by any of the parties, their agents, employees, experts and attorneys are confidential, privileged and inadmissible for any purpose, including impeachment, in arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the negotiation.
At no time prior to the First Meeting shall either side initiate an arbitration or litigation related to this Agreement except to pursue a provisional remedy that is authorized by law or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of Paragraph 1 above.
All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in Paragraphs 1 and 2 above are pending and for 15 calendar days thereafter. The parties will take such action, if any, required to effectuate such tolling.

Clause Providing for Mediation in Advance of Arbitration

If the matter is not resolved by negotiation pursuant to paragraphs___above, then the matter will proceed to mediation as set forth below.

Or in the Alternative

If the parties do not wish to negotiate in advance of arbitration, but do wish to mediate before proceeding to arbitration, they may accomplish this through use of the following language:

The parties agree that any and all disputes, claims or controversies arising out of or relating to this Agreement shall be submitted to mediation, and if the matter is not resolved through mediation, then it shall be submitted to final and binding arbitration pursuant to the clause set forth in Paragraph 5 below.
Either party may commence mediation by providing to the other party a written request for mediation, setting forth the subject of the dispute and the relief requested.
The parties will cooperate with one another in scheduling the mediation proceedings. The parties agree that they will participate in the mediation in good faith and that they will share equally in its costs.
All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator are confidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or other proceeding involving the parties, provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation.
Either party may initiate arbitration with respect to the matters submitted to mediation by filing a written demand for arbitration at any time following the initial mediation session or at any time following 45 days from the date of filing the written request for mediation, whichever occurs first ("Earliest Initiation Date"). The mediation may continue after the commencement of arbitration if the parties so desire.
At no time prior to the Earliest Initiation Date shall either side initiate an arbitration or litigation related to this Agreement except to pursue a provisional remedy that is authorized by law or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of Paragraph 3 above.
All applicable statutes of limitation and defenses based upon the passage of time shall be tolled until 15 days after the Earliest Initiation Date. The parties will take such action, if any, required to effectuate such tolling.

ARBITRATOR's QUALIFICATIONS

It is common for a contract clause to require that one or more of the arbitrators have certain specified qualifications. In drafting such a provision, care should be taken that such necessary qualifications not be too detailed and specific since a highly detailed list of required qualifications can significantly narrow the number of available, competent and qualified arbitrators.

Specification of arbitrator qualifications often works best in the context of a three-arbitrator panel since it is possible in that setting to require that one of the panelists have a certain technical expertise without limiting the entire panel to so narrow an area of experience. In this way, it is possible to ensure that the desired technical expertise is represented on the panel while at the same time assuring that the chair of the panel has extensive experience in the entire arbitration process.

If the arbitration is to be conducted by a sole arbitrator, the contract clause might provide that the arbitrator must be:

A retired judge from a particular court; or
A lawyer with 10 years of active practice in a specified area, such as construction or computer technology.

If the arbitration is to be handled by a three-arbitrator panel, the contract clause might provide:

That the Chair be an attorney with at least 20 years of active litigation experience; or
That the Chair be a retired judge from a particular court; or
That one of the wing arbitrators be an expert in an area such as construction or be an accountant or a particular type of engineer; or
That the Chair must previously have served as Chair or sole arbitrator in at least 10 arbitrations where an award was rendered following a hearing on the merits.

Note: The foregoing are just examples. The point is that the qualifications of the arbitrator(s) should be considered at the time when the contract clause is drafted.

PARTY-APPOINTED ARBITRATORS

It is a common practice for each side to appoint an arbitrator and for the two party-appointed arbitrators to then appoint the Chair of the panel.The party-appointed arbitrators "shall be neutral and independent of the appointing Party unless the Parties have agreed that they shall be non-neutral." Set forth below is a clause that effectively provides for party-appointed arbitrators:

Within 15 days after the commencement of arbitration, each party shall select one person to act as arbitrator, and the two so selected shall select a third arbitrator within 30 days of the commencement of the arbitration. If the arbitrators selected by the parties are unable or fail to agree upon the third arbitrator within the allotted time, the third arbitrator shall be appointed by Court. All arbitrators shall serve as neutral, independent and impartial arbitrators.
Optional

CONFIDENTIALITY

The arbitrator(s) must maintain the confidentiality of the arbitration proceeding. If it is desired that the parties should also maintain the confidentiality of the proceeding, this can be accomplished with the following language:

The parties shall maintain the confidential nature of the arbitration proceeding and the Award, including the Hearing, except as may be necessary to prepare for or conduct the arbitration hearing on the merits, or except as may be necessary in connection with a court application for a preliminary remedy, a judicial challenge to an Award or its enforcement, or unless otherwise required by law or judicial decision.

FEES AND COSTS TO PREVAILING PARTY

A "prevailing party" clause such as the following tends to discourage frivolous claims, counterclaims and defenses, as well as scorched earth discovery, in an arbitration:

In any arbitration arising out of or related to this Agreement, the arbitrator(s) shall award to the prevailing party, if any, the costs and attorneys' fees reasonably incurred by the prevailing party in connection with the arbitration.

If the arbitrator(s) determine a party to be the prevailing party under circumstances where the prevailing party won on some but not all of the claims and counterclaims, the arbitrator(s) may award the prevailing party an appropriate percentage of the costs and attorneys' fees reasonably incurred by the prevailing party in connection with the arbitration.

The arbitrator(s) must agree to the foregoing deadlines before accepting appointment.

Failure to meet any of the foregoing deadlines will not render the award invalid, unenforceable or subject to being vacated. The arbitrator(s), however, may impose appropriate sanctions and draw appropriate adverse inferences against the party primarily responsible for the failure to meet any such deadlines.

1 International Arbitration Rules and Procedures already precludes an award of punitive damages "unless the parties agree otherwise…[or] unless a statute requires that compensatory damages be increased in a specified manner."

2 The law related to limitation of liability clauses varies significantly from jurisdiction to jurisdiction. Parties wishing to include such a clause in a contract should check the applicable law before doing so.