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CS Professional · Arbitration, Mediation and Conciliation · Preparation and Execution of Arbitral Award

Before any dispute arose, Gupta Motors and Iyer Components signed a contract clause stating that Iyer Components will pay the whole costs of any future arbitration in any event. A dispute later arises and Gupta Motors wins only partly. What is the position on the clause?

The clause is not valid. An agreement that a party will pay all or part of the arbitration costs in any event is valid only if made after the dispute has arisen, and this clause was made before the dispute.

  1. AValid, because parties are free to allocate costs in the contract
  2. BValid only if the tribunal approves it at the first hearing
  3. CInvalid in effect, because such an agreement is valid only if made after the dispute in question has arisenCorrect
  4. DValid only for the arbitrators' fees and not for other costs

Explanation

Section 31A(5) provides that an agreement requiring a party to pay the whole or part of the costs in any event is valid only if made after the dispute has arisen. The clause was made before the dispute, so it is not valid, and the tribunal retains its discretion under section 31A.

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