How Arbitration Has Come to Be the Favoured Business Remedy

Introduction : Global supply chains have become increasingly vulnerable to political upheavals, pandemics, maritime problems and natural disasters. For example, the COVID-19 pandemic showed the vulnerability of the linked system of production, but following the disruption of shipping in the Suez Canal by the ship ever given in 2021, the continuing disruption caused by the Russia-Ukraine war and attacks on commercial shipping in the Red Sea since late 2023 have proved that a disrupted supply chain is not an exception but a recurrent problem in international business. Such incidents have led to delays, higher freight prices, manufacturing scheduling difficulties and contractual disagreements in various sectors such as pharmaceuticals, electronics, automotive industry and energy. Such disruptions have had serious economic consequences.

As shown by the United Nations Conference on Trade and Development Review of Maritime Transport 2024, around 80 percent of merchandise trade by volume moves by sea worldwide. In this regard, the report found that the impact of disruptions at important chokepoints of the maritime routes in the Red Sea and Panama Canal led to extended voyage distances, high insurance costs, high freight rates and uncertain contractual performance.

These issues have not left India untouched. Realising the importance of logistics efficiency in terms of competitive advantage, the Government of India brought the National Logistics Policy, 2022, aiming at cost reduction in logistics, enhanced multimodal connectivity and improving the supply chain. In this context, the PM Gati Shakti National Master Plan aims to create an integrated infrastructure planning through a digital platform in order to reduce bottlenecks and enhance freight movement.

On the contrary, questions revolve around the genuineness of the event being a case of force majeure, the adequacy of measures taken by the affected party in terms of mitigation, the applicability of force majeure clauses in the contract, and whether the resulting losses were reasonably foreseeable. These questions normally arise from complex evidence, commercial practices and multi-jurisdictional factual scenarios that are difficult to resolve through traditional litigation methods.

It is for this reason that the method of dispute resolution that has gained popularity in resolving supply chain disputes is arbitration. However, contemporary arbitrations have shown that mere proof of the disruptive event does not exonerate a breach of contract. Nowadays, the tribunals demand that the parties establish that there is a direct relationship of proof between the disruptive event and the breach. Therefore, contemporary supply chain arbitration has changed its focus from examining if there was a disruptive event to a much more complicated analysis of the issue of causation and evidentiary proof. 

Establishing Force Majeure, Hardship and Causation in Supply Chain Arbitration

The problems of delayed deliveries, shortage of materials, transportation issues and sudden increase in the costs of operation are common among supply chain disputes. However, the tribunals are able to make a clear distinction between legal impossibility and commercial hardship. The force majeure under the Indian law is defined by the contract of the parties. When there is a force majeure provision in a contract, the execution of the contract usually takes place under Section 32 of the Indian Contract Act, 1872 that deals with contingent contracts. In Energy Watchdog vs Central Electricity Regulatory Commission (2017), the Supreme Court observed that if the parties have provided for the effect of supervening events under the force majeure provision of a contract, then their disputes should be decided under Section 32 of the Indian Contract Act, 1872 and not under Section 56 .

That is the doctrine of frustration. It was further held that the difficulties in performing the contract and the increased cost do not necessarily qualify for force majeure unless provided by the agreement of the parties. The difference between force majeure and hardship has gained significance after some global shocks. Force majeure deals with those scenarios where the performance of the contract has become impossible or impractical due to some supervening events while hardship refers to such situations where the performance of the contract has become extremely difficult or economically unfeasible.

Another important issue is the need to prove causation. It is expected that in more and more cases the parties will need to show a direct causal link between the disruptive event and the claimed breach. It means that not only the disruptive event should be proven, but also the inability to perform the contract at due time despite that event and that reasonable efforts of mitigation could not have prevented the delay. Thus, modern-day supply chain arbitrations have progressed from a mere determination of whether a force majeure event took place. It requires a thorough investigation of the contractual wording, allocation of risks in commerce and the cause-and-effect relationship between the two.

Documentary Evidence That Decides the Fate of Supply Chain Arbitrations

Contemporary supply-chain arbitration has become an evidence-based exercise where contemporaneous documentation may carry more weight than subsequent explanations. In contrast to conventional litigation, arbitral tribunals have substantial latitude in evaluating the evidence. The Rules of the ICC 2021, SIAC Rules 2025 and the IBA Rules on the Taking of Evidence in International Arbitration 2020 allow arbitral tribunals to develop evidentiary processes that suit the commercial nature of the dispute. However, this procedural flexibility does not detract from the party's burden of proof, which is to prove through credible documentary evidence, the factual disruption and legal cause.

One of the forms of documentary evidence involves contracts, including the supply contract, purchase orders, delivery schedules, technical specification and documentation pertaining to the contractual relationship. The purpose of such documents is to allow the tribunal to ascertain the risks assumed by the contracting parties, the extent of force majeure clauses, the notice requirement, liquidated damage clauses and the process of renegotiating prices through the contract. 

The documentation of logistics and transportation will also be of great significance. In the Red Sea crisis for example, there were many shipping companies which diverted ships around Cape of Good Hope and it took about three more weeks to ship the goods which increased the costs significantly. Courts and arbitral tribunals have increasingly been recognizing the value of electronically stored information as evidence if it can be proven as authentic. Expert evidence is another very important ingredient.

Delay analysts, logistics experts, marine surveyors, economists and forensic accountants may sometimes help a tribunal in understanding technicalities that are beyond the realm of usual legal knowledge. Their report might contain the calculation of additional costs incurred on freight, an analysis of the shipping schedule, bottlenecks in the supply chain or the feasibility of alternate sourcing. But this expert evidence will have much more persuasive value if it has the support of contemporary business records. Ultimately, documentary evidence performs a role which goes beyond mere factual proof. It is not the legal argument, rather the quality and consistency of the documentary evidence that play decisive role in the resolution of such disputes in complex supply chains.

Interim Measures and Commercial Remedy in Supply Chain Arbitration

Interim relief in India is governed by Sections 9 and 17 of the Arbitration and Conciliation Act, 1996. It gives power to the court to make an order for interim measures of protection before or during arbitral proceedings and even after the proceedings but before the enforcement of the award. Where the supply chain involves disputes, interim measures tend to go beyond the traditional injunction. Tribunals and courts can order preservation or examination of goods, maintaining status quo in regard to inventories, protecting confidential business data, preservation of digital evidence or security for claims. 

An example of an issue that arises again and again is that of bank guarantees/performance securities. Infrastructure or procurement agreements usually include performance guarantee, the invocation of which tends to follow delays in delivery. The Indian courts have always taken the stance that bank guarantees that are unconditional must normally be enforced, with courts only getting involved in the case of exceptional fraud or extreme injustice. Thus, in restraining invocation, the party concerned needs to produce credible evidence. It is also crucial for protecting the evidentiary process when interim measures are considered. Often parties are ordered by tribunals to preserve all electronic documents, procurement databases, shipping documents and correspondence related to the transaction. This will help avoid the spoliation of evidence and allow the tribunal to reconstruct the chronological order of the events in question and make an appropriate decision.

Further, compensatory damages are the most frequent remedy used by tribunals when establishing the liability for breach of contract. The compensation is supposed to put the other party in the position it would have been if there was no breach of contract. The international commercial practice has long since realised that dispute resolution goes beyond money damages. Modern arbitrators foster negotiations, efficient procedure and commercial viability of results. The possibility of engaging emergency arbitrators according to procedural rules of arbitration institutions such as ICC and SIAC illustrates how far the arbitration has come in terms of becoming fast resolution mechanism for commercial problems rather than just retroactive one. However, the effectiveness of interim measures and final results will always depend on readiness of parties. Companies who have well documented their dealings, informed counterparties about the disruptions in advance and applied for interim measures will be much better equipped to protect their interests. Thus, interim measures can serve as an essential instrument of strategic planning as well.

From Disruption to Resolution

Frequent occurrences of supply-chain disruptions in the international business environment indicate that today business resilience is evaluated not only in terms of efficiency but also in terms of legal readiness. The tribunal will assess whether the disruption belongs to the category of risks allocated in the contract, whether the affected party fulfilled its procedural obligations, whether reasonable mitigation measures have been taken and whether the claimed losses are evidenced. Therefore, businesses should develop a strategic approach to handling disputes that starts prior to arbitration itself.  The initial step of such a strategy involves risk identification and evaluation based on the relevant contract.

Immediately after the event takes place, businesses should evaluate their contract to see if it includes any force majeure, price adjustment, change in law or material adverse change clauses. Attention must be given to the exact wording of the force majeure clause, notice provisions, timelines for making use of contractual protections, continued partial performance obligations and the contractual obligation to mitigate losses. For example, the Supreme Court of the United Kingdom's judgment in MUR Shipping BV v. RTI Ltd. (2024) demonstrates that courts have a tendency to narrowly interpret force majeure clauses, taking into consideration only their contractual wording and not the commercial reasonableness of their implementation.

Thus, well-worded contract provisions are still the main source of protection against supply chain problems. Most commercial contracts stipulate that the parties are obliged to promptly notify about the disruptive events and their effect on performance of the contract. Non-compliance with such contractual notice provisions can significantly undermine the success of arbitral claims regardless of their underlying merits. At the same time, businesses need to retain all related contemporaneous documentation such as purchase orders, emails, ERPs records, GPS tracking, correspondence with suppliers, etc. Maintaining a chronology of evidence allows the concerned parties to prove not only the disruptive incident but also the effect of the same on the performance of their contractual duties.

At last, instead of furnishing documents in isolation, it is necessary to prepare a comprehensive causation matrix, which shows how the disruptive event has impacted the performance of contracts at each stage. This approach helps in understanding liability in a clear manner without any inconsistency arising due to evidentiary problems.

These considerations assume even more significance considering the developments in policies. India's National Logistics Policy, 2022 and the PM Gati Shakti National Master Plan are indicative of government efforts to strengthen supply chain management systems through infrastructure development and logistics. On the international stage, UNCTAD’s Review of Maritime Transport 2024 makes the point that the disruptions brought about by climate-related changes, geopolitical tensions and new routes for trade will continue to be a permanent aspect of international commerce, not a temporary blip. Supply chain disruption will thus need to be addressed as a governance concern for which businesses need to be ready legally, operationally and technologically. In an era where global supply chains are increasingly interconnected yet inherently vulnerable, arbitration continues to provide a flexible, commercially responsive and internationally enforceable mechanism for balancing contractual certainty with the realities of modern trade.

Author: Arihant Mishra in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. Arbitration and Conciliation Act, 1996 (India), §§ 9, 17; Indian Contract Act, 1872, §§ 32 & 56; Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.

2. United Nations Conference on Trade and Development (UNCTAD), Review of Maritime Transport 2024(United Nations, 2024), available at: https://unctad.org/publication/review-maritime-transport-2024.

3. International Chamber of Commerce (ICC), 2021 ICC Arbitration Rules (effective 1 January 2021); Singapore International Arbitration Centre (SIAC), SIAC Rules 2025; International Bar Association (IBA), IBA Rules on the Taking of Evidence in International Arbitration 2020.

4. Government of India, National Logistics Policy, 2022 (Ministry of Commerce & Industry) and PM Gati Shakti National Master Plan, available at: https://www.gatishakti.gov.in/ and https://dpiit.gov.in/.

5. MUR Shipping BV v. RTI Ltd., [2024] UKSC 18, Supreme Court of the United Kingdom (interpreting force majeure clauses and the contractual approach to reasonable endeavours in commercial contracts).