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Legal Opinion - Pay attention to the procedural details

Parties must remember the importance of actually complying with the agreed procedure for commencing an arbitration or the benefits of having an arbitration clause disappear, writes Shourav Lahiri

As discussed in last month’s article, there are a number of issues to consider when drafting an arbitration agreement. Once the arbitration agreement is finalised it isn’t always plain sailing from there on. Parties must remember the importance of actually complying with the agreed procedure for commencing an arbitration. Get it wrong and the benefits of having an arbitration clause disappear. In this issue, let us consider a timely reminder of this in the Delhi High Court’s decision in Engineering Development Corporation v MCD.
Arbitration agreements allow parties to settle their contractual disputes outside the public glare of the courts. However, as an arbitration agreement takes away the jurisdiction of the courts, the courts are really careful when giving effect to an arbitration agreement.

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When a party relies on an arbitration agreement, it is important that they fully understand the procedure that must be followed to commence the arbitration successfully. Failure to follow the procedure can leave parties exposed to challenges in relation to the arbitrator’s jurisdiction.
The recent case of Engineering Development Corporation and the Municipal Corporation of Delhi (451-2008, Delhi High Court) highlights what can go wrong when a party fails to follow the procedures in the arbitration agreement.

The facts
The Municipal Corporation of Delhi (‘MCD’) issued tender documents for the construction of storm water and waste drains in Devli Village, Delhi. The Engineering Development Corporation (‘EDC’) was awarded the contract via a work order with a request to enter into a formal agreement within seven days of receipt of the work order.
No formal agreement was entered into and commencement of the works by EDC was initially delayed due to a stay granted by the High Court in relation to separate litigation. When the MCD finally instructed EDC to commence work on the site, EDC informed MCD that as a result of delay in commencing the works, the time period for the works had expired. Additionally EDC had suffered losses as a result of the delay. Consequently, EDC issued a request for arbitration against MCD and, when MCD failed to respond, it filed a request before the Delhi High Court for appointment of an arbitrator under section 11 of the Arbitration and Conciliation Act 1996 (the ‘Act’).

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