Arbitration being a private procedure established by agreement, it is possible for the parties to agree (whether by subscription to the printed code of procedure of an institution or otherwise) to lay down for themselves the procedure to be followed.[1] Arbitrators are the Arbitral Tribunal whose jurisdiction is wholly derived from contract.[2] When parties agree to enter into an institutional arbitration, they agree to be bound by the rules and procedures of that arbitral institution.[3] Not only the parties, but the arbitrator/s (whether nominated by the parties or by the institution itself) are also bound to follow the rules and procedure of the chosen arbitral institution unless otherwise agreed. An arbitration is said to be institutional when the parties agree to an institution’s arbitration rules and have delegated to this arbitral institution the power to make binding decisions on certain procedural matter.[4]
According to the Black’s Law Dictionary, the breaking or violating of a law, right, or duty, either by commission or omission is called as “breach”. When parties intend to enter into an institutional arbitration, in case of any future disputes the standard language of the arbitration clause is (ICC Rules[5], for example)—
All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
The Black’s Law Dictionary defines “breach of contract” as failure, without legal excuse, to perform any promise which forms the whole or part of a contract.
As stated hereinabove, the arbitration clause in the contract itself states that any future dispute shall be settled by way of rules of the chosen arbitral institution. As the language suggests, the contract between the two disputing parties indirectly binds the parties and the arbitral institution to the arbitral institutional rules, being in connection or a part of the contract or the arbitration agreement, and can be understood to be a breach of contract by either of the party if obligations/ duties by which such party is bound to follow fails to comply with the same. In many common law countries, the legal relationship between the arbitral institution and the parties are considered to be contractual in nature.[6] Moreover, the main features of a contract are (a) offer, (b) acceptance, and (c) consideration. A contract is equally binding even if it is oral in nature. The parties offer the
arbitral institution to become the administrative body of their dispute resolution with the monetary consideration in terms of the administrative fees. When the arbitral institution accepts the offer, it becomes a contract, legally enforceable by law.
Therefore, it will not be wrong to interpret that even a failure of performing an obligation or violating a duty of commission of the arbitral institutional rules, by either of the party may constitute a breach of contract. For example, if in an institutional arbitration the claimant fails to deposit requisite administrative fee to the arbitral institution or any requisite document, papers, etc., (which the parties are mandatorily bound to comply as in terms of the arbitral institutional rules) the arbitration procedure may come to a halt.
As far as repudiatory nature of such breach is concerned, let us first understand the exact legal meaning of the term “repudiation”. A repudiation means a contracting party’s words or actions that indicate an intention not to perform the contract in the future; a threatened breach of contract.[7] In Heyman v. Darwins Ltd.[8], the term “repudiation” has been interpreted in wide aspect which may form relevancy to the proposition in concern —
“Repudiation in relation to a contract may mean (a) a denial that there was a contract in the sense of an actual consensus ad idem; (b) a claim that apparent consent was vitiated by fraud, duress, mistake, or illegality; (c) a claim that the contract is not binding owing to a failure of condition or breach of duty which invalidates the contract; (d) an unequivocal refusal to proceed with an admittedly binding contract, or mostly commonly; and (e) an anticipatory breach whereby one party to a contract indicates an intention not to be bound thereby, whereupon the other party accepts repudiation and rescinds the contract.”
If we look into the Indian context as well, according to Section 39 of the Contract Act, 1872[9], if a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promise may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.
In Samsung Electronics v. Qimonda AG[10], the parties had entered into a licence contract wherein they agreed to refer any future disputes, if any, to ICC arbitration. However, when a dispute arose and they referred the same to International Chamber of Commerce (ICC), it was observed that the contract had derogated from two integral factors, attempting to exclude the most invasive powers of ICC. Due to this derogation, the ICC Secretariat refused to administer the arbitration and when the parties refused to remove the adversaries, the ICC institution terminated the arbitration proceedings. The parties then opted for ad hoc arbitration.
Continuing with the previous example, if the claimant, during an institutional arbitration, fails to pay the requisite administrative fee to the institution, the institution may, at its discretion, repudiate the complete proceedings on account of such non-payment and breach of rules thereof, unless otherwise provided. On an alternative, there is also a view that even if a party has committed serious procedural defaults or has completely ignored the arbitration process, institutional arbitration rules and national arbitration laws generally require that an Arbitral Tribunal still examine the merits of the claim based on whatever evidence has been put before it.[11] If insufficient evidence has been provided to prove a claim to the necessary standard, the claim will still fail, regardless of the opposing party’s procedural defaults.[12] However, the fact that must be kept in mind that such situation is subjective in nature and differs from institution to institution as to the manner in which different arbitral institutional rules are made. Usually, the arbitration institutions have the right to identify and decide which of their rules are derogatable and non-derogatable. Breach of such institutional rules occurs when either of the parties derogate from performing its mandatory duties provided under the arbitral institutional rules. If the construction of the arbitration clause in the contract is such that it derogates from a mandatory rule of the chosen arbitral institution, the arbitral institution shall have a right to halt the proceedings and terminate the contract.
† Advocate. Author can be reached at <garimasharma97@gmail.com>.
[1]P.C. Markanda, Building & Engineering Contracts, Law & Practice, p. 1432 (LexisNexis, 4th Edn., Vol. 2, 2013).
[2]P.C. Markanda, Building & Engineering Contracts, Law & Practice, p. 1432 (LexisNexis, 4th Edn., Vol. 2, 2013).
[3]Eric Robine, The Liability of Arbitrators and Arbitral Institutions in International Arbitrations under French Law, Arbitration International, Vol. 5, Issue 4, 1989, pp. 323- 332.
[4]Ulrich G. Schroeter, Ad Hoc or Institutional Arbitration — A Clear-Cut Distinction? A Closer Look at Borderline
Cases, p. 185.
[5] ICC Arbitration Rules, 2017.
[6]Timar, Kinga, The Legal Relationship between the Parties and the Arbitral Institution, ELTE Law Journal, 2013 (last visited on 23-8-2021 at 9.18 a.m.), <https://eltelawjournal.hu/the-legal-relationship-between-the-parties-and-the-arbitral-institution/>.
[7]P. Ramanatha Aiyar’s Advanced Law Lexicon, p. 4079 (LexisNexis, 3rd Edn.).
[8] 1942 AC 356 : (1942) 1 All ER 337.
[9] Contract Act, 1872, S. 39.
[10]Samsung Electronics v. Qimonda AG, Tribunal de Grande Instance (TGI) (ordinary court of original jurisdiction)
Paris, 22-1-2010, 10/50604, 571 (Fr.).
[11]Latham & Watkins, Guide to International Arbitration, p. 8, (last visited on 23-8-2021 at 8.20 a.m.),
<https://www.lw.com/thoughtleadership/guide-to-international-arbitration-2017>.
[12]Latham & Watkins, Guide to International Arbitration, p. 8, (last visited on 23-8-2021 at 8.20 a.m.),
<https://www.lw.com/thoughtleadership/guide-to-international-arbitration-2017>.
ADR, Mediation and Arbitration