General condition no. 13 of Standard Fire Policy is – ‘arbitration clause’, which is present in most insurance contracts. Arbitration, a form of alternative dispute resolution, is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons. An arbitration clause is a commonly used clause in a contract that requires the parties to resolve their disputes through a process of arbitration. The clause may not incorporate a specific jurisdiction, but sure would bind the parties to a type of resolution outside of the courts, and is therefore considered a kind of forum selection clause. The clear advantage of arbitration would the speedy disposal, lesser legal technicalities and formalities, flexibility and lower costs.
In India, an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto – came into being in Aug 1996 and is known as “The Arbitration and Conciliation Act, 1996’.
One important aspect in Insurance Policy is that ‘arbitration’ can be invoked only when the liability is admitted and dispute is on the amount. The condition mentions of appointment of arbitrator and if a single arbitrator cannot be agreed upon, it will be a team of 3 – one appointed by the Insured; one by the Company and the other appointed by the two selected arbitrators. (earlier policies contained reference to Umpire as third arbitrator !)
Here is something understood from an interesting case (SLP of 2012) – it was a case between two Cement companies wherein the reference was on – ‘whether on the death of a named arbitrator, the arbitration agreement survives or not ?’
The relevant arbitration clause in the agreement dated 16.12.1989, mentioned that ‘If any question or difference or dispute shall arise between the parties’ ………… with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties.” (emphasis added).
It was contended by the petitioner that since both the persons referred in the agreement were not alive, the arbitration clause in the agreement would not survive. Incidentally, one of the arbitrator was named as he was the Chairman of one company and the other was a director of the other company. Both of them had been nominated as arbitrators since they were closely associated with the company and also due to their eminence, impartiality and familiarity in all commercial transactions and the corporate laws.
The respondent, (applicant before the High Court), refuted those contentions and submitted before the High Court that the arbitration clause in the agreement would survive even after the death of the named arbitrators and the parties can still resolve their difference or dispute by referring them to another arbitrator or move the court for appointing a substitute arbitrator whose decision would be final and binding on both the parties.
Bombay High Court entertained the application preferred by the respondent under Section 11 of the Act. The court took the view unless the parties have expressly precluded such a course being followed, give effect to the policy of the law, which is to promote the efficacy of arbitration and the efficacy of commercial arbitration must be preserved - particularly when business dealings are based on an agreement which provides recourse to arbitration.
The petitioners argued that because of the special nature of the appointment of named arbitrators, the parties to the contract had wanted their difference or dispute to be resolved only by those named arbitrators and on their death, the arbitration clause in the agreement would not survive.
The agreement in question pertained to transferred lands in Gujarat, which later, the Collector, Porbander as well as Secretary (Appeals), Revenue Department, State of Gujarat held that the petitioner had committed breach of condition by transferring them without the permission of the Collector and resumed possession of the aforesaid lands. The arbitration clause was provoked.
The Court upon examination of the arbitration clause held that Clause 21 of the Agreement indisputably is an arbitration agreement which falls under Section 7 of the Act. The intention of the parties to enter into an arbitration agreement can therefore clearly be gathered from the same and it clearly indicates an agreement on the part of the parties to refer the disputes to the named arbitrators in the Agreement. It clarified that arbitration clause has no nexus with the life time of the named arbitrator. The expression “at any time” used in the arbitration clause has nexus only to the time frame within which the question or dispute or difference arises between the parties be resolved. Those disputes and differences could be resolved during the life time of the named arbitrators or beyond their life time.
The Apex Court held that the High Court in their view was justified in entertaining such an application and appointing a former Judge of this Court as a sole arbitrator under the Arbitration and Conciliation Act, 1996 to adjudicate the dispute and difference between the parties. So, irrespective of the survival of the persons named as arbitration agreement, the arbitration clause would survive, unless there is clear intent of debarring the same.
An interesting case with clear interpretation indeed.
With regards – S. Sampathkumar 29th May 2014.
