In today’s complex legal landscape, the benefits of arbitration over traditional forms of dispute resolution like litigation have become increasingly apparent. Among the numerous advantages it offers, one stands out as paramount: the freedom for parties to handpick a neutral decision maker which they both trust implicitly. This individual holds the key to delivering a fair, well-reasoned, accurate, and balanced decision—an essential ingredient for fairness and certainty in resolving any legal dispute.
From the outset, when parties are drafting an arbitration clause to insert in their agreement, parties are presented with a crucial choice: the option to opt for a single arbitrator or a three-arbitrator panel. Recognizing the significance of this decision, this article delves into a thorough examination of the advantages and disadvantages inherent in both choices.
The Right to Choose the Number of Arbitrators
Arbitration gives parties a high degree of control, enabling them to decide how many arbitrators will be involved in their case. This aspect reflects the principle of party autonomy. However, some laws and rules require (and it is generally advised that you should specify) an odd number of arbitrators to avoid tied votes between equal numbers of arbitrators. While most rules allow parties to choose either one or three arbitrators, the odd-number rule is generally upheld. Alternatively, parties can postpone the decision until a dispute arises, giving them more flexibility. If the parties cannot agree on the number of arbitrators, an appointing authority or arbitral institution will step in and make the determination. In multi-party disputes, where it is unworkable for each party to select an arbitrator, parties should agree on an appointment procedure. For example, parties can agree that appointments will be made by an appointing authority.
Do We Need to Specify the Number of Arbitrators?
There is ongoing discussion regarding whether it is better to determine the number of arbitrators in arbitration clauses upfront or wait until a dispute arises. Generally speaking, you should not leave this decision for later when a dispute actually occurs. This is because it will be difficult to get the other side to agree to the wording of the arbitration clause when the dispute has arisen.
Several factors should be considered when choosing between a single arbitrator or a panel of three arbitrators, such as the value of the dispute and the associated costs of the arbitration process.
Leaving the nomination of arbitrators open provides parties with the flexibility to select the most suitable arbitrators when a dispute arises. Or if the parties cannot decide on their own, then the appointing authority will do so for them. However, if parties wish to establish specific qualifications or criteria for arbitrator selection, the following drafting tips should be considered:
- Avoid overly restrictive criteria that could make the arbitration agreement impractical. By ensuring the class of potential arbitrators is not too narrow, parties prevent the agreement from becoming unworkable. Similarly, it is advisable to refrain from naming specific individuals.
- Carefully consider the chosen criteria to avoid unintentionally including or excluding certain potential arbitrators. This helps ensure fairness and openness in the selection process.
- It is a good practice for the selected arbitrator to obtain written confirmation upon appointment, specifically regarding the fulfilment of any contractual criteria (if specified). This step helps mitigate potential enforcement issues that may arise later on.
Sole Arbitrator vs. Three Arbitrators
Choosing a sole arbitrator has several advantages, especially in lower-value contracts or when cost-saving is a priority. The expenses associated with arbitration are significantly lower when there is only one arbitrator compared to a three-member tribunal.
For example, in a hypothetical SIAC arbitration with a S$1 million dispute, the estimated costs with a sole arbitrator would be around S$58,575, whereas the same dispute resolved by a three-member tribunal would cost approximately S$153,675 in fees. The cost difference is substantial.
In some cases, one party may insist on a three-member tribunal, even in relatively small disputes, to drive up costs, particularly when the parties have unequal litigation budgets. Unfortunately, such tactics have led to the withdrawal of arbitrations, as one party deliberately seeks to inflate arbitration expenses, hoping to terminate the proceedings.
Furthermore, sole arbitrators generally expedite the resolution of disputes, although there are exceptions. Three arbitrators need to engage in extensive discussions, coordinate their schedules, and constantly consult with each other throughout the arbitration process, from procedural orders to the final award. On the other hand, sole arbitrators can streamline the process individually, focusing solely on drafting the award without the need for consultation. Statistics also show that sole arbitrators often issue awards more promptly compared to three-member tribunals, although the difference is not significant.
However, appointing a sole arbitrator may have some disadvantages.
Managing an arbitration can present significant challenges. The tribunal must stay vigilant throughout the arbitration process, diligently overseeing all proceedings and carefully examining all submissions and evidence when preparing the final award. When there is a sole arbitrator, this responsibility rests solely on their shoulders, whereas a three-person tribunal can distribute the workload among its members. In complex cases with significant amounts at stake, a three-member tribunal is considered a safer choice.
As the complexity of a case increases, so does the risk that a sole arbitrator may overlook certain aspects. It’s important to recognize that arbitrators are not infallible. Institutions like the SIAC and the ICC offer scrutiny processes, but these mainly focus on detecting computational and other fundamental errors rather than mistakes related to factual or legal matters. Having three arbitrators can provide mutual support and help eliminate any errors. Moreover, considering that arbitral awards are typically not subject to appeal, some individuals perceive the presence of three arbitrators as a safer approach.
In addition, three arbitrators engage in discussions, offering diverse perspectives and assisting each other in understanding complex matters. This is beneficial in intricate disputes. Additionally, appointing tribunal members with diverse legal, cultural, and industry-specific backgrounds enhances the decision-making process. Tribunal members who are proficient in specific languages or possess specialized knowledge in a particular legal system can be highly valuable.
Lastly, there is a general perception among parties and their in-house counsel that a three-member tribunal promotes greater neutrality. Allowing each party to appoint one arbitrator creates a perception of a more “balanced” tribunal. Parties often consider it safer to rely on three members rather than entrusting the entire fate of the dispute to one individual.
What Should Be in the Arbitration Clause?
Considering the aforementioned factors, parties may wonder whether it is advisable to specify the number of arbitrators in their arbitration clauses or leave the decision open. The answer is relatively straightforward—except for small contracts, it is generally prudent to leave the issue open for future determination.
While examining model arbitration clauses recommended by various institutions, clarity on this matter may not emerge. Most arbitral institutions advocate for the parties to state that the dispute shall be resolved by one or more arbitrators. It is important to highlight that the International Arbitration Act (IAA) and the Model Law do not explicitly prohibit parties from agreeing on an even number of arbitrators. In such cases, the SIAC Rules accommodate this uncommon situation. Rule 32.7 of the SIAC specifies that when multiple arbitrators are involved, decisions will be determined by a majority. However, if a majority agreement cannot be reached, the presiding arbitrator will be solely responsible for making the final award on behalf of the tribunal. The SIAC Model Clause still recommends that the parties should specify an odd number of arbitrators, either one or three.
SIAC Model Clause:
In drawing up international contracts, we recommend that parties include the following arbitration clause:
“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration administered by the Singapore International Arbitration Centre (“SIAC”) in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) for the time being in force, which rules are deemed to be incorporated by reference in this clause.
The seat of the arbitration shall be [Singapore].[1]
The Tribunal shall consist of _________________[2] arbitrator(s).
The language of the arbitration shall be ________________.[In respect of any court proceedings in Singapore commenced under the International Arbitration Act 1994 in relation to the arbitration, the parties agree (a) to commence such proceedings before the Singapore International Commercial Court (“the SICC”); and (b) in any event, that such proceedings shall be heard and adjudicated by the SICC.] [3]
Parties should also include an applicable law clause. The following is recommended:
This contract is governed by the laws of _________________.[4]
Statistics and Trends in Arbitration
Statistics from the 2022 SIAC report reveal that the majority of parties prefer sole arbitrators over three-member tribunals.
For the year 2022, SIAC made a total of 145 individual appointments of arbitrators with 112 sole arbitrator tribunals and 33 appointments to three-member tribunals.
Of these arbitrator appointments, 122 were appointments made under the SIAC Rules, and the remaining 23 were made in ad hoc arbitrations.
Legal Assistance in Drafting or Interpreting Arbitration Clauses
Drafting arbitration clauses can be challenging especially if this is the first time you are doing it. The consequences of a defective or pathological arbitration clause can be quite serious as it would result in the inability to resolve the dispute through arbitration, and would result in a lot of loss of time and expense to resolve through the domestic courts in one or more jurisdictions. If you require legal assistance in drafting or interpreting arbitration clauses, please do not hesitate to contact us.
[1] Parties should specify the seat of arbitration of their choice. If the parties wish to select an alternative seat to Singapore, please replace “[Singapore]” with the city and country of choice (e.g., “[City, Country]”).
[2] State an odd number. Either state one, or state three.
[3] The inclusion of this sentence is recommended if the arbitration commenced to resolve the dispute will be/is an international commercial arbitration, and Singapore is chosen as the seat of arbitration.
[4] State the country or jurisdiction.