A discussion on the liability of arbitration institutions would have to start with the two decisions that have been discussed most since 2009. The first is the case of SNF v. ICC.1 In the arbitration between SNF against Cytec, a series of arbitral awards were rendered in Brussels in 2002 and 2004 in which the exclusive distribution agreement between SNF and Cytec was voided on the basis that it was in breach of Article 101 of the EC Treaty. Damages in the form of loss of opportunity costs were awarded to Cytec notwithstanding the declaration of the nullity of the contract. The awards were enforced by the French Supreme Court in June 2008. In the supervisory jurisdiction, the awards were set aside by the first instance judge in Brussels in 2007. In the meantime, SNF submitted a claim against ICC on the grounds of a breach of its contractual obligations before the French courts.

In short, SNF argued that the Rules of Arbitration published by ICC were to be treated as an offer to enter into an agreement and that the arbitration clause in the exclusive distribution contract between SNF and Cytec amounted to an agreement with ICC to arbitrate under its rules. The contract between SNF and Cytec was concluded in 1993. SNF contended that the exclusion of liability provision in the 1998 ICC Rules was inapplicable since it post-dated the 1993 contract.

The contractual relationship was upheld by the Paris Court of Appeal, which held that the services provided by ICC in Paris were therefore subject to French law. The court held that the publication of the Rules of Arbitration by ICC through the International Court of Arbitration amounted to a standing offer to contract with parties that opted for an ICC arbitration clause. This contract was therefore in force when the arbitration agreement was executed, namely, in the context of this case, in 1993. As a result, the Court of Appeal held that the relevant ICC rules of arbitration should be those that were enforceable at the time of the arbitration agreement. It also added that this would be so unless the rules specifically provided that the current version of the rules enforceable on the date of the dispute should be applicable to the arbitration. Given that the 1998 Rules were in force at the time that the arbitration agreement was concluded in 1993, these would have been the applicable rules. However, the court also held that SNF and Cytec chose to submit the arbitration proceedings under the 1975 Rules for the purpose of conducting the arbitration on the grounds of the terms of reference that were signed by the parties and the members of the tribunal and explicitly referred to the 1998 Rules of Arbitration.

The 1975 ICC Rules did not contain any exclusion of liability provision, while Article 34 of the 1998 Rules provides:

"Neither the arbitrators, nor the Court and its members, nor the ICC and its employees, nor the ICC National Committees shall be liable to any person for any act or omission in connection with the arbitration."

The court, while accepting that the 1998 Rules would be applicable to the conduct of the arbitration, held that ICC could not rely on the exclusion of liability clause. It held that, by reason of the contractual relationship between ICC and the parties to the arbitration, ICC was obliged to organize and administer the arbitration and to provide a structure that enabled an efficient arbitration to be conducted. It also concluded that the exclusion of liability clause, to the extent that it allowed ICC not to fulfil its essential obligations as a provider for arbitration services, must therefore be invalid. According to the court, the administrative service provided by ICC did not amount to judicial services, and the immunity prescribed under Article 34 therefore did not allow ICC to be exempted from liability. There are also other matters that were decided by the French court. The Rules of Arbitration do not impose upon ICC a duty to provide any legal opinion to any of the parties regarding requests for and advice on the legal nature of the Addendum to the Award or when an application to set aside an award would be time-barred. As to the claim that ICC did not properly scrutinize the award before issuing it, the French court made an important distinction between the role of the ICC International Court of Arbitration in scrutinizing awards, as being a non-judicial function, and the quasi-judicial role and duty conferred on the arbitral tribunal to make an award. The court further noted that the ICC Court did draw the attention to the fact that the award was susceptible to being challenged on the basis of a violation of international public policy while not interfering with the decision of the arbitral tribunal. The question whether ICC had properly controlled the arbitration proceedings was dismissed by the Court of Appeal, which pointed out that SNF (which raised the complaint) had not objected to the numerous hearings and memorials and was therefore estopped from raising the point at this late stage.2

In summary, the French Court of Appeal concluded that ICC had set the administrator's fees and costs correctly, had verified the time limits regarding the conduct of the arbitration and had effectively reviewed and scrutinized the award by pointing out, inter alia, issues of public policy that were later raised before the Belgian courts. Moreover, ICC could not be held liable for the arbitrator's reasoning. The judgment also reinforced the importance of the terms of reference in recording the agreement of the parties in adopting the 1998 Rules. The duty of ICC to properly administer its cases and to provide services for the conduct of an efficient arbitration resulting in an enforceable award was also recognized. Hence, notwithstanding Article 34 of the ICC Rules, the court opined that ICC might be liable if it failed to comply with its essential obligations as a service provider.

The duty of the arbitral institution to set the administrative fees and costs of the arbitration was also considered in a decision by the Swedish Supreme Court in December 2008.4 The Swedish Supreme Court held that, where the seat of an arbitration is in Sweden, the Swedish courts may review the arbitrator's fees even though they may have already been set by the relevant arbitral institution, namely the Stockholm Chamber of Commerce (SCC). In this particular case, one of the parties to the arbitration challenged the award on the basis of a lack of reasoning and also sought a reduction in or reimbursement of the arbitrators' fees that had been set by SCC on the basis that they were unreasonable in the light of the work done. The Swedish court recognized that the party had a right to challenge the arbitrators' fees and costs and actually ordered costs against the three arbitrators who took part in the court action and challenged the power of the Swedish court to review their fees under the Swedish Arbitration Act. Articles 37 and 41 of the Swedish Arbitration Act empower the local courts to review the fees of the arbitrators, which have to be reasonable. This power was held to be exercisable even though the parties empowered SCC to fix the fees.

The principle that was held to be relevant by the Swedish court was ultimately not applied, as the court held that the award did not suffer from a lack of reasoning and that the arbitrators had in fact agreed to reduce their fees.

It would appear that the Swedish Supreme Court decision would only be applicable to arbitrations with its seat in Sweden. However, the power of the courts to review fees in other jurisdictions that have similar provisions in their domestic arbitration legislation may be invoked on similar grounds. Furthermore, it is not difficult to contend that the fees of arbitrators should be reasonable and that the power of the court to review the fees can therefore be invoked. Under English law, for instance, in situations where there are no agreed terms of appointment, the arbitral tribunal is to be remunerated according to reasonable rates on the basis of work done.4 The arbitrator's normal hourly rate will then be used as the basis for calculating the fees, but the question is, of course, the number of hours that arbitrators can charge.

In ad hoc arbitrations, arbitrators fix their own fees. Such fees are normally included in the award and are invariably paid in advance as a form of security that is ordered by the arbitral tribunal before work is commenced. The right of the parties to challenge the "unreasonable" fees of the arbitral tribunal can be found in Section 28(2) of the English Arbitration Act, Section 77(2) of the Hong Kong Arbitration Ordinance, Section 41(2) of the Singapore Arbitration Act and Section 21(2) of the International Arbitration Act.

In another example, parties to an American Arbitration Association (AAA) arbitration sent a demand letter to AAA for the fees it paid to the sole arbitrator after her award was vacated by a US appeals court for manifest disregard of the law. The arbitration involved Richard Welshans and Deborah Williams, who entered into a franchise agreement with the US chain Coffee Beanery. The two franchisees lost in the arbitration and sought to vacate the award, contending that the arbitrator wrongly ruled that the dispute was arbitrable when it should have been referred to the courts. The Sixth Circuit set aside the award for manifest disregard of the law.5 The franchisees claimed against AAA for the return of the arbitration fees, arguing that the fees were paid as a result of an independent obligation between the parties and the arbitrator. AAA took the position that its role was limited to collecting deposits on behalf of the arbitrator and making payments based on invoices submitted. It also relied on the limitation of liability provision in its rules for the arbitrators. In sum, AAA refused to return the arbitration fees. It appears that no action has since taken place. This exchange was revealed on a website called "Blue Mau Mau", which is a US website for franchise owners and small businesses.

Most institutional arbitration rules have a provision exempting the institution from liability. Whether that stands the scrutiny of law will no doubt depend on the national laws considering the particular provision. This raises the question what is the applicable law in construing the effect and enforceability of the exclusion of liability provisions in the rules of arbitration institutions. In the SNF case, the seat of arbitration is in Brussels while ICC is an entity based in France. Based on the location of the seat of the institution, the French courts decided that the applicable law would be that of France.

ICC now also has a secretariat in Hong Kong. Under the new rules that were due to enter into force on 1 January 2012, a request for arbitration can be filed in either Paris or Hong Kong. What then would be the seat of the institution if a similar question arises? Does it depend on where the request for arbitration is filed? Or should the applicable law be that of the seat of arbitration?

According to SNF, the contractual relationship established between the arbitral institution and the parties to the arbitration by entering into an arbitration agreement is in force from the date of the arbitration agreement. The source of the contractual relationship is therefore the arbitration agreement, which would normally be governed by the law of the seat of arbitration. While some observers argue that the substantive law should govern the arbitration agreement, the majority view tends to be that it should be governed by the laws of the seat of arbitration. On this basis, the applicable law for interpreting the contractual relationship and the rights and obligations arising from the arbitration agreement should be the law of the seat of arbitration rather than the law of the seat of the institution.

The China International Economic Trade Arbitration Commission (CIETAC), an arbitral institution based on the mainland of the People's Republic of China, may set up a branch/division in Hong Kong to administer arbitrations with the seat of arbitration in Hong Kong. The arbitration laws of mainland China and Hong Kong differ fundamentally. Chinese arbitration agreements are only valid if the arbitral institution is properly named in the arbitration agreement, thus precluding any ad hoc arbitration clauses. Hong Kong permits both institutional and ad hoc arbitration. Furthermore, the new CIETAC Rules, which are currently in their final draft form, provide that CIETAC can provide administration services under the rules of other arbitral institutions. In these complex and complicated situations, if CIETAC is to administer an arbitration under the rules of another arbitral institution, would the applicable law governing the exclusion of liability clause be that of CIETAC or the place of business of that other institution, that is to say, Chinese law or the law of the seat of that other arbitral institution? The new ICC Rules explicitly provide that the adoption of the ICC Rules would mean that the arbitral institution administering the arbitration has to be ICC. If another institution, such as the Singapore International Arbitration Centre (SIAC) or CIETAC chose to administer the ICC Rules, as has happened in the past, the question arises whether any exclusion of liability provisions would have to be construed under Singaporean, Chinese or French law.

The above-mentioned mix-and-match scenario, which is highly undesirable and, in our humble view, is not to be encouraged, poses further problems for the already difficult area of institutions' liability to arbitration users.

The final proposition may not be an unreasonable approach given that institutional rules are to be applied universally in any jurisdiction. Just as different national courts would consider the provisions in the ICC Rules in accordance with their national laws, it would probably be appropriate for the relevant institutional provisions to be considered under the laws of the seat of arbitration. However, even if this was theoretically correct, in practice a claimant would file a claim against a defendant in the defendant's jurisdiction so that its assets can be attached if the action is successful. If another action is taken against ICC, it may therefore be unavoidable that the French courts will be seized of the matter again.

In most jurisdictions, public policy would probably preclude the enforceability of exclusion of liability provisions in cases of gross negligence and certainly in the case of action or inaction arising from fraudulence or dishonesty on the part of the institution or its employees. It remains to be seen how each jurisdiction would consider whether the exclusion of liability provision exempts the institution in its discharge of what may be called the essential duties and functions of the institution.

The above-mentioned cases also draw an important distinction between the quasijudicial functions of arbitral tribunals and the non-judicial functions of arbitral institutions. Most national arbitration laws provide for the immunity of arbitrators when exercising their quasi-judicial function in adjudicating the disputes before them. Arbitral institutions administer arbitrations. The degree of involvement of arbitral institutions differs from jurisdiction to jurisdiction. For instance, ICC provides for full and close management control of the procedures, and this is further reinforced in the new ICC Rules. On the other hand, the Hong Kong International Arbitration Centre Administered Arbitration Rules provide for what is generally described as a "light touch" approach. The HKIAC acts only as provided in the rules regarding the appointment of arbitrators and challenges against arbitrators. Its services do not include scrutiny. The pros and cons of these two types of administration are not a matter for discussion in this paper but may give rise to different expectations as to the extent of the services that the institution is meant to provide. On that basis, the structure of the exclusion of liability provision may also differ.

As seen in the SNF case, ICC would be expected to fix the arbitration fees as well as managing the progress of the arbitration and providing proper scrutiny of the arbitral award so as to ensure that it is enforceable. Where the arbitration rules do not provide for such services, arbitration users could probably not claim against such institutions for liability. Indeed, the level of services to be provided is usually proportionate to the level of the arbitration fees that the relevant arbitration institution charges to the users of arbitrations.

As regards ICC's duties as a service provider, the new ICC Rules have added provisions that will probably ensure that the appointment of the arbitrators is carried out in a way that suits the needs of the parties. For example, they require arbitrators to make disclosure beyond the normal conflict of interest requirements, including the number of cases that a potential arbitrator is handling. This actually makes a lot of sense, although it has attracted some criticism from arbitrators and lawyers. It would seem that the right balance would take the form of the duty of the service provider to ensure that the arbitrator it appoints or approves is in fact able to proceed with the arbitration with due diligence and reasonable dispatch. If such requests are not made of the arbitrator, it may be argued that the institution has not properly discharged its function of appointing an appropriate arbitrator on behalf of the users.

The ICC Court's practice of scrutinizing awards has since been followed by other arbitration commissions, such as SIAC and CIETAC. The scrutiny process conducted by ICC is transparent and structured. The way in which SIAC and CIETAC conduct their scrutiny processes is less transparent, as is the extent to which any liability arising from the scrutiny process may be open to discussion if the issue arises.

The over-zealous involvement of arbitral institutions in the conduct of the arbitration or in the subsequent enforcement proceedings may arguably give rise to liability of those institutions. Take the example of the Shandong Hongri v. Petrochina.6 After the publication of the award, CIETAC rendered three documents at the request of the losing party, Petrochina. These documents were then produced before the enforcing court of Hong Kong. Two of the documents were from the secretariat of CIETAC and one was signed by two arbitrators. Two of these documents were produced and issued without the benefit of hearing from the winning party, Shandong Hongri. They have caused delays in the enforcement procedure and have since been scrutinized and dealt with by the Court of First Instance and the Court of Appeal. While no criticism was levied against CIETAC by the courts of Hong Kong in this particular instance, such involvement by the arbitral institution should be carefully considered. The institution's role is finished once the arbitration is liability of arbitration institutions: what does the future hold? concluded and the award is published. While "after-sales" service is always provided by any responsible arbitral institution, its involvement should be limited so as not to create obstacles for the winning party or to be seen to be assisting the losing party in challenging or obstructing the enforcement of the award.

Another example of the dangers of the involvement of arbitration institutions can be seen in the case of Gao Haiyan and Another v. Keeneye Holdings Ltd and Another,7 in which the secretary general of the Xian Arbitration Commission was involved in the arb-med process that was conducted. Arb-med is a procedure that is acceptable and has been successfully used in Asia, in particular on the mainland and Taiwan, and arbitration institutions thus have a role to play in the dispute resolution process despite criticism of the suitability of such processes. This is not the place to discuss the pros and cons of the arb-med process, but it is important to note once again that the arbitration institution should not be involved in this process, since this is clearly a process that, provided the parties have so agreed, should be conducted by the arbitrator or arbitrators of the arbitral tribunal. While the decision in Gao Haiyan left much to be desired in terms of the judge's understanding of the arb-med process, and his failure to appreciate that only one of the three arbitrators was involved, it does throw some light on the extent to which an arbitration institution should-or rather should not-be involved in the dispute resolution process.

In Gao Haiyan, the respondent sought to set aside an order granted ex parte to enforce the award on the grounds of public policy, namely that the tribunal had displayed an actual or apparent bias and had relied on what was discussed at the arb-med process. During the arbitration, with the agreement of the parties, the arbitral tribunal conducted the arb-med procedure. One of the party-appointed arbitrators was assigned to carry out this task. The secretary general of the Xian Arbitration Commission participated in the arb-med process. The Court of First Instance concluded that there was apparent bias on the grounds, inter alia, that the figures proposed during the failed mediation were much higher than those awarded by the tribunal, that the mediation meetings were conducted over dinner and that, instead of the respondent's lawyers, a third party was approached as representing the respondent. The Court of First Instance disapproved of the fact that the secretary general had approached a third person, Zeng, instead of the respondent's lawyers. The idea of approaching Zeng came from the secretary general, who thought Zeng had influence or control over the respondent on the basis of his contacts with the parties during the early stages of the arbitration. The discussions during the mediation were reviewed by the Court of Appeal, which concluded that it could not comment on who ought to be approached and that there was evidence from Zeng that he did have some influence or control over the respondent. However, had this been a ground or a concern supported by the Court of Appeal as part of the evidence leading to the conclusion of apparent bias, the question would arise whether the Xian Arbitration Commission may be said to have assumed liability. All in all, the Court of Appeal dismissed the set-aside summons, rejected that there was anything in the arb-med process that could be said to constitute evidence of any apparent or actual basis, and enforced the award.

The secretariat of any arbitral institution provides valuable support to the arbitral tribunal in arbitrations. However, it should not be over-zealous or become involved in a way that might call the impartiality of the institution into question.

What does the future hold? Arbitration practitioners should be aware of the potential liability of the institutions that appoint them and cooperate with the secretariat in ensuring the speedy or timely resolution of cases. Institutions and arbitrators both have a duty to arbitration users to ensure a cost-effective and timeefficient resolution of the dispute. However, unscrupulous use of the potential right of arbitration users to submit claims against arbitration institutions may result in arbitration awards being improperly challenged or impaired in terms of their effects. When drafting rules, arbitration institutions will have to consider the liability that they might be exposing themselves to if the rules are attractive on paper but cannot be implemented effectively in practice. The secretariat and its staff can play a key role in the proper administration of an arbitration, and their knowledge of international practice is fundamental to the proper discharge of the functions of any arbitral institution.

The future therefore lies in the cooperation between the arbitration practitioners (legal representatives as well as arbitrators) and the arbitral institution, in order to ensure that international commercial arbitration remains the prime choice of arbitration users.

1
Paris Court of Appeal, First Chamber, Section C, Case No. 07/19492, 22 January 2009.

2
This holding regarding the arbitral institution's duty to control the proceedings had in fact already been considered in previous decisions, such as: TGI Paris, Raffineries de pétrole Homs et de Banias, 28 March 1984, Rev. Arb. (1985); TGI Paris, République de Guinée, 28 January 1987, Rev. Arb. (1987) p. 371.

3
Soyak International Construction and Investment Inc. v. Hober, Kraus and Melis, No. Ö 4227-06, 3 December 2008.

4
See K/S Norjarl A/S v. Hyundai Heavy Industries Cos Ltd, [1983] 3 All ER 211 at 228.

5
Coffee Beanery v. WW, LLC, No. 07-1830, 2008 U.S. App. LEXIS 23645 (6th Cir., Nov. 14, 2008).

6
[2011] 2 HKLRD 124; [2011] 4 HKLRD 604.

7
CFI: HCCT 41/2010, unreported (12/04/2011 and 08/11/2010).