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Arbitral Rules v. Arbitral Institution: Party Autonomy or Conflict?

[This article is authored by Divyansh Saluja, a final year law student at JGLS.]

Keywords: Arbitral Rules, Party Autonomy, Arbitral Institution.

Parties may choose the arbitral rules to be followed in arbitration after the dispute has arisen between them or the rules specified in the arbitration clause of the contract that the parties have entered into previously. This article primarily deals with the situation where there is a conflict between the choice of arbitral institution and choice of arbitral rules.

In most cases, procedural rules depend on the choice of arbitral institution and it is also advisable to follow the rules of the arbitral institution where the arbitration is being administered. However, parties may decide to follow the rules of arbitration of an arbitral institution other than the one where arbitration is being administered. This is mainly to suit the needs or for the convenience of the parties. For example, in a given situation parties to a contract may find the Singapore International Arbitration Centre (“SIAC”) to be a comfortable place for both of them to conduct the arbitral proceedings, but they may choose the rules of the International Chamber of Commerce (“ICC Rules”) to be applicable to the proceeding instead of the SIAC Rules. However, such kinds of situations are not always permissible and may make the process of arbitration difficult because the rules of different arbitration centers are not always compatible.

We can analyze this whole situation through the case of HKL Group Ltd. v. Riza International Holdings Pte. Ltd. In this matter, there was an agreement between the parties for the sale of sand and subsequently, a dispute arose between them regarding the payment of the amount owed. As a result, court proceedings were commenced by HKL against Rizq. The Agreement contained the following clause:

Any dispute shall be settled by amicable negotiation between [the] two Parties. In case both Parties fail to reach [an] amicable agreement, all dispute [sic] out of in connection with the contract shall be settled by the Arbitration Committee at Singapore under the rules of The International Chamber of Commerce [the ICC Rules] of which awards shall be final and binding [on] both parties . . .”

Rizq favored arbitration saying that the abovementioned clause makes the intention of the parties to arbitrate very clear, whereas, HKL stated that since there is no entity in Singapore in the name of “Arbitration Committee”, this clause stands inoperable. Due to the difference of opinion between the parties, the case was referred to the Singapore High Court. The Court gave a different interpretation to term “Arbitration Committee”, and held that it established the intention of the parties to arbitrate at any arbitral institution in Singapore. Another issue relating to the enforceability of this clause was that a hybrid arbitration using the ICC Rules in an arbitral institution in Singapore is not permissible. The following Articles of the ICC Rules, subsequent to the 2012 Amendment, disallow applying the ICC Rules in the arbitral proceedings other than that authorized by ICC:

“Article 1(2): that ‘[t]he Court is the only body authorized to administer arbitrations under the Rules’

Article 6(2): that ‘[b]y agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the Court.”

Regarding the hybrid arbitration clause in the agreement which stated that the dispute will be settled by the “Arbitration Committee” at Singapore under the ICC Rules, the High Court primarily relied on the case of Insigma Technology Co. Ltd. v. Alstom Technology Ltd. in which the hybrid arbitration clause was upheld. The Court in the HKL Group case also stated that Article 1(2) and Article 6(2) of the ICC Rules cannot restrict the freedom of the parties to bind themselves with the outcome of arbitration administered by a different court under the ICC Rules. This particular judgement of the High Court was heavily criticized. The High Court did not take into consideration that in the Insigma Technology case, the parties had expressly agreed to resolve their dispute through the SIAC Rules and had also obtained the agreement of the SIAC to act as the ICC Secretariat, and then conducted their arbitration in accordance with the ICC Rules. Moreover, this case was decided in 2012, that is before the ICC Rules were amended, to state that the ICC Court is the only body authorized to conduct arbitration under ICC Rules.

Similar conflicts happen in many other cases as well. If the regulations of any arbitration institution are not followed and the arbitration is not conducted in the manner prescribed, it depletes the very essence of institutionalized arbitration and at maximum, it constitutes an antithetic chimaera of ad-hoc administered arbitration. If parties want flexibility, then they should prefer ad-hoc based arbitrations. Once they choose institutional arbitration as the mode of dispute resolution, then it is recommended that they follow the procedural rules established by that particular institution.

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