Most standard forms of construction contract include arbitration clause. Whilst the wordings in arbitration clause may vary it generally conveys the following: 

‘..the arbitration proceedings shall be conducted in accordance with the prevailing Arbitration Rules of XYZ Arbitration Institution and such arbitration shall be governed by Arbitration Act (including any statutory modification or re-enactment to the Act)..’. 

It is quite common for an arbitration clause to refer to arbitration rules of certain arbitration institution as well as Arbitration Act which is essentially the arbitration law at the seat of arbitration. For the purposes of this article, ‘arbitration law’ refers to national law of the seat of arbitration which is also known as ‘lex arbitri’ in Latin. So what are the differences between arbitration rules and arbitration law? Why should construction practitioners be concerned over such differences at all? The following provides a simple illustration of why this should be of concern to all parties involved in construction disputes and contract administration. If a party initiates legal action via arbitration and obtains a favourable arbitral award to recover financial compensation, it is of paramount importance for such award to be enforceable. To this end one should appreciate the interdependence between arbitration law and arbitration rules. In Singapore, there are provisions within the arbitration law to allow arbitral award to be set aside if arbitral procedure is not in accordance with the agreement of the parties. The agreement of the parties refers to, amongst others, the arbitration rules. In other words, if the arbitral proceedings was not in compliance with the agreed arbitration rules, the award may be set aside, thus rendered unenforceable. Apart from the issue of enforceability, there are other reasons for one to appreciate the difference between arbitration law and arbitration rules. This article highlights the importance of identifying these distinctions so as to effectively navigate the associated legal landscape. 

As parties could agree on their choice of arbitration rules and such agreement can have significant consequences, it is important for one to understand what exactly are arbitration rules and whether any key issues ought to be scrutinised and negotiated. Whilst parties do not commonly negotiate every single arbitration rule for their potential legal proceedings, their choice of arbitration institution significantly impacts the applicable set of arbitration rules. This will be expanded further in the next section of this article. On the other hand, parties’ choice on the seat of arbitration impacts their agreed arbitration law. Arbitration law or ‘lex arbitri’ is the curial law of the seat of arbitration referred to in the arbitration clause. Large construction projects may involve contract between various parties from different jurisdictions that are also foreign to the country where the construction project is domiciled. Due to certain strategic reasons, these contracting parties may wish to choose a seat of arbitration that is ‘neutral’. By way of illustration, an infrastructure project in Malaysia initiated by its government may involve a South Korean main contractor that contracts with a German subcontractor for certain proprietary engineering works. They may choose a neutral seat of arbitration (outside of Malaysia, Germany and South Korea) where its arbitration law is reputed to have minimal curial intervention by not interfering with arbitral proceedings and to uphold the finality of arbitration award. Therefore understanding what is arbitration law is crucial in negotiating the appropriate seat of arbitration. By way of context, there is a related article published in this website with the title of ‘Basics of Arbitration Clause And How It Can Be Reviewed Commercially?’ that is available for reference.

In essence, arbitration rules determine how the arbitral proceedings are conducted whilst the arbitration law determines the relationship between the state court and the arbitration proceedings by way of judiciary supervision and support. Jurisdictions that are arbitration friendly tend to take a minimalist approach in being non interfering in parties’ agreement to arbitrate.

What Are Arbitration Rules?

Arbitration rules are in essence administrative and procedural requirements that govern the conduct of arbitral proceedings from inception to conclusion. It may be misconceived as a necessary evil of compliance. It is not uncommon to find that parties to construction contracts do not pay much attention to arbitration rules, much less in understanding its significance. As alluded to earlier, it often pays to have practical knowledge of arbitration rules as it can have impact on the enforceability of the outcome of the proceedings or the arbitral award. Even for party that is of the view that the proceedings are not carried out in accordance with their agreement, or challenges the validity or existence of the arbitration agreement as a whole, it is still bound by the arbitration rules on an interim basis until such time when the arbitral tribunal renders an award in determining its own jurisdiction. Such dissatisfied party can only then legally challenge the jurisdiction or proper authority of the arbitral tribunal at the state court, usually within a prescribed time limit after rendering of the relevant award. 

Arbitration rules are typically set by the arbitration institution selected by the parties. Although each arbitration institution has its own unique set of rules, the overarching framework is similar. Apart from setting out its arbitration rules, the arbitration institution also provides administrative oversight and support to the arbitral proceedings. Therefore these arbitration arrangements are also known as ‘institutional arbitration’. On the other hand, ‘ad hoc arbitration’ are arbitration arrangements without oversight from any institution and therefore disputing parties do not have a comprehensive and binding set of arbitration rules governing their proceedings at the outset. Parties under ad hoc arbitration can either allow the tribunal to set a bespoke set of rules for the proceedings that it is presiding over, or to adopt an international ‘model’ arbitration rules which is known as the UNCITRAL Arbitration Rules. One of the glaring problems of such ad hoc arbitration arrangement is that parties that are already in dispute very often could not agree on most issues, even some of the more tactical ones. Therefore in the absence of an arbitration institution or pre-agreed set of arbitration rules, they may find it challenging to even agree on the appointment of arbitral tribunal. This can cause delay and be very costly.

So what do arbitration rules cover? These rules basically cover every conceivable matter from inception to conclusion of an arbitral proceedings including amongst others (1) ways of commencing arbitration including documents to be submitted to a designated secretariat and exchanged between the parties, (2) constitution or formation of arbitral tribunal as well as any challenge to its authority, (3) procedural steps of arbitral proceedings including its conduct, terms of reference, case management timetable, conservatory and interim measures, hearings, applicable rules of evidence etc (4) the making of the arbitral award including any correction and interpretations of the award, (5) arbitration costs. In applying these arbitration rules, the tribunal are essentially balancing between allowing parties reasonable opportunities to present its case whilst at the same time making every effort to administer the proceedings in an expeditious and cost-effective manner. It is not uncommon for parties to attempt to amend their existing claims or defence or to introduce supplementary evidence beyond the scheduled timeline. This poses a conundrum to the arbitral tribunal. On one hand, parties should be given reasonable opportunities to present its case but at the same time these amendments should not be introduced so belatedly that it becomes a blatant violation of the arbitration rules. In this regard, the tribunal’s interpretation of the arbitration rules becomes one of the important elements of consideration. Parties in construction dispute often find themselves presented with new information in the midst of arbitration particularly when most projects involve multi-tiers of contract e.g. main contract, subcontract, sub-subcontract. No one party have monopoly of information and one may discover new evidence from time to time. Therefore, parties that are savvy in navigating arbitration rules and are likely to be the claimant can negotiate for adoption of expedited arbitration procedures which will then limit the tribunal’s latitude in granting leave to belated amendments to pleadings. 

Although arbitral tribunal have broad powers over the proceedings, it ultimately lacks the enforcement authority of a state court. In view of this reality parties may need to get assistance from the relevant state court to recognise and enforce the arbitral award or procedural orders, as if these were made by the state court. In this regard arbitration rules do not prescribe the enforcement mechanism due to limitations in the authority of arbitral tribunal. Therefore, one has to understand the complementary role of arbitration law, which will be examined in the next section of this article.   

What Is Arbitration Law?

The national law at the seat of arbitration that sets out the legal framework governing arbitration is essentially the arbitration law or ‘lex arbitri’. If parties specify Singapore as their seat of arbitration, then Arbitration Act (Cap 10) will apply for domestic arbitration and International Arbitration Act (Cap 143A) will apply for international arbitration. As regards international arbitration, it is applicable where amongst others, one of the parties is a foreign entity. Both domestic and international arbitration regime in Singapore are highly similar and were adopted from UNCITRAL Model Law that serves as an international template law. Comparatively, the court has less power to intervene on arbitral proceedings under International Arbitration Act. By contrast, Arbitration Act allow state court to exercise more authority in respect of judicial supervision e.g. appeal on a question of law arising from an arbitral award. Notwithstanding that, parties under domestic arbitration in Singapore are free to opt in international regime in favour of less curial intervention. Therefore, parties do have influence over the type of arbitration law governing their arbitral proceedings. 

Parties to arbitration agreement are typically in favour of having more autonomy over their proceedings in terms of finality of its outcome, confidentiality and the ability to shape its procedural framework. After all, any party that lacks faith in arbitration and prefers litigation before state court are very unlikely to agree to arbitration as its mode of dispute resolution. Almost no party would be amenable to expending significant financial resources, time and effort to an arbitration only to have the award set aside and rendered unenforceable. By which time and in all likelihood, the limitation period would have expired preventing any re-litigation of the very same dispute before a state court. In other words, having a seat of arbitration that overly interferes with arbitral proceedings most certainly stifles resolution of disputes. Therefore it is fair to say that in deciding the seat of arbitration (thus the applicable arbitration law), most informed parties are in favour of an arbitration friendly jurisdiction with minimal curial intervention. Since party autonomy is a cornerstone to arbitration, parties that enter into standard forms of contract with default arbitration agreement are almost expected to be savvy or informed in respect of arbitration law and arbitration rules. This is because there are significant restrictions for the state court to stay the arbitral proceedings in favour of legal proceedings before the court. In other words, any party that felt aggrieved under arbitration is not at liberty to ‘legally extricate’ itself from the proceedings by seeking help from state court, except under very limited and prescribed circumstances.

There are certain overlap between arbitration law and arbitration rules in that the former also provide legal framework on how the proceedings should be conducted. However, most of these legal frameworks e.g. formation of tribunal, submissions of claims, hearings, law of evidence etc are worded in a manner that gives way to parties’ agreement, if any. Therefore one would generally find more specificity in arbitration rules on the conduct of the proceedings. 

It is also important to note that arbitration law at the seat of arbitration is not the substantive law dealing with the issues in dispute. Substantive law (also known as ‘governing law’) refers to the law that governs the substance of the contract which in turn sets out the basis of parties’ claims and defences. By way of illustration, parties may specify seat of arbitration in Singapore but have the substantive law governing their dispute to be Korean law. In this case the interpretation of the terms in dispute follows a civil law system (Korean law) whereas Singapore is under common law system.

Interdependence Between Arbitration Law And Arbitration Rules

Although there is a clear distinction between arbitration rules and arbitration law as illustrated above, it is particularly useful to appreciate their interdependence. To this end, there were two related issues that were briefly mentioned in the preceding sections of this article that is worth expanding further to underscore the element of interdependence. Firstly under both Arbitration Act and International Arbitration Act, the award may be set aside if arbitral procedure is not in accordance with the arbitration rules. Secondly, there are provisions within the arbitration law to allow parties to amend or supplement their claims or defence during the course of the arbitral proceedings subject to tribunal’s assessment of its delaying effects having regard to the arbitration rules agreed by the parties. Consequently, if parties had agreed to a set of expedited procedures governing their arbitral proceedings, the tribunal is bound to administer the proceedings accordingly and will likely deny any belated introduction of amendments to their claims and defence. Therefore where parties had agreed to a set of arbitration rules, the arbitration law provides that the compliance with such agreement establishes the legal threshold failing which warrants judiciary intervention. The delicate balancing act however is that under arbitration law, the tribunal is required to observe rules of natural justice which include affording parties reasonable opportunity to present their case. Breach of rules of natural justice resulting in the prejudice to the rights of the aggrieved party may also result in the award being set aside. Therefore whilst the tribunal is duty bound to observe the arbitration rules as agreed by the parties, it also has to balance with the competing demand of providing parties reasonable opportunities to be heard as mandated under the arbitration law. From time to time, the tribunal may find an inherent tension where the requirements of arbitration rules may not completely aligned with that of arbitration law. Where a party is not allowed to reasonably present or update its case by way of revision to its claims or evidence, there is a likelihood that such denial could be prejudicial to its right. Therefore the ultimate irony could be that the tribunal may end up having its award being set aside in consequence of efforts to ensure the enforceability of the very award.

Does arbitration rules necessarily prevail over arbitration law? Which takes priority? Whilst it is true that party autonomy is one of the cornerstones of arbitration, it does not invariably mean that the parties have unbridled influence over every conceivable aspect of arbitration. By way of illustration, no arbitration rules shall prevent any party from challenging the tribunal’s ruling of its own jurisdiction by making application to the court. The manner and timing of such application is dependent on the specific provisions within the arbitration law. In other words, the arbitration law prevails on fundamental issues e.g. whether the tribunal is vested with proper authority. Another example is that not every agreement to arbitrate will be enforced by the state court particularly on subjects that are considered not appropriate for arbitration such as insolvency matters, family law (e.g. divorce, child custody), criminal offences and generally issues that are deemed contrary to public policy. These issues typically implicate a wider segment of the society beyond just the parties to arbitration and also reflect the value system of the society concerned. Although there is no exhaustive list of issues as such, the state court has certain discretion in considering issues that are non-arbitrable as authorised under arbitration law.

Within the context of judiciary supervision over arbitration, some have viewed the state court as a judiciary body that discharges an appellate function over the merit of an arbitral award. Are there any allowances for appeal against decisions made by the arbitrator in respect of issues in dispute? If yes, are these avenues of review available under arbitration rules or arbitration law? There are generally no provisions under arbitration rules to allow for an appeal against the merit of decisions contained in an award apart from correction of errors that are typographical, arithmetical or computational in nature. This is because once the tribunal renders an award, it is ‘functus officio’ or that it ceases to hold the position of authority that it once held. It follows that it no longer has any authority to make any further decisions pertaining to the issues in dispute, even if it meant to reverse any substantive mistakes made therein. An aggrieved party therefore should look to the arbitration law for such remedy. Where Singapore is the seat of arbitration, the International Arbitration Act does not provide for any avenue for appeal on the merits of the award. However, there are provisions for appeal included under Arbitration Act. These avenues come with certain restrictions e.g. such application shall be agreed by all contesting parties to the arbitral proceedings (which is rare) or with permission from the court. The court rarely grants permission for such appeal unless there are compelling reasons to do so e.g. substantial and obvious errors in the face of the award or that the issue has general public importance. Parties in favour of finality of arbitral award may opt in International Arbitration Act as opposed to Arbitration Act. Alternatively where Arbitration Act applies, in the event that parties agree to exclude reasons in the arbitral award, that shall amount to exclusion of the court’s authority to hear any appeal over the arbitral award. In other words, whilst the arbitration rules may not be relevant as regards the subject of appeal, party autonomy continues to take precedence by way of specifying the specific arbitration regime under the relevant seat of arbitration. In reality however, whether or not parties are in favour or not in respect of finality of arbitration is largely dependent on the perception of whether there had been adequate adherence of due process during the course of the proceedings. These are unfortunately unclear at the point of agreement to arbitrate.

Conclusion

It is quite common for parties to dedicate significant financial resources, and time to negotiate issues that are considered critical prior to entering into an agreement. These issues may involve cap to liability, entitlement to certain contractual relief or provide clarity to actual scope of works. Upon agreement, these negotiated terms provide rights to claim for remedy. However the enforcement of these rights is ultimately dependent on the reliability of arbitration agreement found in most contract forms. To this end, having practical working knowledge of both arbitration rules and arbitration law would ensure that all efforts leading to these negotiated rights to claim are worth the while.




Koon Tak Hong Consulting Private Limited