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

Before any dispute arose, Verma Steels Ltd and Nair Traders signed an arbitration agreement stating that Nair Traders would pay the whole costs of any arbitration in any event. A dispute later arises, Verma Steels wins nothing and Nair Traders wins fully. What is the effect of this clause under Section 31A?

The clause is invalid. 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 one was made before the dispute.

  1. AIt is valid because parties are free to allocate costs by contract at any time
  2. BIt is valid only if the tribunal records reasons in writing
  3. CIt is valid only if approved by the court after the award
  4. DIt is not valid, because an agreement requiring a party to pay the whole or part of costs in any event is valid only if made after the dispute has arisenCorrect

Explanation

Section 31A(5) validates such an agreement only if made after the dispute in question has arisen. This clause was made before the dispute, so it is invalid. Tribunal reasons or court approval are irrelevant to validity under that sub-section.

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