11/19/2018

2.0
Framework of
International
Commercial Arbitration

Professor Steve Ngo

Complex systems of law

• The systems of law affecting arbitration - must be considered at
the beginning of the drafting stage:
• Law governing the arbitration agreement
• Law governing the existence and proceedings of arbitral tribunal
or “Lex arbitri”
• Law governing the substantive issues in disputes or ‘applicable
law’ , ‘substantive law’, ‘governing law’ or ‘the proper law of the
contract’
• Applicable rules
• Law governing recognition and enforcement of award
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Law governing the arbitration

agreement
• Often assumed that the law governing the arbitration agreement is the
SAME as the law governing the substantive issue in dispute
• Article V(I)(a) of the New York Convention provides that enforcement
may be refused: “….(arbitration) agreement is not valid under the law
to which the parties have subjected it or, failing any indication
thereon, under the law of the country where the award was made.”
(law of the seat)
• In the absence of any designation of the law, usually the law of the
seat of the arbitration is taken as the appropriate law to govern the
parties’ arbitration agreement. C v D [2007] EWHC 1541 – arbitration
was determined to be governed by English Arbitration Act 1996 albeit
underlying contract was to be governed by New York law.
• XL Insurance Ltd v Owens Corning [2000] 2 Lloyd’s Rep 500 - NY
applicable law but arbitration in London i.e. English Arbitration Act
1996-

Law governing the existence and proceedings

of arbitral tribunal or “Lex arbitri”
• Different from the law that governs the substantive matters in dispute.
• Lex arbitri is in connection with the national arbitration laws, “juridical
seat” of arbitration and not to be equated with the physical place of
arbitration hearing/proceedings which could be a forum of
convenience only. (note “delocalised” issue)
• Include procedural matters, rules governing interim measures,
empowering exercise by the Court of supportive measures to assist an
arbitration which has run into obstacles, fulfilling the supervisory powers
by the Court as provided by the laws.
• Analogy: a French driver taking her French registered car to London
has ‘chosen’ English traffic law. The applicability of English law follows
automatically and it is not a matter of choice
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Law governing the existence and proceedings

of arbitral tribunal or “Lex arbitri”
• “Delocalised” arbitration problem (seat theory) – ‘lex arbitri’
gives an established legal framework to an international
commercial arbitration instead of ‘floating in the transnational
firmament, unconnected with any municipal system of law’
(Bank Mellat v Helliniki Techniki [1984] QB 291)
• New York Convention Article VII(2) and V(1)(a) & (e): reference
to ‘..law of the country where the arbitration took place..’ and
‘…the law of the country where the award is made…’
• “If the parties have not previously agreed on the place of
arbitration, the place of arbitration shall be determined by the
arbitral tribunal having regard to the circumstances of the case.
The award shall be deemed to have been made at the place of
arbitration.” UNCITRAL Rules, Art.18(1)

Applicable rules – “Arbitration Rules”

• Rules of arbitration institutions – they are not national arbitration
laws and does not supersede the laws
• Procedural rules – provides greater flexibility, efficiency with
regard to the conduct of the proceedings. (e.g. Expedited
Procedures)
• If any mandatory provisions apply, then must be obeyed: “For
the avoidance of doubt, a provision in an arbitration agreement
referring to or adopting any rules of arbitration shall not of itself
be sufficient to exclude the application of the Model Law or this
Part to the arbitration concerned.” Singapore International
Arbitration Act s.15(2)
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“Arbitration Rules” – Arbitral

institutions
• Institutions which are independently established to administer
arbitration proceedings
– Promulgate rules
– Provide administration services (chargeable)
– Maintain panels of arbitrators
– Conduct trainings

• Example of institutions:
– SIAC, LCIA, ICC, ICDR/AAA, HKIAC, CIETAC

• Generally no laws prohibiting establishment of arbitration

institutions. However China’s arbitration law regulates the
establishment of arbitral commissions

Law governing substantive issues

• Particular system of law that governs the interpretation and
validity of the contract, the rights and obligations of the parties,
the mode of performance, and the consequences of the
breaches of the contract (per Lord Diplock in Compagnie
Tunisienne v Compagnie d’Armament [1971] AC572))
– National law
– Public international law
– Concurrent or combined law “Tronc Commun” doctrine
– Transnational law (e.g. Lex Mercatoria, UNIDROIT)
– Amiable compositeur or Ex aequo et bono
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Law governing substantive issues

• ICC Rules Article 35
1. The arbitral tribunal shall apply the rules of law designated by the
parties as applicable to the substance of the dispute. Failing such
designation by the parties, the arbitral tribunal shall apply the law
which it determines to be appropriate.
2. The arbitral tribunal shall decide as amiable compositeur or ex
aequo et bono only if the parties have expressly authorized the
arbitral tribunal to do so.
3. In all cases, the arbitral tribunal shall decide in accordance with
the terms of the contract, if any, and shall take into account any
usage of trade applicable to the transaction.

Law governing recognition &

enforcement of award
• United Nations Convention on the Enforcement and Recognition
of Foreign Arbitral Awards “NY Convention” - “shield and sword”
• NY Convention 1958, Article V(1) & (2)
• “… a foreign award may be enforced in a court either by action
or in the same manner as an award of an arbitrator made in
Singapore is enforceable under section 19. (2) Any foreign
award which is enforceable under subsection (1) shall be
recognised as binding for all purposes upon the persons
between whom it was made and may accordingly be relied
upon by any of those parties by way of defence, set-off or
otherwise in any legal proceedings in Singapore.” IAA s.
29(1)&(2)
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Mix and match!

• China shipping company as builder/seller “ABC” and Singapore
private company “XYZ” as buyer
• XYZ wanted Singapore law although ABC preferred Hong Kong.
XYZ said “take it or leave it”; Singapore law to govern the
agreement
• Arbitration shall in accordance with the rules of ICC. Place of
hearing shall be in London because final payment to be
transferred via XYZ’s investor in London. Also a compromise.
“Juridical seat” is the UK
• English Arbitration Act 1996

Arbitration agreement
• Arbitration agreement is THE basis for resolving disputes between
parties through arbitration
• Defined as an agreement between parties to submit future or present
disputes to arbitration
• Intention to arbitrate expressed
• Distinction between submission to arbitration, and arbitration clause.
The former is an agreement to refer existing disputes to an arbitration
panel. The latter is generally included in a contract signed by both
parties before a dispute exists
• “Separability” - Arbitration agreement is a ‘stand alone agreement’
• Cannot be “defective” – inconsistent, uncertain or inoperable
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Arbitration agreement – ML
(Option I) Article 7. Definition and form of arbitration agreement
(As adopted by the Commission at its thirty-ninth session, in 2006)

(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or
not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate
agreement.

(2) The arbitration agreement shall be in writing.

(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration
agreement or contract has been concluded orally, by conduct, or by other means.

(4) The requirement that an arbitration agreement be in writing is met by an electronic communication if the
information contained therein is accessible so as to be useable for subsequent reference; “electronic
communication” means any communication that the parties make by means of data messages; “data message”
means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including,
but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.

(5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and
defence in which the existence of an agreement is alleged by one party and not denied by the other.

(6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration
agreement in writing, provided that the reference is such as to make that clause part of the contract.

Arbitration agreement – ML
(Option II)
Article 7. Definition of arbitration agreement
(As adopted by the Commission at its thirty-ninth session, in 2006)

“Arbitration agreement” is an agreement by the parties to submit

to arbitration all or certain disputes which have arisen or which
may arise between them in respect of a defined legal relationship,
whether contractual or not.
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Arbitration agreement – NYC 1958

• “Each contracting State shall recognize an agreement in writing
under which the parties undertake to submit to arbitration…” Art.
II(1)
• “The term “agreement in writing” shall include an arbitral clause
in a contract or an arbitration agreement…” Art. II(2)
• Art. II(3), Art. V(1)(a)

‘Bad’ Arbitration agreement

• In the hands of lawyers to draft the contract/agreement
including arbitration clause – very common for to encounter
badly drafted arbitration agreement even by professional
lawyers
• “Midnight clause”! (lousy excuse, no?)
• A party plagued by badly drafted arbitration agreement faces
‘dispute within dispute’
• Terms and reference in the arbitration agreement can be
completely contrary to the intention of the parties
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Four necessary elements of

arbitration agreement
• Arbitration agreement is in writing
• Deals with existing or future disputes
• The disputes arise in respect of a defined legal relationship,
whether contractual or not
• Concerning subject-matter capable (arbitrable) of settlement by
arbitration

Types of arbitration agreement

• Clause, “Arbitration Clause” in a commercial contract – to
submit disputes that may arise arising out of the contract to
arbitration. This is the most common and effective arbitration
agreement
• Agreement (Submission Agreement) to submit existing dispute to
arbitration – Not easy in reality as it requires the consensus,
cooperation of both parties already in a dispute to enter into an
agreement to arbitration
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Separability
• “Separability”, “Autonomy” or “independence” of the
“Arbitration Clause” – any challenge to the main
agreement/contract does not affect the arbitration agreement;
the arbitral tribunal can still decide on the validity of the main
contract and the dispute arising

Pathological arbitration agreement

• First used by the late Frédéric Eisemann, Honorary Secretary-
General of ICC in 1974
• Denotes arbitration agreements, particularly clauses which
contain a defect or defects liable to disrupt the smooth progress
of arbitration
• Pathological for reasons, for example:
– Reference to arbitration institutions may be inaccurate or totally incorrect
– Submission to arbitration as “optional”
– Defective mechanism for appointment of arbitrators

(Fouchard, Gaillard, Goldman on International Commercial Arbitration)

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Pathological - examples
• Inconsistency:
– Lovelock Ltd v Exportles [1968] 1 Lloyd’s Rep 163 - 'Any dispute and/or claim which it
may be found impossible to settle amicably shall... be referred to [arbitration in
England]' and 'Any other dispute that may arise between the parties... shall... be
referred for final decision to the USSR Chamber of Commerce Foreign Trade Arbitration
Commission in Moscow'. Both were struck down
– Mangistaumunaigaz Oil v United World Trade [1993] 1 Lloyd’s Rep 617 - ‘arbitration, if
any, by ICC Rules in London’

• Uncertainty:
– P.T. Tri-M.G. Intra Asia Airlines v Norse Air Charter Limited [2009] SGHC 13 – “Clause 15 –
Arbitration: All disputes under this Agreement shall be submitted for resolution by
arbitration..” “Clause 22 – Governing Law and Jurisdiction: …that the courts of the
Republic of Singapore shall have jurisdiction to hear and determine any suit, action or
proceedings and to settle any disputes which may arise …irrevocably submits to the
jurisdiction of such courts…”

Pathological - examples
• Repudiation/waiver:
– La Donna Pty Ltd v Wolford AG [2005] VSC 359 – arbitration
agreement is held to be inoperative and that the parties had
waived their right to arbitration having commenced litigation and
applied for an order of security for costs.

• Incapable of being performed:

– Aminoil v Govt of Kuwait (1982) XXI ILM 976 – the appointment of
the third arbitrator was to be made by the “British Political Resident”
in the Gulf, a post which had ceased to exist at the time of the
dispute.
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Pathological - examples
• Hybrid arbitration agreement:
– Provide for one arbitral institution to administer an arbitration under
the rules of another arbitral institution Insigma Technology Co. Ltd v
Alstom Technology Ltd [2009] 3 SLR 936; [2009] SGCA 24
– “Any and all such disputes shall be finally resolved by arbitration before the
Singapore International Arbitration Centre in accordance with the Rules of
Arbitration of the International Chamber of Commerce then in effect and the
proceedings shall take place in Singapore and the official language shall be
English …”
– ICC revised rules: Art. 1(2) “The Court is the only body authorized to
administer arbitrations under the Rules, including the scrutiny and
approval of awards rendered in accordance with the Rules”; Art
6(2) “By agreeing to arbitration under the Rules, the parties have
accepted that the arbitration shall be administered by the Court”

“Effective interpretation”
• ‘where a clause can be interpreted in two different ways,
the interpretation enabling the clause to be effective should
be adopted in preference to that which ‘prevents the
clause from being effective’

(Fouchard, Gaillard, Goldman on International Commercial Arbitration)

• To be interpreted as any other contracts

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Sample arbitration clause

Any dispute arising out of or in connection with this contract,
including any question regarding its existence, validity or
termination, shall be referred to and finally resolved by arbitration
administered by [INSTITUTION] in accordance with the Arbitration
Rules of [INSTITUTION] for the time being in force, which rules are
deemed to be incorporated by reference in this clause.

The seat of the arbitration shall be [Singapore].*

The Tribunal shall consist of _________________** arbitrator(s).

The language of the arbitration shall be ________________.

Sample arbitration clause

Any dispute arising out of or in connection with this contract, including
any question regarding its existence, validity or termination, shall be
referred to and finally resolved by arbitration in Singapore accordance
with the UNCITRAL Rules of Arbitration for the time being in force, which
rules are deemed to be incorporated by reference in this clause.

For the avoidance of doubt, the juridical seat of the arbitration shall be
Singapore.

The Tribunal shall consist of _________________** arbitrator(s).

The language of the arbitration shall be ________________.

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Practical considerations
• Parties must express their intention to arbitrate unequivocally
• Arbitration involving who? Private entities, state owned
enterprises or sovereigns?
• Avoid verbs such as “may”, “might”, “could”. Instead, use more
definitive and compulsory ones such as “shall” or “must”.
• Ambiguous or equivocal expressions must also be avoided e.g.
“In case there is necessity, the MIAC may be called upon to
assist the parties”
• Do not resort to “cut and paste” work unless very certain and
sure.
• Ad-hoc or institutional arbitration?

Define subject matter

• Avoid using words like “the performance, breach, termination,
validity, formation, interpretation, default or enforcement of the
contract” – there is risk that the conflict might literally not be
included in that listing, hence a court might consider such
enumeration to be of restrictive nature therefore subject to a
restrictive interpretation.
• Avoid words with specific and/or narrow meaning such as
“claims”. Instead, “differences” or “disputes” are broader and
not limited to just claims.
• Use wider expressions all the time, e.g. “arising out of the
contract” or “all disputes”
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Current drafting practice – points to

consider
• Juridical seat of arbitration :
– Juridical seat different from physical place of hearing/ evidentiary hearing
location of convenience? Need to specify
• Ad-hoc or institutional:
– Need to understand the difference and select accordingly. Do not use
rules of institution for ad hoc arbitration or for arbitration at another cenre
• Number of arbitrators:
– Hardly a major issue until the dispute is of low value or when it is ad hoc
(no fee scale). By the way, try not to specify the arbitrator
• Language of proceedings
– Often underestimated but can be crucial. E.g. arbitration in accordance
with institutional rules from non-English speaking countries

Summary
takeaways
• Complex interaction of legal systems
• Arbitration is clearly governed by regulatory
framework domestically and internationally
• Understanding the difference between arbitration
rules and arbitration laws
• Importance of arbitration agreement
• Practical issues relating to drafting of arbitration
agreement and what it is all about – till this day,
there are way too many ‘bad’ arbitration clauses
out there, even drafted by legal professionals