Arbitration and Conciliation Act, 1996
Section 7 of Arbitration Act: Arbitration Agreement
Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement and explains how such an agreement may be made in writing. It recognizes arbitration clauses in contracts, separate arbitration agreements, electronic communications, exchanges of pleadings and incorporation by reference.
Section 7 - Arbitration Agreement
(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
Amendment note: The words relating to communication through electronic means were inserted by Act 3 of 2016, section 3, with effect from 23-10-2015.
Meaning of Arbitration Agreement Under Section 7
An arbitration agreement is an agreement by which parties submit existing or future disputes to arbitration. The disputes must arise out of a defined legal relationship, which may be contractual or non-contractual.
The provision therefore requires an identifiable legal relationship and an agreement to refer all or specified disputes arising from that relationship to arbitration.
Forms of an Arbitration Agreement
Arbitration Agreement Must Be in Writing
Section 7(3) expressly requires an arbitration agreement to be in writing. Section 7(4) then explains the forms in which this writing requirement can be satisfied.
A signed document is one recognized form, but a conventional signature on one document is not the only method contemplated by Section 7.
Electronic Communications Can Satisfy Section 7
Section 7(4)(b) recognizes an exchange of letters, telex, telegrams or other means of telecommunication that provides a record of the agreement. The provision expressly includes communication through electronic means.
Arbitration Agreement Through Statements of Claim and Defence
Section 7(4)(c) also recognizes an arbitration agreement where, in an exchange of statements of claim and defence, one party alleges the existence of the arbitration agreement and the other party does not deny it.
This statutory route is important where the agreement is established through the parties' pleaded positions rather than through a separately signed arbitration document.
Incorporation of an Arbitration Clause by Reference
Under Section 7(5), a written contract may refer to another document that contains an arbitration clause. The reference constitutes an arbitration agreement only where the reference is such as to make that arbitration clause part of the contract.
Accordingly, a mere reference to another document is not necessarily sufficient. The nature and wording of the reference must be examined to determine whether the arbitration clause has been incorporated into the contract.
Why Section 7 Is Important
Section 7 is foundational because the existence of a valid arbitration agreement is the basis on which disputes may be referred to arbitration. Questions concerning referral, appointment of arbitrators, jurisdiction of the arbitral tribunal and enforcement of arbitral rights often depend on whether the statutory requirements of Section 7 are satisfied.
The arbitration agreement should therefore be drafted clearly, identify the parties' intention to submit disputes to arbitration and be recorded in a form recognized by Section 7.
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