Jurisdiction Of Arbitral Tribunals Over Disputes Beyond The Scope Of Agreement

Analysis of the Given Situation

Court procedures in any jurisdiction are a long drawn out process and usually take a considerable amount of time and costs to reach an amicable solution. This is why parties to a dispute often prefer out of court procedures to come to a conclusion. These procedures which facilitate the settlement of disputes without employing court procedures are known as Alternative Dispute Resolution procedures. Thus, any dispute resolution method that falls short of litigation maybe termed as an Alternative Dispute Resolution. Alternative Dispute Resolution is a wide concept that includes various processes these maybe broadly classified into four different types, these are Mediation, Collaborative law, Negotiation and Arbitration. English Arbitration Law is unique in its own way as it refuses to adopt the UNCITRAL model and follows its own legislation enacted based on common law principles on International Commercial Arbitration. The principle statute for arbitration in England is the Arbitration Act, 1996 and applies to England, Wales and Northern Ireland. The following paragraphs will analyze a given set of circumstances in light of the provisions of the act and seeks to establish that the arbitration clause in the agreement did not include the dispute at hand hence the arbitral tribunal would not have jurisdiction to adjudicate it.

The provisions of the English Arbitration Act, 1996 comprehensively define and regulate the various situations that may arise during the process of arbitration. Section 6 of the act defines Arbitration Agreement and requires such an agreement to be documented in a written form, whether as part of another agreement (Arbitration clause) or as a separate agreement of its own.

In the given set of circumstances the primary operational clause which could be considered the habendum is clause 15 which defines the obligations of Tomy Technologies Ltd (‘Tomy’) as providing the software to the HR department and 300 hours of training on use of the software. The Arbitration clause in the agreement is clause 44 where the parties have agreed that the seat of the arbitration would be England and would be subject to English law. Moreover, it was agreed that the provisions of the Arbitration Act, 1996 would apply. Thus, the agreement fully complies with the provisions of sections 6 and constitutes a sound arbitration agreement where the seat of arbitration (defined under Section 3 of the act) is also agreed upon. However, the dispute in concern arose out of an agreement between the installation team of Tomy Technologies Ltd (‘Tomy’) and the marketing team at Sedgefield Greetings Cards Ltd (‘Sedgefield’) and goes beyond the scope of the agreement that specifically deals with the Human Resource Department at ‘Sedgefield’. Thus claiming for damages based on an agreement that goes beyond the scope of this agreement cannot be adjudicated by an arbitral tribunal that is formed by virtue of the arbitration clause in this agreement, namely clause 44. Section 30 of the act empowers an arbitral tribunal formed to rule with respect to its substantive jurisdiction over a particular reference. The present set of circumstances would ensure that the tribunal decides in the negative with respect to section 30 (1) (a) of the act which deals with the presence of a valid written arbitration agreement. If the current dispute had been based on the installation processes relating to the HR department at ‘Sedgefield’ it would have attracted substantive jurisdiction. Furthermore, if the arbitral tribunal decided to move forward with the proceedings and deemed the reference to be within its jurisdiction an application can be made to the Court to challenge the tribunals ruling by virtue of the provisions of Section 32. In case of contract law the terms of a contract have supremacy even over statutory provisions (unless dealing with elements that are illegal or against public policy). Clause 15 of the agreement makes it amply clear that the clauses of the contract apply to Tomy Technologies Ltd’s obligations towards the HR department and there is no rationale to extend the terms to include activities with other departments of the company.

Jurisdiction of Arbitral Tribunals

From the given set of circumstances we are given to understand that there was a verbal agreement between Ian Byte (Director of Tomy working with the installation team) and Alan Server (Sedgefield’s marketing team). For both of those individuals the ascent obtained would be sufficient to conclude a valid agreement (between the two companies) however no such formal document was executed. The executed contract in question at clause 15 spoke specifically about the HR department and any transaction with other departments would consequently require the execution of a fresh contract. Thus Ian Byte’s act of installing the software in the Marketing Department’s systems goes beyond the course of employment as per the terms of the contract. Furthermore, when installing the software in the systems Ian was acting as an agent of the company however his act was unauthorized as per the contract in question which Sedgefield is basing its claim for damages on. Thus due to the absence of a formal agreement between the two parties the arbitration clause in the contract between the two companies cannot be enforced as applicable to this situation as well. The contract in question comprises of two parties which are the two companies. A personal agreement between two individuals from these organizations cannot be construed as a binding contract between the two companies due to the separate legal entity of both companies. Thus Sedgefield’s claim for damages would not be legally enforceable as an arbitral tribunal constituted under the contract in question would not have jurisdiction to adjudicate on the issue of the negligent installation of the software undertaken by Ian. Section 5 of the act necessitates that the agreement is in writing. The agreement between the two parties is in breach of their statutory obligation to execute the contract in a written document and thus emphasizes further that the arbitral tribunal cannot take cognizance of the resultant dispute arising from it. The HR department’s platform is compatible with the software which the marketing department’s systems wasn’t (as assessed by an independent technician) but as far as the enforceable contract is concerned Tomy performed its obligations and hence Sedgefield is not entitled to any form of damages or equitable remedies.

It may be argued that as per common law principles developed over the years there are instances where the arbitral tribunal has been able to have jurisdiction over terms of contracts which are not directly incorporated in the contract containing the arbitration clause.  In the case of Emmott v Wilson & Partners Limited [2008] EWCA Civ 184 the defendant after initiation of the arbitral proceeding produced a counter-claim based on a further agreement. The arbitral tribunal took cognizance of the terms of the further agreement and made an award allowing the amended claim. The claimant challenged the award before the Commercial Court under Section 67(1)(a) which provides for appeals to arbitral awards based on substantive jurisdiction. The Commercial Court held that the award consisted of answers to procedural questions and not related to its substantive jurisdiction and dismissed the appeal. However, from the case it is clear that had the award of the tribunal been in terms of its substantive jurisdiction the court would rule in favour of the claimant. From this inference it is amply clear that the arbitral tribunal constituted from clause 44 of the agreement between Tomy and Sedgefield would not have jurisdiction over disputes arising from the terms of a contract between two individuals. Moreover, the disputes arising would not be disputes arising out of the terms of the existing documented contract and hence are not covered by the arbitration clause embodied in it. Alternative Dispute Resolution processes are the best recourse in case of disputes that require fast-track adjudication. However, determination of jurisdiction is of utmost importance as a quasi-judicial body can never be allowed to adjudicate beyond its inherent jurisdiction and allowing the same would be an abuse of due process of law.

Conclusion

Conclusion

To conclude, arbitrary use of power is an abuse of due process of law and cannot be condoned. The arbitral tribunal constituted through the executed contract in the given set of facts does not allow for the extension of the arbitral tribunal’s powers to cases where different parties are involved even if they are stakeholders of the parties to the original contract. The breach in question was beyond the course of employment as defined under the terms of the contract and the same would not attract liabilities based on the term of that contract. Tomy performed the contract undertaken by it completely and is not liable to pay damages based on a further contract unless the same was executed between the same parties and documented in a written format. The case at hand does not show evidence of either of those characteristics. Sedgefield may pursue litigation against Ian Byte for the losses incurred due to the installation or opt for ad hoc arbitration against him depending on the urgency of the situation. This arbitration would be completely separate from the arbitration that maybe invoked from clause 44 of the contract as  the cause of action of the dispute goes beyond the scope of the habendum (clause 15). Damages for contractual breaches are reliant on an obligation owed to the other party and Tomy under the circumstances did not owe any obligation that was breached.

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