Selection of Arbitral Institutions in Arbitration Agreements

International arbitration has emerged as the mainstream mechanism for resolution of cross-border disputes around the world. Most contracts involving international trade, joint ventures, and foreign investments incorporate international arbitration agreements. A carefully drafted international arbitration agreement specifies a clear and binding obligation to arbitrate disputes and differences, the seat of arbitration, the governing law, and the supervising arbitral institution (if any). Each of these decisions has a bearing on the process and outcome of the dispute. The clarity of arbitration agreement assists in avoiding potential rounds of litigations in resolving any ambiguities in the arbitration agreement before the courts. But even sophisticated parties, which diligently review and negotiate substantive terms of the agreement, often defer consideration of the terms of the arbitration agreement to the eleventh hour – hence, the epitaph ‘midnight clause’ is usually attached to arbitration agreements.

The selection and specification of arbitral institution in the arbitration, as is the case with other key terms, can be a decision with serious consequences. In most cases, the selection of arbitral institution is not just a nomination of a ‘supervisor’ of the arbitration, but a selection of the rules enforced by the arbitration institution, which may be binding on the parties. These rules of arbitral institutions may deal with a variety of issues – selection of arbitrators, cost of arbitration, conduct of arbitration, availability of expedited and emergency procedures, scrutiny of arbitral awards, and ethical conduct of party representatives. In deciding on an arbitral institution, the parties in effect are taking some of the most significant decisions about the resolution of their disputes that may arise in the future. These factors, therefore, must be considered carefully.

This briefing highlights a few significant aspects of the rules of arbitral institutions that may assist the parties in selection of the most suitable arbitral institution.

Appointment of arbitrators

One of the most critical steps that may affect the outcome of a case is the appointment of arbitrators. Who would appoint the arbitrator and on what basis could be a crucial decision. The rules of arbitral institutions differ on the mechanism for appointment of arbitrators. In most cases, where the arbitration agreement provides for a specific mode, the parties’ decision is respected and deferred to in the interest of party autonomy. However, in the absence of such an agreement, rules of arbitral institutions adopt one of the following approaches towards appointment of arbitrators:

  • Certain institutions, such as Hong Kong International Arbitration Centre (HKIAC), leave it entirely to parties to select and nominate the arbitrators, intervening only where parties fail to appoint an arbitrator within a specified timeframe and where there is a deadlock between arbitrators on the appointment of a presiding arbitrator.
  • Others institutions, such as London Court of International Arbitration (LCIA), are more involved in the process of appointment of arbitrators (unless the parties agree otherwise).
  • Certain other institutions, such as International Chamber of Commerce Court of Arbitration (ICC) and Singapore International Arbitration Centre (SIAC), follow a balanced approach, whereby, the sole arbitrator is appointed by the institutions or, in case of three arbitrators, the parties are allowed to nominate one arbitrator and the arbitral institution may appoint a presiding arbitrator.

The parties may, therefore, need to consider and deliberate as to the extent of autonomy they wish to retain in the selection, nomination, and appointment of arbitrators, while drafting the arbitration agreement.

Procedures

During the past few years, the arbitral institutions have introduced a number of innovative procedures tailored for facilitating a time and cost efficient outcome of disputes. Whether or these provides are available under the rules of an arbitral institution may have a significant impact on not only the time and cost of arbitration but also on available remedies. A few of the significant procedural innovations are:

  • Emergency arbitration: Most of the arbitral institutions now provide the mechanism for emergency arbitration for urgent interim measures that cannot wait for the constitution of the arbitral tribunal. The emergency arbitration provisions are a common feature in the rules of arbitral institutions.
  • Fast-track procedure: Certain institutions, such as the SIAC, offer expedited or fast track procedures for resolution of a certain category of disputes within a specified timeframe. Following fast-track procedures, the arbitration may be conducted on the basis of documents only and the hearing may be dispensed with.
  • Consolidation of arbitration: As a majority of transactions and legal relationships involve not one but a series of interrelated contracts, a few arbitral institutions retain the authority to consolidate arbitrations arising out of different arbitration agreements in one single arbitration. This may allow for saving substantial time and cost.
  • Scrutiny of arbitral awards: Some institutions, such as ICC and SIAC, provide for scrutiny of the arbitral award after it is finalised by arbitrators and before it is issued to the parties. This scrutiny usually affords, without affecting the liberty of decision-making of the arbitral tribunal, greater certainty to the arbitral awards to assist its recognition and enforcement under, if applicable, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

Costs of Arbitration

Parties can incur material costs in pursuing arbitrations in foreign jurisdiction. The arbitral institutions usually provide for the administrative costs to be charged by the arbitral institution and regulate the professional fee of the arbitrator. The costs are usually charged on ad volerm basis, i.e., proportional to the amount in dispute; hourly basis, i.e., with reference to the work done by the arbitrators, with a cap on hourly rates; or by either ad volerem or hourly basis, at the discretion of the parties. Parties concerned about the costs of dispute resolution would benefit from reviewing the relevant rules in relation to costs before adopting the rules of an arbitral institution in the arbitration agreement.

Ethical Regulation of Legal Representatives

Regulation of party’s legal representatives is also an important consideration. So far, only LCIA Rules provides detailed guidelines on the conduct of party’s legal representatives. Pursuant to the LCIA Rules, the parties are required to ensure that their legal representatives appearing in LCIA arbitration agree to comply with the guidelines. Further, the arbitral tribunal has the power to enforce ethical rules and power to pronounce sanctions against offending counsel. In 2013, the International Bar Association (IBA) also released its Guidelines on Party Representation to give parties the option to adopt a uniform standard code of conduct to govern legal representatives in international arbitration. The LCIA and IBA guidelines provide the parties to seek a more ethical conduct of arbitral proceedings.

Conclusion

The parties in international arbitration have an advantage of utilizing different procedural options during the course of arbitration. These options may have an impact on the conduct and outcome of arbitration. But whether a party can actually benefit from the different options depends on their awareness and understanding of the slight – yet crucial – distinctions between the rules of different arbitral institutions.

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Raja Mohammad Akram & Co has a strong expertise in international arbitration and litigation. We provide regular updates on the legal developments in relation to international arbitration and litigation.

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