Terms of reference
Institutional scrutiny of award
The right arbitral rules to choose for any given dispute will depend on a number of factors, including:
- how confidential the parties wish the proceedings to be;
- how quickly the parties would like the dispute to be resolved;
- their appetite for cost savings;
- the importance of being able to scrutinise the award; and
- the importance of geographical neutrality.
This article outlines the key differences between the rules of the most prominent arbitral institutions:
- the International Chamber of Commerce (ICC);
- the London Court of International Arbitration (LCIA);
- the Singapore International Arbitration Centre (SIAC); and
- the Hong Kong International Arbitration Centre (HKIAC).
Confidentiality is seen as a key benefit to arbitration over litigation, and many might expect all arbitral rules to contain a stringent obligation of confidentiality. However, this is not the case. No express duty of confidentiality is imposed on the parties under ICC Rules, but the disputing parties may agree to keep proceedings confidential, or any one party may request the tribunal to make an order to the same effect.
This is very different to the general undertaking that automatically applies under LCIA Rules, where parties undertake to keep all awards, materials and documents confidential.
There is a requirement for confidentiality under the rule 39 of the SIAC Rules, but it only extends to the proceedings and the award, rather than to the materials and documents deployed during the proceedings. Similarly, under article 45 of the HKIAC Rules, no party may publish, disclose or communicate any information relating to the arbitration or any award made in the arbitration, unless the parties agree otherwise.
It is also worth noting that arbitral proceedings are generally private even if not confidential.
In court proceedings, members of the public often have a right to view proceedings and have access to some materials, such as statements of case, under the principles of "open justice". But in arbitration, as it is a contractual process, generally only the parties to the arbitration can attend hearings and view documents filed in the proceedings.
In an attempt to become more streamlined and offer a viable alternative to summary judgment procedures, several of the leading institutions have adopted procedures designed to offer expedited proceedings in suitable cases.
For example, under rule 5 of the SIAC Rules 2016, an expedited procedure is available:
- where the parties agree to its use;
- where the value of the claim does not exceed S$6 million; or
- in cases of exceptional urgency.
The expedited procedure under the HKIAC Rules is available in identical circumstances, save that the value of the claim must be below HK$25 million. There is no "exceptional urgency" provision in the ICC Rules, and the expedited procedure can only be invoked where:
- the value of the dispute is less than US$2 million (where the arbitration agreement under the ICC Rules was concluded after 1 March 2017 but before 1 January 2021);
- the value of the dispute is less than US$3 million (where the arbitration agreement under the ICC Rules was concluded after 1 January 2021); or
- the parties agree.
There is no separate expedited procedure under the LCIA Rules, and instead the LCIA Rules integrate powers of early determination, expedited formation of the tribunal and the appointment of emergency arbitrators into its standard procedure, which leaves relatively more up to the appointed arbitrator's discretion. This is also the case with consolidation and joinder of claims, where the LCIA rules are less prescriptive than those of other institutions.
The reality in any significant arbitration conducted outside of an expedited procedure is that the tribunal can be expected to take time to render an award. The institutions take different approaches to this in their rules. Under rule 32 of the SIAC Rules, the tribunal must provide a draft award within 45 days following the closure of proceedings. However, the award must be approved by the registrar before it is handed down.
Under article 31 of the ICC Rules, the tribunal must render its final award within six months, and this is three months in the case of the LCIA and HKIAC Rules. Notably, however, the LCIA Rules provide at article 15.10 that the tribunal should make its award as soon as reasonably possible. In practice, these timelines should be regarded as a guideline rather than a deadline, as they will often be extended by the institution.
Terms of reference (ToR) set out the scope of the arbitration by setting out:
- the basic claims and defences;
- the relief sought; and
- the issues to be determined.
The ICC Rules are unique in that they require ToR to be produced for every dispute. By contrast, the LCIA, SIAC and HKIAC Rules do not require any formal ToR to be produced. For many parties, ToR will help to narrow the issues in dispute early in the process and delimit the scope of the dispute, promoting settlement as well as more efficient proceedings. However, this additional administrative requirement can feel unnecessary and cause delay in prosecuting claims. In particular, it can lead to disputes over the scope of the ToR that distract parties from the arbitration itself and have the effect of prolonging proceedings further.
Institutional scrutiny of award
The ICC Rules provide for the scrutiny and approval of the draft award by the ICC Court before it is issued to the parties.
The ICC Court may lay down modifications as to the form of the award and may also draw its attention to points of substance, although scrutiny does not usually extend to the substance of the decision. Like the ICC Rules, the SIAC Rules provide for scrutiny of the award on the same grounds, with the difference that the award is scrutinised by the registrar.
The LCIA and HKIAC Rules do not allow for any institutional scrutiny of the award, which has the effect of reducing the time taken for an award to be handed down, but the parties lose the benefit of two-stage scrutiny.
Institutional scrutiny of the award will be of varying importance to the parties, depending on:
- the experience and background of the tribunal;
- the value and complexity of the dispute; and
- the speed at which they wish the dispute to be settled.
In many arbitrations, costs are an important consideration when deciding whether to commence or continue an arbitration. Different institutions offer different fee rates and structures – for example, the ICC's administrative fees are calculated on the basis of the amount in dispute and the number of arbitrators. Although this provides predictability, and parties can forecast their costs in advance using a cost calculator on the ICC website, the ICC's administrative fees are typically higher than those charged by other arbitral institutions. Fees charged by the SIAC and the HKIAC are also calculated on the basis of the amount in dispute, and parties can similarly forecast their administrative costs using the schedule of fees provided by each of these institutions.
The LCIA administrative fees are, by contrast, charged at an hourly rate, regardless of the value or complexity of the dispute. The LCIA also caps its tribunal fees at £500 per hour. However, there is no cap or maximum to the costs, and as hourly rates are used, these fees can be less predictable.
For cases with a value of $100 million, the LCIA has suggested that its fees are, on average, more than 50% cheaper than alternative institutions.
The reality of most commercial contracts is that the arbitral rules chosen are based not on any particular nuance of the rules or procedures available under the different institutions, but instead on:
- the familiarity of the parties with the particular procedure;
- past precedent in similar contracts; and
- geographical affinity.
Institutions that are linked to a single jurisdiction (ie, the LCIA, the SIAC and the HKIAC) are less likely to be viewed as neutral where disputing parties are from other jurisdictions. Regional arbitration centres are also increasingly being launched to compete with the global institutions described in this article. However, while the key distinction will always be between court litigation and arbitration, and then between different seats of arbitration (which provide different legal systems to govern the arbitration), the choice of institution is important and the differences between the rules and approaches are real.
Parties should take the advice of counsel familiar with the different options globally to ensure that their disputes are referred to the institutions most likely to be suitable for them, with any nuances of the different procedural rules to be taken into account and addressed from the outset of any proceedings.
For further information on this topic please contact Sherina Petit at Norton Rose Fulbright LLP by telephone (+44 20 7283 6000) or email ([email protected]). The Norton Rose Fulbright LLP website can be accessed at www.nortonrosefulbright.com.