A Conflict of Choice: Overriding Provisions v Institutional Rules

By Gauri Sidana and Kaushiki Chauhan from National Law University, Delhi

Introduction

Arbitration is often categorised into two broad types, ad hoc and institutional. These terms are not defined authoritatively.[1] They commonly describe arbitrations with the party-set procedure, and institutional procedural rules of arbitration respectively.

The problem arises when parties subscribe to institutional arbitration, adopting a set of institutional rules of procedure, but decide on ‘Overriding Provisions’ which outlines a specific piece of procedure that does not align with, or stands in contravention of, the institutional rules.

Arbitral tribunals derive their power from arbitration agreements. Institutional arbitral tribunals derive their power from the agreement and the institution. Arbitration is party-oriented. However, if one subscribes to the party-solely-trumps-all idea of arbitral procedure, even institutional arbitration, should the distinction between ad hoc and institutional arbitrations be nullified? This blog argues that the institutional rules must be adhered to in their entire content for the arbitration to be considered institutional. Deviations may only be permissible if the arbitration is styled as ad hoc.

The Delhi High Court and The Dilemma

The Delhi High Court recently in the case Techfab International Private Limited vs Midima Holdings Limited placed the idea of an ‘agreed arbitration procedure’ on a high pedestal, where an issue arose regarding the place of arbitration.

The parties had agreed to an arbitration under the UNCITRAL Rules of Arbitration to be seated in India. However, the arbitration could be seated in other UNCITRAL-compliant countries if the parties agreed to the seat before the arbitration. After initiating the arbitration, Midima sought the appointment of an arbitrator through the PCA at the Hague. The PCA made the CNICA the appointing authority for the arbitrator. An AIAC-affiliated arbitrator was appointed. These proceedings were to be held in Kuala Lumpur, Malaysia. Techfab contested the appointment on the grounds that it violated the arbitration agreement. They argued that there was no mutual consent on the appointment procedure.

The Delhi High Court granted an ad-interim anti-arbitration injunction to Techfab on the grounds that the procedure followed was not as per the procedure in the arbitration agreement. The reasoning employed was the supremacy of party autonomy in determining the procedure of the arbitration they submit to in the course of dispute resolution. To quote the bench, “the agreed procedure for appointment of an arbitrator must be scrupulously followed”. This case raises the implications of the idea of a procedure agreed upon by parties, especially where institutional rules of arbitration dictate procedure.

Consider a hypothetical situation to analyze a possible dilemma faced. An arbitration agreement designates a three-member arbitral tribunal, to conduct an arbitration under the institutional rules of arbitration as UNCITRAL’s 2021 Rules, seated in India. However, a clause in the agreement outlines the appointment procedure as one arbitrator each by both parties      and the third member by a previously appointed panel. This contradicts Article 9, UNCITRAL Rules, which provide for appointment by the two nominated arbitrators. In this situation, the third arbitrator may be appointed by the two members of the tribunal, or the panel as constituted. If either procedure for appointment of the third arbitrator is followed, a party may argue for the ‘agreed upon procedure’ not having been followed.

The definition of the ‘agreed upon procedure’, hence, comes under contest for the purposes of determining and remedying procedural impropriety.

Party Autonomy(ies?)

Faced with the issue of contradiction in procedure to be followed in a conflict between overriding provisions and institutional rules, arguments are raised for either procedure.

An often-used argument for overriding provisions is the supremacy of party autonomy. This places  institutional rules as supplementary to party autonomy in procedure.[2] The argument points towards enforcement under Article V, NYC, and the less probable avoidance of the arbitration agreement as being contradictory. They argue that there is no contradiction because the institutional rules are merely gap-filling and not an overriding body of rules.

Now, party autonomy is admitted as the supreme basis of arbitration.[3] The most important manifestation of party autonomy is the submission to arbitration itself. Parties consent to the creation of jurisdiction of the arbitral tribunal upon themselves. The legitimacy of arbitration is sourced through this consent and agency.[4] Arbitrators derive their power from the arbitration agreement. However, their limits are also conceived through party agreement.

The choice between ad hoc and institutional arbitration is also an exercise of party autonomy.[5] Parties, in subscribing to institutional arbitration, allow their further autonomy to be limited.[6] Limitations increase in terms of the application of the laws of procedure and substance prescribed for the arbitration. Institutional tribunals make decisions wholly in accordance with the relevant arbitration agreement and the applicable rules of arbitration.

One conceptualisation of party autonomy may be seen temporally. Michael Pryles argues that party autonomy is significantly less restricted before the institution of the tribunal, and increases afterwards. Before, the only restrictions were the mandatory provisions of the law governing the arbitration agreement and the lex arbitri. After, the parties concur with the tribunal.[7] Some rules of procedure emulate this by expressly mentioning a waiver of other manifestations of party autonomy. Article 29.2, HKIAC Rules delineate a deemed waiver of the autonomy to appoint arbitrators. The ICC Rules, allowing the ICC Court to override a party agreement in the case of expedited proceedings also dispenses with party autonomy.

However, another conceptualisation may benefit this discourse. This idea refuses the premise that the upholding of party autonomy dictates that the overriding provisions must be followed. This is premised on the fact that in the case of contradictions, there exist two manifestations of party autonomy, instead of only one. Since parties have agreed to both, either could be considered upholding party autonomy.[8] 

This reasoning was used in AQZ v ARA, where the parties’ previous agreement to adopt the SIAC Rules was given prominence over subsequent party autonomy in overriding provisions, using a redacted SIAC Award where a sole arbitrator had rejected a challenge to his jurisdiction even though the agreement delineated a three-member tribunal.[9] 

Another argument used for overriding provisions is kompetenz-kompetenz, where the Tribunal may assume powers/limitations outlined within the arbitration agreement through the overriding provisions through this principle determining its jurisdiction and competence.[10] However, using the previous analysis on the limitations on party autonomy, this interpretation may be opposed because limitations on the arbitral tribunal are also placed through the institutional rules themselves. This is not to question the sanctity of kompetenz-kompetenz itself, but rather to add onto the considerations a tribunal must consider and comply with in its determination of the limits of the jurisdiction it may exercise.

Another challenge to the principle of kompetenz-kompetenz may be a logical corollary that Prof. Gary Born draws. In providing an arbitral tribunal with the power to determine its jurisdiction when such is contested, not the parties, it is within the hands of the tribunal to make such a decision. The tribunal is then not bound by the parties’ implications of its jurisdiction when making such a decision,[11] and may choose to not comply with the overriding provision.

Borderline Cases and How to Handle Them

The previous section aimed to change the discourse on overriding provisions and institutional rules from      myopic party autonomy implications on the extent of a tribunal’s powers, duties, and limitations.  It is seen that these arguments cannot be sustained under different expressions of party autonomy and the principle of kompetenz-kompetenz. However, the premise of this discussion was the distinction between institutional and ad hoc arbitrations, based on fidelity to the rules of procedure as set by the institution or the parties themselves.

Prof. Schroeter seeks to distinguish this premise by styling overriding provisions as ‘borderline cases’, where institutional rules of arbitration may be said to have been ‘modified’ by party agreement. In the case of overriding provisions, the characteristics of the proceedings being institutional arbitrations, a classic characteristic of institutional arbitrations, is combined with the party-determined procedure, a characteristic of ad hoc arbitrations.

He premises the legitimacy of overriding provisions on party autonomy, which has previously been dealt with in this piece. He also accepts the criticism outlined herein, considering the conflict to be a conflict of wills.[12] He draws a graded availability of party autonomy in his analysis, holding it to be less limited in ad hoc arbitration when compared to institutional arbitration.[13] The only limitation on ad hoc arbitration posits as the lex arbitri, i.e., the procedural law governing the conduct of the arbitration. However, in institutional arbitration, this limitation is compounded by provisions of the institutional rules of arbitration as laid by the institution subscribed to by the parties.

He, however, introduces derogable (amendable) and non-derogable (non-amenable) provisions contained within institutional rules. Non-derogable provisions are protected wholly from any interference, in the name of party autonomy or otherwise.[14] Each set of institutional rules has different designations of the non-derogable rules contained therein, dependent on the make and the core of the institution itself. Special care is given to rules that are unique to an institution, its unique selling point. One may consider the test to be of a characteristic or rule, without which, the institution would lose its institutional character.

Prof. Schroeter then works towards protecting overriding provisions attempting to derogate from the non-derogable provisions, calling them ‘not necessarily’ invalid. He relies on the discretion of the arbitration institution in administering the arbitration or not.[15]

However, one must consider the implication of allowing derogations from ‘derogable’ provisions. Two pertinent problems exist in making such a distinction.

Addressing firstly, the determination of provisions as derogable or not. Institutions do not, by themselves, prescribe certain rules as derogable or non-derogable. It cannot be left solely upon the discretion of the case-specific determinative authority to decide on if a provision is derogable or not. Aligning to a rather legal realist analysis for the purposes of this argument, biases exist and may play an entirely all-important role in these determinations. Since arbitrations do not concur with the idea of stare decisis or the bindingness of previously awarded arbitrations, an arbitral tribunal could wholly differ from another on if something is derogable or not. Unless the institution itself, or through some agency mechanism, designates certain rules as non-derogable, such distinctions will always be indeterminate and uncertain.

Addressing secondly, the implication of allowing parties to derogate from certain derogable rules in institutional arbitration. One must consider that the assignment laid in allowing such derogations is that an institution is comprised of certain important rules and others that are dispensable. If such is the case, there is no tangible reason for the derogable rules to exist in the first place. Parties use institutional arbitrations for the institutional administration of proceedings through their rules of arbitration. If these are amended, the sanctity is in question.

The mere tag of an institutional arbitration does no good to a party, especially because institutions, such as the ICC, administer ad hoc arbitrations as well. The part that sets aside institutional arbitrations is the fidelity to their rules of procedure. If one wants an institutional arbitration, one should submit fully to its procedure. Alternatively, one could opt for a wholly ad hoc arbitration or an ad hoc arbitration administered by an institution.

 Conclusion

Institutional rules must be fully impervious to overriding provisions. If any modifications to the arbitration procedure are to be made, the proceedings must be commuted to ad hoc. These could be administered by an institution or not, but cannot be styled as institutional arbitrations.

While the prominence of party autonomy in dictating arbitration procedure is accepted, there seems to be a lack of reason to hold overriding provisions over institutional rules. In cases where parties, using their autonomy, have chosen institutional rules of arbitration to apply to their case but delineated specific procedures, contrary to these institutional rules, greater weight must be given to the institutional rules if the status of institutional arbitration is maintained. This, of course, is with the caveat that derogations may be made from institutional rules where such derogations have been explicitly allowed, and the arbitration would still retain its status as an institutional arbitration since these modifications could not be considered ‘overriding’.

[1] Ulrich G Schroeter, ‘Ad Hoc or Institutional Arbitration – A Clear-Cut Distinction?: A Closer Look at Borderline Cases’ (2017) 10(2) Contemp Asia Arb J 141 ( ‘Schroeter’); Gary B Born, International Commercial Arbitration (3rd EDN, Wolters Kluwer 2021) (‘Gary Born’).

[2] Nigel Blackaby and Constantine Partasides QC with Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration (6th edn, OUP 2015) (hereinafter ‘Redfern & Hunter’).

[3] Thomas E Carbonneau, The Law And Practice Of Arbitration (2nd edn, Juris Publishing LLC 2007) 21-22; Phillipe Fouchard and Berthold Goldman (eds), Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International BV 1999) ¶46; Redfern & Hunter.

[4] Martin Platte, ‘Multi-party Arbitration: Legal Issues Arising out of Joinder and Consolidation. Enforcement of Arbitration Agreements and International Arbitral Awards – The New York Convention Practice’ E Gaillard and D Di Pietro (eds), Cameron May, 481 (2008) – 2008 (‘Platte’).

[5] Karl-Heinz Böckstiegel, ‘Party Autonomy and Case Management – Experiences and Suggestions of an Arbitrator, (2013) 11 SchiedsVZ 1, 2 (‘Böckstiegel’); Gary Born 168-69.

[6] Elliot Geisinger, ‘The Expedited Procedure under the Swiss Rules of International Arbitration’ in Kohler & Stucki (eds), The Swiss Rules of International Arbitration; Redfern & Hunter ¶6.16.

[7] Michael Pryles, ‘Limits to Party Autonomy in Arbitral Procedure’ (2007) 24(3) Kluwer Law Arbitration 327.

[8] Kah Cheong Lye.

[9] W Company v Dutch Company and Dutch Holding Company [2012] 1 SAA 97.

[10] Platte.

[11] Gary Born, 1051-1052; Raffineries de pétrole d'Homs et de Banias v Chambre de commerce internationale (1985) Paris Court of Appeal (1985 REV ARB 141).

[12] Andrea Carlevaris, ‘The Bounds of Party Autonomy in Institutional Arbitration’ in Andrea Carlevaris (ed) International Arbitration Under Review: Essays in Honour of John Beechey, 103, 114 (‘Carlevaris’).

[13] Böckstiegel, 2; Carlevaris, 115.

[14] Geisinger, p. 77; Reiner & Aschauer, ¶27; Schwartz, pp. 7-8; Herman Verbist, p. 16

[15] Schroeter.