Please don’t take my arbitrators away: a clash of terms between arbitration agreements and institutional rules – Andrew Foo

 

It is reported that the courts of the People’s Republic of China (“PRC”) have refused to enforce a Singapore International Arbitration Centre (“SIAC”) award under Article V(1)(d) of the New York Convention, on the basis that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties…”.

In this case, two parties entered into a contract for the sale and purchase of iron ore.  However, the arbitration agreement therein contained a potential (and potent) clash of terms:

  • The arbitration agreement provided for a three person panel, and
  • The arbitration agreement also provided for arbitration under the SIAC Rules, and the SIAC Rules contain an expedited procedure and state that if this expedited procedure applies, the case would be referred to a sole arbitrator (unless the SIAC determines otherwise).

In 2015, the seller commenced SIAC arbitration, and applied for the arbitration to be conducted in accordance with the expedited procedure.  The buyer opposed the application and insisted that three arbitrators be appointed.

The SIAC agreed with the seller: it determined that the expedited procedure should apply, and appointed a sole arbitrator.  The buyer refused to participate in the arbitration, and an award was rendered in favour of the seller.

However, the PRC Courts have now refused enforcement of the award. They found that the expedited procedure did not empower the SIAC to compel parties to accept a sole arbitrator despite their agreement to a three-member tribunal.

This is not the first time courts have had to confront this clash of terms.  In a similar case (AQZ v ARA [2015] SGHC 49), the Singapore Courts upheld the award, on the basis that the “commercially sensible” interpretation of the arbitration agreement, including the SIAC Rules chosen therein, was that the SIAC has the discretion to appoint a sole arbitrator.

The SIAC itself appears to have sought to address this clash of terms. The latest version of the SIAC Rules (2016) includes a new “override” provision. This provision states that:

[b]y agreeing to arbitration under these Rules, the parties agree that, where arbitral proceedings are conducted in accordance with the Expedited Procedure…the rules and procedures set forth…shall apply even in cases where the arbitration agreement contains contrary terms” (Rule 5.3, emphasis added).

By contrast, the SIAC Investment Arbitration Rules, launched on 1 January 2017, do not contain an expedited procedure.

It remains to be seen if this “override” provision will help harmonise the courts’ handling of this clash of terms.

From a practical perspective, parties should think twice before activating the SIAC expedited procedure where the arbitration agreement provides for three arbitrators (or is otherwise contrary to the expedited procedure) and where a party anticipates that enforcement will be attempted against assets outside Singapore, particularly in the PRC.

 

Andrew Foo is an Associate in the International Arbitration Group of Clifford Chance Asia.