Use Of Word 'Mediation' In Arbitration Clause Is Immaterial, Clause Does Not Lose Its Character : Delhi High Court
The Delhi High Court has held that nomenclature of an arbitration clause is immaterial when all the elements are present. The bench of Justice Prateek Jalan held that an arbitration clause would not loose its character merely because the word 'mediation' has been used as its nomenclature. It held that, in construction of a contractual clause, the Court should be guided by the...
The Delhi High Court has held that nomenclature of an arbitration clause is immaterial when all the elements are present.
The bench of Justice Prateek Jalan held that an arbitration clause would not loose its character merely because the word 'mediation' has been used as its nomenclature. It held that, in construction of a contractual clause, the Court should be guided by the substance of the agreement between the parties rather than by the nomenclature employed. The Court expounded on the essential elements of an arbitration clause.
Facts
The parties entered into a Concession Agreement dated 14.03.2011. Clause 20 of the agreement provided for resolution of dispute. Thereafter, a dispute arose between the parties regarding payments due to the petitioner. Accordingly, the petitioner issued a legal notice and demanded a certain sum of money or refer the dispute to arbitration.
The respondent in its reply to the notice denied its liability and also declined the reference to arbitration on the ground that parties had no arbitration agreement. Aggrieved thereby, the petitioner filed the application under Section 11 of the A&C Act.
Contention of the Respondent
The respondent objected to the maintainability of the petition on the following grounds:
- There is no arbitration agreement between the parties as Clause 20 only provides for 'Mediation' by the Commissioner appointed by the Respondent.
- The SC has stayed the judgment of the High Court by which it had appointed the arbitrator in a case involving a similar clause.
Decision of the Court
Initially, the Court adjourned the proceedings in the matter to await the decision of the Supreme Court in South Delhi Municipal Corporation vs. SMS Ltd. S.L.P.(C) 16913/2017 wherein the SC by an order dated 07.07.2017 had stayed the judgment of the Delhi High Court in SMS Ltd. vs. South Delhi Municipal Corporation, ARB. P. 793 of 2016 by which it had appointed an arbitrator in a case involving similar clause.
However, on a further review of the Clause, the High Court found certain differences in the clause in case of SMS Ltd (Supra) and the present case.
The Court held that the clause in the case of SMS Ltd (Supra) did not provide for an opportunity to each side to submit its case including documentary evidence, and for "interview" of persons by the concerned officer neither any finality was conferred on the decision of the authority. However, all the above elements are present in the Clause 20 of the agreement between the parties.
The Court held that Clause 20 of the agreement is an arbitration clause because of the presence of the following elements:
- It is in writing.
- The jurisdiction is derived from the consent of the parties.
- Both the parties have the option of initiating the proceedings.
- It provides for mandatory reference as the word 'shall refer' has been used.
- Decision making authority is to take evidence from both the parties and interview such persons as it may deem necessary in order to reach a decision. Both sides are to be given an opportunity to adduce evidence and put forth their contentions. Parties have thus been given equal opportunity to put forth their case before the authority.
- The substantive rights are to be determined.
- The decision of the authority is final.
Next, the Court decided on the objection regarding the nomenclature used for Clause 20 of the Agreement. The Court held that indeed the word 'Mediation' has been used, however, the elements of the clause satisfy the requirement of an arbitration clause. Moreover, some elements like recoding of evidence, determination of rights etc. are inconsistent with the label of 'mediation'.
The Court held that, in construction of a contractual clause, the Court should be guided by the substance of the agreement between the parties rather than by the nomenclature employed. The Court expounded on the essential elements of an arbitration clause.
Accordingly, the Court allowed the petition and appointed the arbitrator.
Case Title: Consolidated Construction Consortium Limited v. SDMC
Citation: 2022 LiveLaw (Del) 1046
Date: 02.11.2022
Counsel for the Petitioner: Mr. Anand Jha, Advocate.
Counsel for the Respondent: Mr. Rakesh Mittal, Standing Counsel.