Arbitration under SIAC Expedited Procedure not contrary to arbitration clause providing for 3 Arbitrators

In the recent case of AQZ v ARA, [2015] SGHC 49, the Singapore High Court had to consider a challenge to an SIAC award which was rendered pursuant to the SIAC’s expedited procedure under the SIAC Rules 2010. The High Court upheld the award rendered by the sole arbitrator even though the parties had expressly provided that all disputes were to be resolved by a panel of three (3) arbitrators.

Introduction to the SIAC Expedited Procedure

One of the oft-stated benefits to arbitration is that its proceedings can be quicker than domestic court proceedings. In 2010, the Singapore International Arbitration Centre (“SIAC“) introduced an expedited procedure to its arbitration rules. Using the expedited procedure allows, parties can expect to receive their arbitral award within six months of the appointment of the tribunal. 

Rule 5 of the SIAC Rules 2010 (which is nearly identical to Rule 5 of the SIAC Rules 2013) provided that,

“Rule 5: Expedited Procedure

5.1 Prior to the full constitution of the Tribunal, a party may apply to the Centre in writing for the arbitral proceedings to be conducted in accordance with the Expedited Procedure under this Rule where any of the following criteria is satisfied:

a.​ the amount in dispute does not exceed the equivalent amount of S$5,000,000, representing the aggregate of the claim, counterclaim and any setoff defence;

b.​ the parties so agree; or

c.​ in cases of exceptional urgency.

5.2When a party has applied to the Centre under Rule 5.1, and when the Chairman determines, after considering the views of the parties, that the arbitral proceedings shall be conducted in accordance with the Expedited Procedure, the following procedure shall apply:

a.​ The Registrar may shorten any time limits under these Rules;

b.​ The case shall be referred to a sole arbitrator, unless the Chairman determines otherwise;

c.​ Unless the parties agree that the dispute shall be decided on the basis of documentary evidence only, the Tribunal shall hold a hearing for the examination of all witnesses and expert witnesses as well as for any argument;

d.​ The award shall be made within six months from the date when the Tribunal is constituted unless, in exceptional circumstances, the Registrar extends the time; and

e.​ The Tribunal shall state the reasons upon which the award is based in summary form, unless the parties have agreed that no reasons are to be given.”

The Chairman of the SIAC (now the President of the Court of Arbitration of SIAC) determines whether or not to accept an application for arbitration proceedings to be conducted according to the expedited procedure. Once the President decides that the arbitration proceeding is to be conducted pursuant to the expedited procedure, the dispute shall be referred to a sole arbitrator, unless the President determines otherwise.

The key time limit under the expedited procedure is for the Tribunal to render its award within 6 months of its constitution (see Rule 5.2(d)). As practitioners would appreciate, these result in very ambitious timelines for the filing of pleadings, disclosure, the taking of evidence and the hearing – all of which must be completed with sufficient time for the Tribunal to draft its award. Furthermore, given the lower monetary values of the disputes that tend to qualify for the expedited procedure (see Rule 5.1(a)), it would be rare for an expedited arbitration to have a panel of 3 arbitrators for time and costs reasons.

Facts of the Dispute

The plaintiff in this case was a Singapore-incorporated mining company (“Supplier”) and the defendant, the Singapore subsidiary of an Indian trading and shipping company (“Buyer”). In or about November 2009, the parties discussed the possibility of entering into two separate contracts. As a result of this discussion, a shipment for the first contract was made in December 2009. However, the dispute arose out of the second contract, in particular, over whether the parties’ discussions resulted in a further contract for the shipment of 50,000 metric tons of coal (“Second Contract”).

As a result of that dispute, the Supplier did not ship any further coal on the basis that the Second Contract never came into existence. On March 2013, the Buyer issued a Notice of Arbitration for the Supplier’s breach of the Second Contract and subsequently filed an application to the SIAC for the arbitration to be conducted in accordance with the expedited procedure. The Supplier argued that the Second Contract was invalid and not binding and hence, that the arbitration agreement was ineffective.

On 20 March 2013, the SIAC, having considered the parties’ submissions, ruled that the arbitration would be conducted under the expedited procedure and before a sole arbitrator. The parties then agreed to jointly nominate that sole arbitrator. However, the Supplier reserved its right to challenge this arbitration on several grounds including “the effectiveness of the Arbitration Agreement, the applicability of the SIAC Rules 2010, the conduct of the Arbitration under the Expedited Procedure before a sole arbitrator and/or the Tribunal’s own jurisdiction”(see paragraph [5]).

In its final award dated 12 May 2014, the Tribunal found that it had jurisdiction, that the Second Contract was valid and that the Supplier was liable for the breach of the same. The Supplier then applied to the High Court to challenge the Tribunal’s award.

This article will only focus on the High Court’s holding on the Supplier’s challenges to the award on the basis of Article 34(2)(a)(iv) of the Model Law, i.e. whether the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties because the SIAC had applied the expedited procedure to the parties’ dispute.

The Supplier’s challenges to the award on the basis of Article 34(2)(a)(iv) of the Model Law

Article 34(2)(a)(iv) of the Model Law provides that,

“Article 34. Application for setting aside as exclusive recourse against arbitral award 

… 

(2) An arbitral award may be set aside by the court specified in Article 6 only if: 

(a) the party making the application furnishes proof that: 

… 

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law.”

The High Court held that the applicable arbitration agreement between the parties with respect to the Second Contract was to be found at Clause 16 of the first contract (see paragraph [104] and [105]). Clause 16 provided that,

“16. ARBITRATION

Any dispute, difference or disagreement between the parties arising under or in relation to this Contract, including (but not limited to) any dispute, difference or disagreement as to the meaning of the terms of this Contract or any failure to agree on any matter required to be agreed upon under this Contract shall, if possible, be resolved by negotiation and mutual agreement by the parties within 30 (thirty) days. Should no agreement be reached, then the dispute shall be finally settled by arbitration upon the written request of either party hereto in accordance with the rules of conciliation and arbitration of the Singapore International Arbitration Centre (SIAC) by three arbitrators in English Language. The result of all such arbitration shall be final and binding for the parties and for all purposes.”

(emphasis added)

The Supplier’s first challenge under Article 34(2)(a)(iv) of the Model Law was that the parties did not contemplate resolving any disputes under the expedited procedure at the time that they had entered into the agreement in 2009. The Supplier argued that the arbitration agreement relied on the previous version of the SIAC Rules, namely the Arbitration Rules of the SIAC (3rd Ed, 1 July 2007) (“SIAC Rules 2007”) which had no provision for the expedited procedure. Insofar as the expedited procedure only came into force with the SIAC Rules 2010, the use of the expedited procedure was not in accordance with the agreement of the parties which contemplated the use of the SIAC Rules 2007.

Further or alternatively, the Supplier also challenged the composition of the arbitral tribunal based on the wording of Clause 16. The Supplier argued that, even if the dispute could be submitted to and resolved under the expedited procedure, the arbitration should not have been conducted before a sole arbitrator because the parties had expressly agreed to arbitration before three arbitrators (see paragraph [123]).

Decision of the High Court

  1. The arbitral procedure (i.e. expedited procedure) was in accordance with the agreement of the parties. 

The High Court rejected the Supplier’s argument that the applicable version of the SIAC Rules was the 2007 edition and not the 2010 which was in force at the time the arbitration had been commenced. The learned judge held at paragraph [125] that,

“There is a presumption that reference to rules of a particular tribunal in an arbitration clause refers to such rules as are applicable at the date of commencement of arbitration and not at the date of contract, provided that the rules contain mainly procedural provisions. If the rules contain mainly substantive provisions, then those in force as at the date the contract was entered into would apply…”

This presumption was not displaced because the Supplier had not argued that the SIAC Rules “contain[ed] mainly substantive provisions” (see paragraph [127]). Furthermore, the absence of the phrase “for the time being in force” following the reference to the SIAC Rules (which is part of the SIAC Model Clause) did not displace the presumption. The High Court held that “if parties had intended to refer to the SIAC Rules 2007, they could have identified them by name”.

Finally, insofar as Rule 5 of the SIAC Rules 2010 provides for an arbitration to be conducted pursuant to the SIAC Procedure, if the President so decides that it should be the case, it “cannot be said that the procedure that was followed was not in accordance with the Parties’ agreement” (see paragraph [127]).

  1. The composition of the arbitral tribunal (the appointment of a sole arbitrator rather than three arbitrators) was in accordance with the agreement of the parties. 

Interestingly, the High Court did not accept the Buyer’s argument that “if the number of arbitrators was of vital importance to the parties, then they should have specifically provided that their choice of number of arbitrators would prevail in any and every arbitration” (see paragraph [131]). The High Court rejected the Buyer’s reliance on the redacted SIAC Award, W Company v Dutch Company and Dutch Holding Company [2012] 1 SAA 97. In W Company, the sole arbitrator had rejected the challenge to his jurisdiction which had been on the basis that the parties’ agreement had stipulated the appointment of three arbitrators. The arbitrator stated at [19]:

“… The parties chose the SIAC Rules to govern the arbitration and they accepted the entirety of the SIAC Rules including the Expedited Procedure in Rule 5 together with the powers that the Rule reserves to the Chairman and Registrar of the SIAC to administer and guide the proceedings. There is no derogation from party autonomy and it is precisely the parties’ choice of the SIAC Rules that requires acceptance of the Chairman’s decision. It may be otherwise if the parties had stipulated that there shall be 3 arbitrators even if the proceedings were under the Expedited Procedure but that is not the case here.”

The High Court reasoned that in the case of W Company, the parties had chosen a version of the SIAC Rules which had the expedited procedure as part of those rules. It was therefore “consistent with party autonomy for the Expedited Procedure provision to override their agreement for arbitration before three arbitrators”. In this case, however, the applicable SIAC Rules at the time that the parties had entered into the Second Contract did not contain the expedited procedure.

Nonetheless, the High Court accepted and held that the SIAC Rules 2010 had been incorporated into the parties’ contract and therefore “the rules together with the rest of the contract must be interpreted purposively” (see paragraph [132]). Taking “a commercially sensible approach”, the High Court held that the SIAC rules provide the President with the discretion to appoint a sole arbitrator. Otherwise, it would not be possible for the sole arbitrator to be appointed under the expedited procedure or in appropriate cases (i.e. low complexity and low quantum disputes). The High Court added that the Supplier had not taken the position that the expedited procedure provision was different from any other procedural rule contained in the SIAC Rules 2010.

Furthermore, the SIAC Rules 2010 did not expressly provide that the expedited procedure was not applicable to arbitration agreements which had been entered into prior to the SIAC Rules 2010 coming into force. This was in contrast to the ICC Rules which expressly provided that its emergency arbitrator provision did not apply to arbitration agreements that were entered into before the new rules came into force (see paragraph [135]).

The High Court finally noted that even if the Supplier were successful in its claim that the arbitration should have been conducted before three arbitrators, the Supplier did not discharge “its burden of explaining the materiality or the seriousness of the breach”. The High Court noted that “[w]hile prejudice is not a legal requirement for an award to be set aside pursuant to Art 34(2)(a)(iv), it is a relevant factor that the supervisory court considers in deciding whether the breach in question is serious and thus whether to exercise its discretionary power to set aside the award for the breach” (see paragraph [136]).

Therefore, the High Court held that the there was no ground to set aside the award on the basis of Article 34(2)(a)(iv) of the Model Law.

Conclusion

A number of important drafting points arise out of the High Court’s decision:

  1. If the parties wish to use a particular version of the SIAC Rules, they should specifically identify the name or version of the rule in their arbitration clause. Failure to do so means that the parties take the “risk” that any future amendments to the SIAC Rules may be applicable to their arbitration.
  2. Parties who do not want to have recourse to the expedited procedure and/or who want to substantially modify the expedited procedure should do so explicitly in the arbitration clause.

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, India, Indonesia, Singapore and tagged , , , , , , . Bookmark the permalink.

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