Hybrid Arbitration Clauses: Are They Cornering The ICC Rules?

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The law of arbitration is premised on the fundamental principle of party autonomy, that is, the freedom of parties to contractually devise mechanisms for resolution of their disputes subject to mandatory rules of the public policies. In most cases, the parties agree that an arbitral institution should administer arbitration cases under their own arbitration rules. Occasionally, the parties may enter into a hybrid arbitration clause, which provides that an arbitration institution should administer arbitral proceedings in accordance with other rules. A ‘Hybrid Arbitration Clause’ is an arbitration agreement providing for one arbitral institution to administer an ad hoc arbitration under the procedural rules of another arbitral institution. A hybrid arbitration clause can be considered as one of the kinds of pathological arbitration clauses, which makes the arbitration clause unenforceable due to certain pathologies in the agreement because of poor drafting of such arbitration agreement.

Although, such pathological arbitration clauses are often criticized by the courts all across the globe, still the Courts have done everything in their capacity to render such agreements as enforceable to in the light of the consent of the parties. To do the same, Courts have repeatedly used the principle of effective interpretation which states that in case of two possible interpretations of a clause, the interpretation that renders the clause effective will be preferred over the interpretation that renders it ineffective.

To give one example of this principle, an arbitral tribunal interpreting a pathological clause held that: “When inserting an arbitration clause in their contract, the intention of the parties must be presumed to have been willing to establish effective machinery for the settlement of disputes covered by the arbitration clause.” Recently, the High Court of Singapore, relying on the already controversial Insigma Technology Co. Ltd. v. Alstom Technology Ltd. Decision, upheld a pathological (‘hybrid’) arbitration clause on the condition that the parties to the dispute obtain the agreement of the SIAC or any other arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC rules. The Swedish Court of Appeal also upheld a clause providing for arbitration administered by Chamber of Commerce and Industry, Stockholm, Sweden (‘SCC’) but using the ICC Rules. Upon a review of the factual matrix, the majority held that the arbitration clause must be properly interpreted as the agreement between the parties must be understood so that the main purpose was that possible disputes between the parties would be resolved by arbitration and that the purpose was that the arbitration should take place in Stockholm before the SCC. The Madrid Court of Appeal has also upheld the validity of a hybrid jurisdiction clause which allowed the claimant to bring its disputes to either arbitration or to the courts of the Netherlands.

Article 1(2) of the International Chamber of Commerce (‘ICC’) Rules, 2012 now states that the ICC Court is the, “only body authorized to administer arbitrations under the Rules”, and is exclusively responsible for, “the scrutiny and approval of awards rendered in accordance with the Rules.” Similarly, Article 6(2) provides that, “by agreeing to arbitration under the Rules, the parties have accepted that the arbitration shall be administered by the [ICC] Court.” Accordingly, in light of Arts 1(2) and 6(2), parties are likely to argue that arbitration agreements, such as the agreement in Insigma case, are either invalid or should be interpreted as an agreement to submit disputes only to the ICC, to be administered only by the ICC Court. The wording of Article 6(2) of the ICC Rules provides that by agreeing to arbitration under the ICC Rules, the parties accept that no institution other than the ICC Court shall administer their dispute. It protects the parties from jurisdictional objections asserting that the parties, while having agreed on the application of the Rules, did not agree that the Court should administer the arbitration. The provision is also intended to meet the requirement in some jurisdictions that the arbitration agreement specify the body which will administer the arbitration. Therefore, parties referring the matter to another institutional arbitral tribunal other than the ICC, under the ICC Rules cannot do so as it would be violative of the ICC Rules itself. The choice of ICC Rules as the law governing the arbitration agreement should be deemed to give consent by the parties that ICC itself should administer the arbitration.

Courts across various jurisdictions have observed that if parties had the intention to submit a dispute to arbitration, courts should honour that intention in a purposive way. If the enforcement court is able to establish parties’ mutual intention to arbitrate, it should strive to give effect to it. However, the parties should not take a lackadaisical approach merely because the courts take a liberal approach while interpreting such clauses. The parties should do everything in their capacity to avoid such pathologies in their arbitration agreements as the presence of such ambiguities result in such arbitrations ending up in the court eventually. This defeats the entire purpose of entering in an arbitration agreement in the very first place.

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