Failure to specify number of arbitrators results in default number

This might seem like an obvious proposition. However, what happens when an arbitration clause makes reference to arbitrators in the plural without specifying the exact number to constitute the tribunal? And what happens when in that situation, the default position under the applicable rules/law provides for the appointment of a sole arbitrator if there is no agreement as to the number of arbitrators?

This was the question faced by the English Court of Appeal in the recent case of Itochu Corporation v Johann M.K. Blumenthal GmbH & Co Kg & Anor [2012] EWCA Civ 996. The arbitration clause in question (which appeared in a Letter of Guarantee) read,

Any dispute arising out of this LETTER OF GUARANTEE shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties.

The position taken by the appellant, Itochu, was that the clause provided for more than one arbitrator so that the tribunal should consist of three arbitrators. The respondent, on the other hand, argued that the clause simply provided for a sole arbitrator. The respondent successfully applied for an order that a sole arbitrator be appointed.

Before the English Court of Appeal, the issue was strictly one of whether the Court of Appeal even had jurisdiction to hear Itochu’s appeal. By unanimous agreement, the Court of Appeal held that it did not.

When does the  default number apply?

However, a majority of the Court of Appeal expressed their views as to how they would have construed the clause if the appeal had been properly before them. The Court of Appeal considered that it would have upheld the decision of the English High Court that the default rules.

Section 15 of the UK Arbitration Act 1996 states as follows.

(1) The parties are free to agree on the number of arbitrators to form the tribunal and whether there is to be a chairman or umpire.

(2) Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal.

(3) If there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator.

The English High Court held that s. 15(3) applied “despite the fact that the parties contemplated a tribunal of more than one arbitrator” (see paragraph 10). The Court reasoned that,

To my mind [s. 15(3) applies despite the reference to arbitrators]. I acknowledge that this represents an apparent departure from the principle of parties’ autonomy generally adopted by the …Act, but I think that section 15 is designed to ensure an efficient regime for difficulties in appointing a Tribunal. In any case, the wording of the Act is not materially ambiguous. Indeed, it precisely fits the circumstances of this case, where an agreement (or possibly merely an indication of an agreement) about arbitrators did not specify the number…..

Before the Court of Appeal, the appellant argued that “[t]he parties intended a tribunal comprised of more than one arbitrator; effect ought to have been given to that intention…[and] that on its true construction the arbitration clause in the Letter of Guarantee envisaged a tribunal of three arbitrators; alternatively, if it contemplated a tribunal of two arbitrators, then s.15(2) of the Act was applicable, so adding a third arbitrator as chairman” (see paragraph [12]).

Notwithstanding that the appeal was disposed off based on a procedural point, the majority of the Court of Appeal was willing to assume that the parties had indeed contemplated more than one arbitrator. Nevertheless, this by itself could not constitute an agreement as to the number of arbitrators. In the absence of such an agreement, s. 15(3) was operative and controlling (see paragraph [31]).

In this respect, the Court of Appeal considered that the deliberate choice of a sole arbitrator in contrast to the default provision in the UNCITRAL Model Law (see below) was deliberate to reduce cost and the burden imposed on parties to the arbitration (citing Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill, February 1996, at para. 79). The role of such a default rule was to prevent the arbitration from being “stymied” and had no bearing on the issue of party autonomy (see paragraph [31]).

Parties should note that the position in Singapore under s.9 of the International Arbitration Act (Cap. 143A) appears similar to that of the UK. It states that “[n]otwithstanding Article 10(2) of the Model Law, if the number of arbitrators is not determined by the parties, there shall be a single arbitrator.” Article 10(2) of the Model Law provides for a default number of 3 arbitrators in the absence of an agreement by parties as to the number to constitute the tribunal.

In this respect, the arbitration clause in issue in this case was an ad-hoc arbitration clause as opposed to an institutional arbitration one. The major arbitration institutional rules have their own default provisions in the absence of an agreement by the parties. Notably, these generally involve the appointment of a sole arbitrator unless the circumstances of the case warrant the appointment of three: (a) ICC (see Article 12(2)); (b) LCIA (see Article 5.4); (c) SIAC (see Article 6.1).

Jurisdiction

The issue of the jurisdiction of the Court of Appeal to entertain Itochu’s appeal merits a mention. The issue was whether s. 18(5) of the Arbitration Act 1996 applied such that leave of the Court of Appeal had to be obtained before it would entertain the appeal. The section in material part provides,

“(2) If or to the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.

(3) Those powers are—

(a) to give directions as to the making of any necessary appointments;

(d) to make any necessary appointments itself.

(5) The leave of the court is required for any appeal from a decision of the court under this section.”

(emphasis added)

The Court of Appeal held that notwithstanding that the issue of the construction of the arbitration clause fell within section 15 of the Arbitration Act 1996, the judge still had to make a direction under section 18(3). It follows that section 18(5) applied (see paragraph [28]). In this respect, the policy of restricting appeals “found in s.18 and a variety of other sections in the Act, is deliberate. It reflects the underlying general principles, as to party autonomy and protection of the parties from unnecessary delay and expense” and accordingly, “[c]urtailing appeals to the Court of Appeal serves to avoid the delay and expense to which such appeals can give rise: see, Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ 243; [2007] Bus LR 1075, at [15]“. (see paragraphs [17] and [18]). Therefore leave to appeal would not be granted (see paragraph [28]).

A plain reading of the Singapore International Arbitration Act (Cap. 143A) (“IAA“) and the UNCITRAL Model Law would bar any appeal from the decision of the court (or the appointing authority i.e. the Chairman of the SIAC) altogether.

“Article 11. —

Appointment of arbitrators

(2)  The parties are free to agree on a procedure of appointing the arbitrator or arbitrators, subject to the provisions of paragraphs (4) and (5) of this Article.

(3)  Failing such agreement,

(b) in an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, he shall be appointed, upon request of a party, by the court or other authority specified in Article 6.

(4)  Where, under an appointment procedure agreed upon by the parties,

(a) a party fails to act as required under such procedure; or

(b) the parties, or two arbitrators, are unable to reach an agreement expected of them under such procedure; or

(c) a third party, including an institution, fails to perform any function entrusted to it under such procedure,

any party may request the court or other authority specified in Article 6 to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(5)  A decision on a matter entrusted by paragraph (3) or (4) of this Article to the court or other authority specified in Article 6 shall be subject to no appeal. …”

(emphasis added)

Section 8(1) and (2) of the IAA provides that the Singapore High Court and the Chairman of the SIAC shall be designated as the competent court and authority respectively for the purposes of Article 11(3) and 11(4) (read with Article 6) of the Model Law.

Conclusion

The takeaways from this case are clear. Parties should explicitly state the number of arbitrators in the arbitration clause. Failing to do so gives a party opposing the arbitration an avenue to delay the constitution of the arbitral tribunal and the arbitration proceedings altogether.

Our Guidance Note provides more details about drafting effective arbitration clauses and agreements. In relation to this issue, we have pointed out the desirability for parties to specify an odd number of arbitrators, whether one or three to constitute the tribunal.

We would iterate that the advantages of appointing a sole arbitrator are costs and speed. However, a sole arbitrator may not have the legal and/or technical expertise to address all the issues in dispute.

A three man Tribunal is most common in international arbitrations, particularly if the amounts in dispute are significant or the issues are diverse or complex. A three-man Tribunal allows the parties to appoint arbitrators of various legal and technical skills to hear the dispute. There is also a lower risk that a three man Tribunal will arrive at a wrong decision. However, the cost of three arbitrators can be high and should be weighed against the amounts in dispute.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the KLRCA.
This entry was posted in Arbitration, Asean, Singapore and tagged , , , , , , , , , . Bookmark the permalink.

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