Compelling Unwilling Parties to Arbitration (part 2)

In practice, the team from our Specialised Arbitration Practice ("SAP") had been engaged in matters where a respondent is unwilling to take part in the arbitration proceedings, contrary to the contractual terms. In part 2 of the series, our Specialised Arbitration Practice examines the ways to compel an unwilling party to pay their share of the Tribunal Fees.

What happens when a party refuses to contribute their share of the Tribunal fees?

The short answer would be that this is dependent on the applicable rules for the arbitration. There are rules which provide the Tribunal with powers to disregard counterclaims etc filed by a party should they refuse to make payment of their share of the Tribunal fees.

Whether or not the Tribunal is empowered to make a partial award depends on whether one sees the requirement to pay costs advances as a “contractual obligation” or “procedural obligation”. Under the former, a partial award may be made but under the latter, only an interim measure may be sought from the Tribunal. The former contractual view appears to be the prevalent one among courts and academics.

As a starting point, the relevant provisions in the SIArb Rules are as follows:-

"Article 14. Deposit and Security

14.1 The Arbitrator may at any time direct the parties, in such proportions as he deems just, to make one or more deposits to secure the Arbitrator’s fees and expenses. Such deposits shall be made to and held by the Arbitrator and may be drawn from as required by the Arbitrator. Interest on sums deposited, if any, shall be accumulated to the deposits.

14.2 During the course of the arbitration proceedings, the Arbitrator may request supplementary deposits from the parties.

14.3 The Arbitrator shall have the power to order any party to provide security for the legal or other costs of any other party by way of deposit or bank guarantee or in any other manner the Arbitrator thinks fit.

14.4 The Arbitrator shall also have the power to order any party to provide security for all or part of any amount in dispute in the arbitration.

14.5 In the event that orders under Rules 14.1, 14.2, 14.3 or 14.4 are not complied with, the Arbitrator may refuse to hear the claims or counterclaims by the non-complying party, although it may proceed to determine claims or counterclaims by any party who has complied with orders."

In particular, rule 14.5 stipulates that an arbitrator may refuse to hear the claims or counterclaims by non-complying party

In rule 17.1, an Arbitrator shall determine the proportions in which parties shall pay his fees and expenses; If Arbitrator has determined that all or any of his fees and expenses shall be paid by any party other than a party which has already paid them to the Arbitrator, the latter party shall have the right to recover the appropriate amount from the former.

The holding in BDMS Ltd v Rafael Advanced Defence Systems [2014] EWHC 451 Comm at [40] to [45] is similarly relevant. There are some difference in view as to whether the requirement on advance on costs under Article 30(3) of the ICC Rules gives rise to a contractual obligation owed to the other party or merely a procedural obligation owed to the ICC Court. On the former, a substantive claim arises and an interim award may be sought. On the latter view, the issue is one of procedure rather than substance and recourse is by way of interim measures ([40]). The majority of arbitral and court decisions favour the contractual approach, as do the majority of commentators (see [43]). Whichever approach is correct it appears to be well recognised that the arbitral tribunal can order the defaulting party to pay the advance, either by means of an interim award or interim measure (see [44]).

It could be gleaned from the above that the approach of the Tribunal would be very much dependent on the applicable rules. As such, when a party is faced with a potential unwilling party at the commencement of an ad-hoc arbitration, it is important to consider the applicable rules and determine which rules might be more in the client's interest.

Disclaimer: The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

Filed under: International Arbitration
Wilbur Lim

Wilbur Lim

Wilbur’s wide practice includes commercial and construction litigation and arbitration. He also handles a range of criminal and matrimonial matters. Wilbur's clients consist of individuals and large corporations, including foreign listed company with annual turnover of approximately USD$1 billion.

Read More Articles or View Profile