22 March 2024 Alternate Dispute Resolution >> Business & Commercial Law   |   Arbitration Law >> Business & Commercial Law   |   Contract Law >> Corporate Law  

A recent court case highlights the importance of clear and concise dispute resolution clauses in construction contracts. The case involves a disagreement between a contractor (Petitioner) and a government authority (Respondent) over a highway rehabilitation project in India.

The Dispute and the Agreement:

The dispute arose from the execution of an EPC Agreement for the project. The agreement included a multi-step dispute resolution process. First, conciliation through a designated engineer. If conciliation failed, arbitration administered by the Society for Affordable Redressal of Disputes (SAROD) would follow.

The Roadblock: SAROD Membership:

The petitioner attempted conciliation, but it proved unsuccessful. When seeking arbitration, the Petitioner argued that a primary membership in SAROD wasn't mandatory under the agreement or its rules. However, SAROD insisted on membership, effectively stalling the dispute resolution process.

Taking it to Court:

The Petitioner, faced with an impasse, filed a petition under the Arbitration and Conciliation Act, 1996. They requested the court to constitute an arbitral tribunal to resolve the dispute.

Conclusion:

The court sided with the Petitioner. It ruled that a primary membership in SAROD wasn't a prerequisite for arbitration as per the agreement. Since the agreed-upon dispute resolution method became an obstacle, the court intervened.

Appointing an Arbitrator:

The contract didn't specify the number of arbitrators. The court, following the Act, appointed a sole arbitrator to adjudicate the dispute. The Respondent retains the right to raise preliminary objections regarding jurisdiction and arbitrability.

Lessons Learned

This case emphasizes the importance of carefully drafting dispute resolution clauses in construction contracts. Here are some key takeaways:

• Ensure the dispute resolution process is clear, concise, and mandatory for both parties.
• Clearly define any prerequisites for arbitration, such as membership in a specific organization.
• If the dispute resolution clause becomes an obstacle, legal intervention may be necessary to move forward.

By following these guidelines, construction companies and government authorities can avoid delays and ensure a smoother dispute resolution process.

  Arbitration and Conciliation Act, 1996