Law Firms Generating Unnecessary Litigation By Drafting Confusing Arbitration Clauses Is Professional Misconduct : Supreme Court

The Supreme Court last week (February 20) strongly criticised law firms for drafting “confusing” arbitration clauses that generate avoidable litigation in courts which are already overburdened, and remarked that this practice amounts to professional misconduct.A bench of Chief Justice Surya Kant Justice Joymalya Bagchi, and Justice Vipul Pancholi was hearing a plea raising the issue of conflict between a jurisdiction clause and an arbitration clause in the same agreement.“These are all deliberately, mischievously, designed kind of clauses. These law firms and the offices have started doing it. Why can't you simplify the clause when you enter into agreement that arbitration proceedings will be conducted at so and so place, in the event of dispute arising out of arbitration proceedings, so and so court will adjudicate it? One line you can resolve but deliberately with the youngsters sitting in so and so law firm they all... this is absurd. To my mind this is professional misconduct, misguiding your party. Creating, generating litigation is part of a serious professional misconduct on the part of the law professionals, those who indulge in this”, Justice Kant said.The concerned agreement contained Clause 14, which provided that disputes would be referred to arbitration and that the venue of arbitration would be New Delhi. Clause 13 stated that the agreement would be governed by Indian law and that the courts at Jajpur would have exclusive jurisdiction to adjudicate upon or otherwise deal with any matter under or relating to the agreement.Relying on various Supreme Court precedents, the Delhi High Court held that it has the juridsdiction to appoint arbitrator in view of the "venue" clause. It appointed Senior Advocate V. Mohana as the sole arbitrator under the aegis of the Delhi International Arbitration Centre. Himadri Speciality Chemicals Limited challenged this order before the Supreme Court.Senior Advocate Jayant Mehta for the petitioner submitted that the matter raised an important question as there were divergent views within and between High Courts on whether a jurisdiction clause could constitute a “contrary indicia” to prevent a venue clause from being treated as the seat of arbitration.He contended that once the Court holds Delhi or any other place to be the seat, all subsequent proceedings under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996 would lie only before that court, and therefore the issue had consequences beyond mere appointment of an arbitrator.However, Chief Justice Surya Kant observed that after undertaking the entire academic exercise, the fact remained that an arbitrator had to be appointed. He said that if the petitioner indicated a choice, the Court could appoint someone. He further questioned why arbitration should be delayed on hyper technical issues, and accused the petitioner of adopting delaying tactics.He highlighted that the confusion was created at the stage of drafting the agreement and pointed out that he had already commented adversely on such drafting practices. He questioned how law firms could draft such clauses without understanding the difference between venue and seat, and the law governing arbitration.“If you will ask us, then we are going to ask you that which was the law firm engaged to draft this agreement. Who are the persons responsible who didn't understand? Who has granted them law degree and how have they formed a law firm when they do not know the difference between venue, the seat and the law governing the arbitration? What right they have to even sit over there and draft these things and indulge into deciding the fate of the litigation of this country?”, he said.Chief Justice Kant observed that it was simple to draft a clause stating that arbitration proceedings would be conducted at a specified place and that disputes arising from arbitration would be adjudicated by a specified court. He said such luxury clauses were generating litigation in the country.“I am going to catch the bull by horn. These kind of luxury clauses are generating litigation in this country. We are fighting hard to how to prevent, how to control it. Only because the two parties are business entities, big business houses. They can afford, they don't have time to read anything”, he added.Justice Bagchi remarked that such issues assume greater significance in international commercial arbitration, but in domestic arbitration the process should be expedited instead of being burdened by technical disputes.“Please understand also when it is a question of arbitration, we should expedite the entire process instead of going into all these legal issues. These become very important when it comes to international commercial arbitration because the subject law changes, the curial law changes, etc. But in domestic arbitration, why should we go into all this?”, he said.Ultimately, the Supreme Court dismissed the plea observing that though some arguable points were raised...

Law Firms Generating Unnecessary Litigation By Drafting Confusing Arbitration Clauses Is Professional Misconduct : Supreme Court

Amisha Shrivastava

Why can’t the terms be simplified to avoid confusion? CJI asked.

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