Introduction and Meaning of International Arbitration
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Arbitration in an international context or other words international arbitration is not a single term to be defined as international arbitration is a blend of common law and civil Law assignment procedures. This procedure is termed as the most flexible one for dispute resolution as this process gives the freedom to the parties to design the procedures for their dispute resolution. International arbitration is considered that procedure is implemented to resolve those disputes which are termed as arbitrable and has an ambit that extends differently from state to state and includes all types of commercial disputes. The procedure of international arbitration is commonly seen in commercial contracts which are done between corporations established in different countries. In such a contract, the parties include an arbitration clause and hence, in case of any dispute if aroused, the parties shall select an arbitrator rather than proceeding with the traditional method of litigation.[1] Apart from corporations, arbitration can also be concluded between two individuals by agreeing to a submission agreement. But this agreement is signed by the parties after the dispute arises and after that, the case is referred to arbitration.
It is also noteworthy that the clause which provides for arbitration in the agreement is very short and precise which includes only the content of referring to arbitration. The ICC model of an arbitration clause can be taken as an example for referring the case to arbitration. The clause reads as follows:
"All the disputes between the parties regarding the contract concluded between them shall be referred to and shall be solved as per the provisions of arbitration drafted by the International Chamber of Commerce by an arbitrator who is selected and appointed as per the rules provided for the selection and appointment of arbitration."
The parties are also at freedom to include additional clauses rather than merely including a simple clause of arbitration. These additional clauses by consent of the parties may include the language of the arbitration proceeding along with the flexibility of choosing the arbitrator with the consent of the parties. But, the parties of the contract shall be bound to abide by the laws and provisions included in the contract.
Further, discussing the rules of international arbitration, it has been observed that the institutions for international arbitration are those bodies that provide rules for the governance of this procedure and also all the other modes of dispute resolution. The most popular and the best know international institution which provides for the rules of arbitration is the International Chamber of Commerce (ICC), the United Nations Commission on International Trade Law (UNCITRAL), Singapore International Arbitration Centre (SIAC), the London Court of International Arbitration (LCIA), World Bank's International Centre for Settlement of Investment Disputes (ICSID) and International Centre for Dispute Resolution of the American Arbitration Association (ICDR). Thus, all the above-mentioned bodies are the framers of the rules of international arbitration.[2]
Moreover, the international arbitration is majorly controlled and international arbitration treaty is enforced under the rules and provisions prescribed in the New York Convention which was enforced in June 1959. Under this Convention, it was agreed that the arbitration award that is the judgment of the arbitration proceeding shall be enforced in almost all the member states unlike the judgment of the traditional court. It has also been observed and concluded that around 150 countries have ratified the New York Convention which means that the arbitral award shall serve as a precedent in those countries to which the UN has given its recognition. Also, it is important to note that there are certain prescribed rules as well regarding the presentation of the case by the lawyers and these rules are also decided after taking consent from the parties. further, the award rendered in the process of international arbitration is considered to be more justified and of better quality as the arbitrator can give proper time for every judgment. The traditional courts are overburdened with cases and hence, the judges of these courts are unable to give proper time for each judgment and thus, judgment is rendered in hustle due to workload. It is further noted that, as the arbitrators can give proper time for each judgment, they draft the award in such a way that there are no chances of ambiguity and vagueness in the language of the award. The process of arbitration is hence, observed to be a process of providing all benefits and relaxation to the parties who are consenting to get their disputes resolved through this alternate mode of dispute resolution.[3]
Pathological arbitration clause
The term pathological clause was first time used by Frederic Eisemann and he has widely used this term to describe those arbitration clauses which are seemingly defective and possess the liability to disturb the smooth growth and progress of arbitration. These clauses are also a source of conflict in the entire arbitration proceeding as well as in the process of the implementation of the arbitration clause. However, all the defects in the arbitration clauses are not considered to barren the arbitration clause itself and some of these defects may be resolved and implemented perfectly with the tool of interpretation. It has been also noted and stated by the Singapore Court of Appeal in the case of Insigma Technology Co. Ltd v. Alstom Technology Ltd[4]that:
"Notwithstanding the severe defects present in the arbitration clauses, the perfect and fruitful interpretation of the state courts along with the aid of qualified and able institutions and arbitrators can make these provisions work."[5]
Further, it is also important to note that the part and question of interpretation is a matter of the jurisdiction of the interpreting court and it is common for the parties to decide the law which shall govern their proceeding which shall also depend on the generosity of the approach of jurisdiction. But it has also been noted that under the clauses which are considered to be arbitration-friendly, the interpretation of these clauses does not consider the task of rewriting of the clause and caution and care is still required at the stage of drafting such clauses. Since, the interpretation of the arbitration clause, depends on the jurisdiction of the court to interpret, it shall be significant to analyse the interpretation of these clauses in different countries where courts have removed the ambiguity by this tool of interpretation in different cases and have also taken into consideration the true intention of the parties to get their dispute resolved through arbitration.[6]
Impact of pathological arbitration on the consent of parties: England
In England, the English courts have considered the interpretation task as an intention to determine and give effect to the intention of parties to refer their disputes to arbitration except in those cases where there is extreme confusion which may in some cases arise. In the case of Mangistaumunaigaz Oil Production Association v. United World Trade Inc[7] the court gave the interpretation of the word 'if any' provided in the arbitration clause. The clause stated that arbitration, if any, shall be resolved as per the rules of the ICC in London to which the court gave its consent and upheld it and also rejected the argument that the word 'if any' is inconsistent with the arbitration agreement which is considered as unconditional. The court also stated that the mentioned words in the clause 'if any' shall be considered as an abbreviation for the words 'if any dispute arises.' But on critical analysis, it has been observed that there has been contrasting views as well from the side of the court where there has been strict interpretation done regarding defective provisions in the arbitration clauses.[8] In the case of Kruppa v. Benedetti[9] the court held that defective clauses, for instance, the words 'if any' do not give rise to a binding agreement to get the dispute resolved through the process of arbitration and hence, the parties shall endeavour to get their dispute resolved through Swiss court. Thus, it is not logically possible for the parties to have an effective two-tier agreement for dispute resolution where one process shall be arbitration and the second shall be through litigation in the domestic courts.[10]
Another reference can be taken off the case Paul Smith Ltd v. H&S International Holding Inc[11] the court was under a situation where it has to interpret a clause which contains multiple dispute resolution processes. In this case, the following clauses were under question:
"Clause 13: Settlement of Disputes- In case of any dispute and differences, the adjudication shall be done by the International Chamber of Commerce under the Rules of Arbitration and Conciliation by one or more arbitrator who is appointed as per the rules under the enacted law.
Clause 14: Language and Law- The provided agreement is written in English language and its interpretation shall be done according to English law. The Court of England shall possess exclusive jurisdiction over the matter and to the jurisdiction to which the parties have consented."
The judge while interpreting the above-mentioned clause opined and held that clause 13 is interpreted simply and straightforwardly and is stated to be self-contained arbitration agreement and clause 14 is a way of specifying the law which shall govern the arbitration proceeding and the implementation of the final judgment that is an award.[12]
The court also gave its opinion regarding multiple dispute resolution mechanisms which are sometimes included in the arbitration agreement ambiguously. Reference of the case Lovelock v. Exportles[13] can be taken where the court held it is impossible to reconcile in those cases where the arbitration agreement or the arbitration clause provides for multiple dispute resolution mechanism. The court interpreted the clause where it was provided that any dispute and/or claim to arbitration shall be submitted to England and any other dispute to arbitration to USSR Chamber of Commerce to Moscow. Hence, the clause provided for two dispute resolution mechanisms and created ambiguity to which the court held that such clauses are practically impossible to reconcile. The court also recommended that while drafting the arbitration agreement, the framers must clearly state which dispute falls under which mechanisms in case there is two dispute resolution mechanism.[14]
Hence, the English court jurisdiction regarding the pathological arbitration clause provides that, the subject matter of dispute resolution is completely a matter of court's jurisdiction where the court has to specify the intention of the parties regarding the choice of the mechanism for their dispute resolution. The intention of the parties can only be stated after interpreting the clauses and the language of the agreement to which the parties are consenting to. Thus, the impact of pathological clauses or in other words defective clauses on the consent of the parties is seen regarding their intention to arbitrate and it is a clear responsibility of the judicial body and the court to interpret such clauses and determine the true intention of the contracting parties.
Impact of pathological arbitration on the consent of parties: Singapore
Singapore regarding arbitration is well known for the readiness of the courts to support the arbitration agreements. As provided above, in the case of Insigma Technology Co. Ltd v. Alstom Technology Ltd[15]the Singapore Court of Appeal stated that:
"It has been clearly stated regarding the implementation and interpretation of pathological arbitration clause that if the language of the agreement is such that is provides for the intention of the parties to get their disputes settled through the process of arbitration, it shall be the duty of the court to give effect to such intention in dispute resolution even if certain aspects of the agreement are ambiguous, incomplete or inconsistent. But it has also been stated that the implementation of the arbitration proceeding in cases of pathological arbitration should be done in such manner that it shall not be prejudice to the rights of either party and the giving of effect to such intention referred above should not be such arbitration which is beyond the contemplation of either party."[16]
It has been analysed that the interpretation of the Court of Appeal in the above-mentioned case is an example of a generous approach. In this case, the court supported a hybrid arbitration clause which was considered as a mismatch and mixture between the applied rules and the institution for administration. The clause provided as follows:
"Any and all disputes shall be resolved finally by the arbitration before the Singapore International Arbitration Centre as per the rules of arbitration provided in the International Chamber of Commerce (ICC)."[17]
Thus, consequent to the above-mentioned case the ICC revised its rules in 2012 to make it clear that the ICC is the only body which is authorised to manage arbitration proceedings under the body's rules. This rule is provided under Article 1(2) of the 2017 ICC Rules.
But, even after this amendment and revision of the rules, the Singapore High Court in the case of HKL v. Rizq International Holdings[18] held that the clause which provided the settlement of the dispute by the Committee of Arbitration, Singapore as per the Rules of ICC is valid and upheld. The court justified its findings and held that even if there is mention of a non-existent institution for the settlement of the dispute between the parties, the parties are still open to approach any institution for dispute resolution but such institution shall follow the rules prescribed by the ICC.[19] Hence, it can be settled on analysing these judgments that the court in many jurisdictions give priority to the intention and willingness of the parties to dispute and interpret the clauses of agreement in a lenient way. Despite leniency, it is required to be cautious in the interpretation of clauses which are pathological clauses of the agreement. Hence, in the above-mentioned case of HKL, the court provided that the proceedings shall be stayed until the parties get the agreement of any arbitral institution in Singapore to get a mixed agreement applying ICC rules along with the freedom to secure such agreement.[20] It is thus stated that the impact of the pathological agreement on the intention of the parties depends completely on the interpretation of the court which the court may make in lenient or in a strict manner. The lenient approach ratifies the defect in the arbitration agreement and implements it according to the true intention of the parties but in some jurisdictions, the court has followed a strict approach where there has been no ratification given to the pathological clause.[21]
Despite the given judgment in the above two cases of HKL and Insigma, it has been observed that these judgments do not serve as an endorsement that provides a protective blanket to mixed or hybrid arbitration clauses. Both the judgments are given keeping in mind the willingness and support of the institutions to administer arbitration proceeding under the rules prescribed by the ICC. Before the above- mentioned judgment, there was consent from the SIAC to administer and manage the arbitration proceeding by an appropriate functional body which shall follow the rules of ICC. The judgment only made the arbitration clause as conditional where the court made it clear that the clause was effective conditionally depending on the parties. The parties intend to secure the agreement of an arbitral institution in Singapore like the SIAC to conduct mixed arbitration as per the rules of ICC. Thus, it is clear that the impact of the pathological clause on the consent of the parties is not interpreted strictly and despite defects, the courts and concerned bodies give priority to the consent and intention of the parties to arbitrate.[22]
Another aspect which has been examined concerning the pathological clause and its impact on the consent of the parties in an arbitration proceeding is that not all the defects in the agreement can be cured by the institution using the tool of interpretation. Reference of the case TMT Co Ltd v. The Royal Bank of Scotland plc and others[23] where the court declined the grant of stay based on a clause in the arbitration agreement which was as follows:
"Any dispute between the parties or any contract made hereunder shall, unless resolved between the parties, be resolved by arbitration as per the rules of relevant exchange or as per the rules of any organisation as the relevant exchange made the parties to consent, and such agreement shall not be unreasonable and unfair before either of the parties approach the court."
The court interpreting the above-mentioned clause stated that the inclusion of the point of relevant exchange was significant t pursue the arbitration proceeding but there was no such exchange done between the parties in any of their business transaction and relationship. Rather, it was observed that the trade between the parties was carried out by a body which was a different organisation. Hence, there was an argument that the different body should be interpreted as an alternative of exchange between the parties but the court rejected the argument and interpreted the clause in the strict sense. Thus, the impact of the pathological clause, in this case, was seen to be strict on the intention of the parties and it was held that the intention of the parties and their consent to arbitrate should be clearly stated in the agreement. Also, the parties should make it clear in the language of the agreement the body and the organisation through which they wish to get their disputes resolved.[24]
Impact of pathological arbitration on the consent of parties: India
The courts of India have taken a pro-arbitral approach when there is an examination done regarding the existence and validity of the concluded arbitration agreement. For reference the example of the case Pricol Limited v. Johnson Controls Enterprise Ltd[25] can be taken in which the Supreme Court of India held that it is upholding the clause which referred to the clause that the rules of arbitration of the Singapore Chamber of Commerce and also noted that the reasonable interpretation of the mentioned clause is to understand the reference to Singapore Chamber of Commerce as to the SIAC.[26]
Another example can be taken off the case Enercon (India) Ltd and others v. Enercon GmbH and another[27] the court upheld an arbitration clause which provided that there shall be three arbitrators out of whom, one shall be each appointed by the licensor and the licensee who are the parties to the arbitration proceeding. Hence, it can be stated that under the Indian perspective also, the priority of the court is to interpret the intention of the parties and the consent of the parties to arbitrate. The above-mentioned clause to which the court provided its support was also relating to the consent of the parties regarding the appointment of the arbitrator as per the provision of the arbitration agreement. The court apart from interpreting the clause regarding the appointment of two arbitrators, also held that though the arbitration agreement is silent regarding the appointment of the third arbitrator, the court can legitimately supply this line and held that the third arbitrator shall be appointed by the two appointed arbitrators.[28]
Final analysis
On the final analysis of all the above-mentioned cases, it can be observed that the pathological arbitration clauses in the original arbitration agreement completely depends on the jurisdiction of the court and the power of the court to interpret these clauses. These clauses determine the intention of the parties and also the consent of the parties and its reliability regarding their dispute resolution. Further, the courts in several jurisdictions have considered the defects in the arbitration agreement in a lenient way to save the time and cost of the parties.[31]
The arbitration agreement is thus recommended to be drafted smartly and by experts as there should not be any defect and ambiguity in the clause which shall render it pathological. There are many instances when the court has made the drafters and framers liable for the defects in the arbitration agreement whenever there is a dispute between the parties regarding the procedure or in the compliance of the award.[32] Further, it has also been noted that sometimes there are clauses in which the parties agree to submit their cases to those bodies and authorities for arbitration which do not exist. Thus, it is observed that the negligence of the drafters makes the parties suffer when the drafters and the framers without full knowledge and expertise draft the arbitration agreement. Also, the impact of the pathological and defected arbitration clauses gives an impact on the consent of the parties in those jurisdictions where the interpretation by the court is done in the strict sense as the court reject the inclusion of such clauses in the agreement and declare them inconsistent. This in turn results in the wastage of time and costs of the arbitrating parties and hence, they have to move for rewriting.[33]
Conclusion
Thus, it is concluded that all the above-mentioned cases illustrate that though there are many jurisdictions which provides for a lenient approach in the interpretation of the defective arbitration clauses, yet there is a requirement of causation and care while drafting the arbitration agreement. The pathological agreement is not the only defects which are seen in any arbitration agreement as pathological arbitration agreements refer to the defects in the language of the agreement which makes the understanding of the intention of the parties difficult. There are other defects as well which may be seen in the arbitration agreement like excluding necessary and essential provisions and terms, negligence while drafting, making use of extremely elaborated sentences and lines, lack of legal harmonisation in crucial matters, revealing unrealistic expression, the inclusion of multiple dispute resolution mechanisms without proper illustration regarding which subject matter is to be referred to which mechanism, etc.[34] Further, it is also concluded that not only the pathological agreements of arbitration that defect can be treated and ratified through the tool of interpretation. It is the complete discretion of the court to make a full interpretation of the contract between the parties as the domestic court or the arbitral body interpret the true intention of the parties and also their consent to refer their matter to arbitration. The court is thus, under the responsibility and the only body which possesses the power of concluding the intention and consent of the parties and hence, it is the duty of the judicial bodies to make sure that the pathological agreements do not impact the intention of the parties in a negative and prejudicial way.
References
Alrawashdeh, M.A.A., 2017. Law and practice of international commercial arbitration with a special reference on the Jordanian law. International Journal of Society and Humanities, p.64.
Arroyo, M. ed., 2018. Arbitration in Switzerland: the practitioner's guide. Kluwer Law International BV.
Beatson, J., 2017. International arbitration, public policy considerations, and conflicts of law: the perspectives of reviewing and enforcing courts. Arbitration International, 33(2), pp.175-196.
Bermann, G.A., 2017. International arbitration and private international law. Brill Nijhoff.
Bermann, G.A., 2018. European Union Law and International Arbitration at a Crossroads. Fordham Int'l LJ, 42, p.967.
Capper, P., 2020. International arbitration: A handbook. Taylor & Francis.
Davis, B.G., 2019. American Diversity in International Arbitration: A New Arbitration Story or Evidence of Things Not Seen. Fordham L. Rev., 88, p.2143.
Enercon (India) Ltd and others v. Enercon GmbH and another CIVIL APPEAL NO.2086 OF 2014(Arising out of SLP (C) No. 10924 of 2013
Estreicher, S., Heise, M. and Sherwyn, D.S., 2017. Evaluating Employment Arbitration: A Call for Better Empirical Research. Rutgers UL Rev., 70, p.375.
Florescu, C.I., 2020. Emerging tools to attract and increase the use of international arbitration. Juridical Trib., 10, p.255.
Frank, M., 2020. Interpretation of Pathological Arbitration Agreements: Non-Existing and Inaccessible Elements. Pepp. Disp. Resol. LJ, 20, p.298.
Greenwood, L., 2019. Principles of interpretation of contracts under English law and their application in international arbitration. Arbitration International, 35(1), pp.21-27.
HKL v. Rizq International Holdings [2013] SGHCR 5
Hopkins, R. and Horn, B., 2020. Arbitration Law Handbook. Taylor & Francis.
Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719
Karton, J., 2020. International Arbitration as Comparative Law in Action. J. Disp. Resol., p.293.
Kidane, W., 2017. The culture of international arbitration. Oxford University Press.
Kruppa v. Benedetti [2014] EWHC 1887
Loizou, S., 2017. Revisiting the Content-of-Laws Enquiry in International Arbitration. La. L. Rev., 78, p.811.
Lovelock v. Exportles [1968] 1 Lloyd's Rep. 163
Mangistaumunaigaz Oil Production Association v. United World Trade Inc [1995] 1 Lloyd's Rep. 617. QUEEN'S BENCH DIVISION (COMMERCIAL COURT) Before Mr. Justice Potter
Paul Smith Ltd v. H&S International Holding Inc [1991] 2 Lloyd's Rep 127
Paul, C.O.M.?.A., 2018. AT A CROSSROADS: THE CASE OF "PATHOLOGICAL ARBITRATION CLAUSES" WHICH DETERMINE A JURISDICTIONAL FIGHT. LESIJ-Lex ET Scientia International Journal, 25(2), pp.47-55.
Pricol Limited v. Johnson Controls Enterprise Ltd ARBITRATION CASE (CIVIL) NO.30 OF 2014
Qian, J. and Guo, L., 2019. The Validity and Remedy of the Pathological International Commercial Arbitration Agreement. Frontiers in Educational Research, 2(5).
Samra, H.J. and Ramachanderan, R., 2020. A Cure for Every Ill? Remedies for "Pathological" Arbitration Clauses. University of Miami Law Review, 74(4), p.1100.
TMT Co Ltd v. The Royal Bank of Scotland plc and others [2017] SGHC 21
Verdías, M., 2017. Drafting an arbitration clause. Revista de Derecho, 16(31), pp.245-260.
[1] Alrawashdeh M.A.A., 'Law and practice of international commercial arbitration with a special reference on the Jordanian law' (2017) International Journal of Society and Humanities, 64
[2] Arroyo M., 'Arbitration in Switzerland: the practitioner's guide' (2018) Kluwer Law International BV
[3] Beatson J, 'International arbitration, public policy considerations, and conflicts of law: the perspectives of reviewing and enforcing courts' (2017) Arbitration International, 33(2), 175 178 184 187 196
[4] [2009] SGCA 24
[5] Bermann G.A., 'International arbitration and private international law' (2017) Brill Nijhoff.
[6] Bermann G.A., 'European Union Law and International Arbitration at a Crossroads' (2018) Fordham Int'l LJ, 42, 967.
[7] [1995] 1 Lloyd's Rep. 617. QUEEN'S BENCH DIVISION (COMMERCIAL COURT) Before Mr. Justice Potter
[8] Hopkins R and Horn B, 'Arbitration Law Handbook' (2020) Taylor & Francis.
[9] [2014] EWHC 1887
[10] Davis B.G., 'American Diversity in International Arbitration: A New Arbitration Story or Evidence of Things Not Seen' (2019) Fordham L. Rev., 88, 2143.
[11] [1991] 2 Lloyd's Rep 127
[12] Florescu C.I., 'Emerging tools to attract and increase the use of international arbitration' (2020) Juridical Trib., 10, 255.
[13] [1968] 1 Lloyd's Rep. 163
[14] Capper P., 'International arbitration: A handbook' (2020) Taylor & Francis.
[15] [2009] SGCA 24
[16] Estreicher S, Heise M and Sherwyn D.S., 'Evaluating Employment Arbitration: A Call for Better Empirical Research' (2017) Rutgers UL Rev., 70, 375.
[17] Greenwood L., 'Principles of interpretation of contracts under English law and their application in international arbitration' (2019) Arbitration International, 35(1), 21 23 25 27.
[18] [2013] SGHCR 5
[19] Paul, 'AT A CROSSROADS: THE CASE OF "PATHOLOGICAL ARBITRATION CLAUSES" WHICH DETERMINE A JURISDICTIONAL FIGHT' (2018) LESIJ-Lex ET Scientia International Journal, 25(2), 47 49 51 55.
[20] Kidane W., 'The culture of international arbitration' (2017) Oxford University Press.
[21] Loizou S., 'Revisiting the Content-of-Laws Enquiry in International Arbitration' (2017) La. L. Rev., 78, 811
[22] Karton J., 'International Arbitration as Comparative Law in Action' (2020) J. Disp. Resol., 293
[23] [2017] SGHC 21
[24] Frank M., 'Interpretation of Pathological Arbitration Agreements: Non-Existing and Inaccessible Elements' (2020) Pepp. Disp. Resol. LJ, 20, 298.
[25] ARBITRATION CASE (CIVIL) NO.30 OF 2014
[26] Qian J and Guo L, 'The Validity and Remedy of the Pathological International Commercial Arbitration Agreement' (2019) Frontiers in Educational Research, 2(5).
[27] CIVIL APPEAL NO.2086 OF 2014(Arising out of SLP (C) No. 10924 of 2013
[28] Samra H.J. and Ramachanderan R, 'A Cure for Every Ill? Remedies for "Pathological" Arbitration Clauses' (2020) University of Miami Law Review, 74(4), 1100.
[29] (2007) 5 SCC 719
[30] Verdías M, 'Drafting an arbitration clause' (2017) Revista de Derecho, 16(31), 245 248 253 257 260.
[31] Beatson J, 'International arbitration, public policy considerations, and conflicts of law: the perspectives of reviewing and enforcing courts' (2017) Arbitration International, 33(2), 177 180 186 191 195
[32] Florescu C.I., 'Emerging tools to attract and increase the use of international arbitration' (2020) Juridical Trib., 10, 255.
[33] Hopkins R and Horn B, 'Arbitration Law Handbook' (2020) Taylor & Francis.
[34] Verdías M, 'Drafting an arbitration clause' (2017) Revista de Derecho, 16(31), 246 250 255 259.
