HKL v Rizq International: Pathological Arbitration Clause Case Update

In a previous post, we discussed the case of HKL Group Co Ltd v Rizq International Holdings Pte Ltd[2013] SGHCR 5 (“HKL v Rizq (No. 1)“), which upheld a pathological arbitration clause as a hybrid arbitration clause and which appeared to contravene the ICC Rules.

Specifically, the High Court imposed a stay of court proceedings subject to the condition (“Condition“) that “parties obtain agreement of the SIAC or any other arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC rules” (emphasis added) (see paragraph [37] of HKL v Rizq (No. 1)). In coming to its decision, the High Court rejected both an interpretation that the clause was an ICC arbitration clause or that it was an SIAC arbitration clause (see paragraph [26] of HKL v Rizq (No. 1)).

By way of an update, the parties, HKL Group Co Ltd (“HKL“) and Rizq International Holdings Pte Ltd, recently reappeared before the same learned Assistant Registrar in HKL Group Co Ltd v Rizq International Holdings Pte Ltd[2013] SGHCR 8. It appears that parties agreed to a straightforward SIAC arbitration and thereby avoided the problems of a hybrid arbitration clause (see paragraph [4]).

During that hearing, HKL raised further arguments as to the validity of the Condition imposed by the High Court (see paragraph [3] and [6]). However, the High Court decided to retain the Condition. We understand that HKL has lodged an appeal (presumably on this point) notwithstanding their agreement to a straightforward SIAC arbitration (see paragraph [5]).

A contractual interpretation that resolves the issue

In our view, the complexities involved in construing the arbitration clause as a hybrid clause could have been entirely avoided because the clause could simply have been construed as contemplating a straightforward ICC arbitration in Singapore. As we explained in our previous post,

  1. The reference to “Arbitration Committee” could, at least on one interpretation, be construed as a reference to the ICC “International Court of Arbitration“. In particular, if the concern is to identify a body that administers the ICC Rules then the ICC Rules provide that an ICC arbitration is administered by the International Court of Arbitration of the ICC, which is the independent arbitration body of the ICC (see Article 1(1) of the ICC Rules).In this respect, Article 1 of the Statues of the International Court of Arbitration (see Appendix I of the ICC Rules) further provides the International Court of Arbitration is “an autonomous body, [which] carries out these functions in complete independence from the ICC and its organs” as well as the fact that “[i]ts members are independent from the ICC National Committees and Groups.” (see also Darius Chan, “The creation of a hybrid arbitration from a pathological arbitration clause, SLW Commentary Issue 1/Feb 2013).
  1. Alternatively, adopting another interpretation, the reference to “Arbitration Committee” could simply be read as a reference to an “Arbitration Tribunal“. Indeed, this could very well have been what the parties intended as it is not implausible that parties regarded the term “committee“, at least in layman’s terms, to be interchangeable with “tribunal“. If the phrase “Arbitration Tribunal” is used in place of “Arbitration Committee“, then the clause reads as a fairly standard arbitration clause which refers disputes between the parties to an ICC arbitration in Singapore.

 

  • Furthermore, the above alternative interpretations would be consistent with the existing ICC Rules (Article 1(2)) which (i) clarify that the ICC International Court of Arbitration is the only body authorised to administer arbitrations under the ICC Rules, including the scrutiny and approval of awards rendered in accordance with the same; and (ii) effectively prohibit hybrid arbitrations of the sort sanctioned in Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR(R) 936.

 

Decision of the High Court

On that last point, it appears that at the recent hearing, HKL brought Article 1(2) to the High Court’s attention for its consideration (see paragraph [6]). However, the High Court still retained the Condition and explained its decision as follows.

First, the High Court held that the Condition did not preclude parties from securing agreement to commence an ICC arbitration in Singapore. Accordingly, if parties could secure an ICC arbitration in Singapore, the Condition would be satisfied (see paragraph [12]). However, this appears to be different from the High Court’s views previously expressed in HKL v Rizq (No. 1) which essentially mandated that parties either come to a fresh arbitration agreement or “resolve the matter by way of arbitration in the form of a hybrid arbitration applying the ICC rules” (see paragraph [38] of HKL v Rizq (No. 1)).

In essence, the High Court considered that the Condition simply expanded the range of options available to the parties to effect their intention to arbitration. The High Court recognised the difficulties posed by the pathology of a defective arbitration clause and considered that “the parties should be offered more options for the resolution of the pathology, where these options are within the bounds of consistency with the wording of the arbitration clause” (see paragraph [9]).

In this respect, the High Court stressed that it was not endorsing hybrid arbitration clauses. However, insofar as the Court needed to assist parties in surmounting their pathological arbitration, the Court should offer a range of solutions to the parties, including the option of a hybrid arbitration clause “inelegant as it may be” (see paragraph [11]).

Second, Article 1(2) of the ICC Rules could not bind parties from agreeing to a hybrid arbitration clause, or the courts from holding that such a hybrid clause was what the parties intended. The High Court held that Article 1(2),

“cannot curtail the freedom of parties to agree to be bound by the result of an arbitration administered by a different arbitral institution applying the ICC Rules, neither can it curtail the power of the court to give an interpretation to a pathological arbitration clause, where that clause uses language which admits the possibility of different arbitral institutions, which provides a wider range of solutions to the parties” (see paragraph [10]).

Queries and Issues

This decision of the High Court raises a few questions and issues.

First, it is clear from the wording of this pathological arbitration clause that parties intended to submit the arbitration to the ICC Rules which, pursuant to Article 1(2) clearly stipulate that the ICC International Court of Arbitration is the only body authorised to administer arbitrations under the ICC Rules. Absent express words to the contrary, how likely is it that parties would have intended to contract outside of Article 1(2) and to agree to have another arbitral institution administer the ICC Rules?

Second, is it even possible for parties to contract outside of Article 1(2) and if so, would it not lead to a host of complications in practice? Given the problems of construing the arbitration clause as a hybrid ICC arbitration in light of Article 1(2), perhaps the preferred interpretation should be one that construes the clause as a straightforward ICC arbitration clause rather than as a hybrid clause.

In saying this, we do acknowledge that the clause was drafted before the introduction of the ICC Rules 2012 and its modified Article 1(2). Nevertheless, in our view, unlike the arbitration clause in Insigma v Alstom, the arbitration clause here did not clearly contemplate a hybrid arbitration.

Conclusion

This case raises very thorny issues of the ambit of party autonomy, the ability to contract out of an arbitral institution’s mandatory rules as well as the proper approach of the court in interpreting a pathological arbitration clause in such a situation. Perhaps these issues will be discussed and addressed on appeal.

About Shaun Lee

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

3 Responses to HKL v Rizq International: Pathological Arbitration Clause Case Update

  1. Pingback: SLW Commentary: HKL v Rizq International – Pathological Arbitration Clause Case Update | Singapore International Arbitration Blog

  2. Pingback: Case Update: Seat of Arbitration and Implied Choice of Governing Law of Arbitration Agreement | Singapore International Arbitration Blog

  3. Pingback: Swedish Court of Appeal upholds pathological hybrid arbitration clause | Singapore International Arbitration Blog

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