Arbitral rules – The season of change continues: ICC Arbitration Update

On 1 December 2020, the ICC International Court of Arbitration launched its revised ICC Arbitration Rules (the “Rules”), which will apply to arbitrations submitted to the ICC Court from 1 January 2021. Although the revised Rules do not represent wholesale change, the Rules do aim to provide for greater efficiency, flexibility and transparency in arbitrations conducted under the Rules. Some of the themes are also present in the updated LCIA Rules 2020 and in the forthcoming updated Rules anticipated from the Singapore International Arbitration Centre (“SIAC”).

Below we summarise the key changes introduced by the Rules and consider how they reflect the themes of modern international arbitration practice.

Procedural efficiency and flexibility

1. Electronic communications (Articles 3(1), 4(4)(b) and 5(3)): The Rules provide that parties are no longer required by default to submit written communications, such as statements of case (and their annexes). Hard copies are only required when a party has specifically requested transmission by delivery against receipt, registered post or courier. This amendment is a small but important step towards more technologically modern arbitration practice through the increased use of electronic communications.
2. Virtual Hearings (Articles 25 and 26(1)): The previous reference to “in-person” hearings in Article 25 gave rise to some arguments that it was a requirement for all parties to be physically present in the same room for hearings. The reference has been deleted in the Rules, and Article 26 expressly introduces the option for hearings to be conducted remotely via “video-conference, telephone or other appropriate means of communication”, where any of the parties so request, or of the tribunal’s own motion. This is consistent with the increasing recognition that many arbitral hearings can be efficiently and effectively conducted in a virtual setting, as we have seen during the Covid-19 pandemic. Before deciding whether a hearing should be conducted by physical attendance or virtually, the tribunal must consult the parties and have regard to the relevant facts and circumstances of the case. The phrase “other appropriate means of communication” also allows for future technological developments to be permitted for hearings.
3. Joinder (Article 7(5)): The Rules provide that an arbitral tribunal has the power to allow joinder of a third party even after the confirmation or appointment of an arbitrator, provided that all parties (including the third party) agree. The tribunal must take into account “all relevant circumstances” such as possible conflicts of interests. Although the amendment is unlikely to see a significant change of practice, it permits the addition of a party for non-controversial and practical purposes (for example, an additional contracting party). The provision balances procedural efficiency with procedural fairness, in allowing a third party to be joined to an arbitration at any time, whilst ensuring the parties have the final say on such joinder.
4. Consolidation (Article 10): The Rules have broadened the circumstances in which arbitrations may be consolidated, to include not only arbitrations where the parties have agreed, or where the claims are made under the same arbitration agreement/s, but also where the claims are not made under the same arbitration agreement/s, but the arbitrations are between the same parties, the disputes arise in connection with the same legal relationship, and the ICC Court finds the arbitration agreements to be compatible. This should facilitate the efficient conduct of arbitrations arising between the same parties out of one broader transaction or subject matter, where the parties did not include the same arbitration agreement in all their underlying contracts.
5. Conduct and settlement of the arbitration (Article 22 and Appendix IV): Article 22 provides that in order to ensure effective case management, the tribunal “shall” (rather than the previous “may”) adopt such procedural measures as it considers appropriate, provided that they are not contrary to any agreement of the parties. This amendment reinforces the ICC Court’s support for tribunals to manage cases proactively. Similarly, in Appendix IV, one of the examples of case management techniques now includes “encouraging the parties to consider settlement” of the dispute, rather than merely “informing the parties that they are free to settle”.
6. Expedited Procedure Rules (Appendix VI and Article 30): The value of claims that can be heard under the expedited procedure will increase from US$2 million to US$3 million for claims arising out of arbitration agreements concluded on or after 1 January 2021. This will likely increase the number of cases submitted to expedited arbitration on a default basis, in turn promoting time and cost efficiency.
7. Emergency arbitration (Article 29(6)(c)): The ICC recognises that not all cases are suitable for emergency or expedited procedures. Article 29(6)(c) disapplies the application of the ICC’s Emergency Arbitrator provisions where the arbitration agreement arises from a treaty. This amendment reflects the approaches of other institutions, such as the International Centre for the Settlement of Investment Disputes (ICSID) and recognises that the tight deadlines involved in emergency arbitration are unlikely to be feasible for states or state-owned entities involved in investment disputes.

Security, transparency and integrity

1. Funding (Article 11(7)): This new provision requires all parties to disclose any third-party funding of their claim or defence in arbitral proceedings, where a funder has an economic interest in the outcome of the case. The purpose of this requirement is to assist arbitrators in complying with the duties of impartiality and independence, and the duty to make a disclosure of any facts and circumstances that might call into question that impartiality and independence. Since the involvement of a third-party funder introduces additional parties with an interest in the outcome of the arbitration, arbitral tribunals will now be expected to take that into account. This is possibly the second most controversial amendment. Some practitioners do not consider it appropriate or necessary for a party to be required to disclose funding arrangements and the presence of a funder has the potential to create additional potential for conflict. However, the involvement of third party funders is becoming more common, and the disclosure requirement undoubtedly leads to greater transparency.
2. Constitution of the tribunal – legal security (Article 12(9)): This new provision allows the ICC Court, in exceptional circumstances, to appoint the entire arbitral tribunal in order to avoid a significant risk of unequal or unfair treatment that may affect the validity of the award. A provision that some practitioners will consider controversial, the purpose of this provision is to ensure procedural fairness where the parties may have chosen a procedure that could lead to potentially inequitable results. If “exceptional circumstances” means that this practice is rare, the broader effect of this amendment will be negligible. Where, however, those circumstances exist, the ICC Court will have to balance the potential harm of an appointment process that may not permit complete procedural fairness to the parties, with an intervention in the appointment, that itself might be challenged at the point of enforcement.
3. Changes in representation (Article 17(1) and (2)): Pursuant to the existing Article 17(1), each party must promptly inform the Secretariat, the tribunal and the other parties of any changes in representation. Under the new Article 17(2), a tribunal may exclude a party representative from the proceedings where they consider it necessary to avoid a conflict of interest. This further discourages the tactic of some parties in seeking to cause embarrassment or a potential conflict for a tribunal by deliberately expanding legal teams post-formation of the tribunal to include persons potentially connected in some way with a member of the tribunal.

Neutrality

1. Arbitrator nationality (Article 13(5) and (6)): The existing Article 13(5) provided that a sole arbitrator or president of the tribunal must be of a nationality other than those of the parties. This has been amended to limit this provision only to those sole arbitrators or presidents who are appointed by the ICC Court. However, in suitable circumstances, where none of the parties object within a set time limit, the arbitrator may be chosen from a country of which any of the parties is a national. A new Article 13(6) also provides that where the arbitration agreement arises from a treaty, no arbitrator may be of the same nationality as any of the parties to the claim, unless the parties agree otherwise. This new provision, which applies to all arbitrators in treaty disputes, rather than just sole arbitrators or presidents, highlights the particular importance of ensuring the complete neutrality of tribunals involved in investor-state disputes.

Awards

1. Power to grant additional awards (Articles 36(3)): A new Article 36(3) empowers the tribunal, on an application by a party, to grant an additional award in relation to claims made in the arbitral proceedings that the arbitral tribunal has omitted to decide. (The definition of awards in Article 2 has also been updated to include reference to additional awards.) This addresses a problem that existed with the previous Article 36 in relation to correction of awards. Previously, once the tribunal had granted an award, its ability to correct it was limited to clerical, computational or typographical errors, or any errors of a similar nature. The tribunal could also provide clarifications on how to interpret an award. However, this created the potential that once a tribunal had made its award, and if in doing so it did not expressly address one of the matters raised in the arbitral proceedings, the award was then susceptible to a challenge on the basis of procedural irregularity. This was the case even if the tribunal’s position was that the matter not addressed did not impact its decision. Given the ICC’s process for scrutiny of awards, it is not expected that the need for additional awards should arise often, but the new provision in Article 36(3) ought to help minimise challenges to ICC awards on this basis.

The workings of the ICC Court

1. Finally, there have also been some minor changes to the statutes and internal rules of the ICC Court, largely for the purposes of greater efficiency.

Comment

The Rules are another step forward into the modern era of international arbitration. Although many of the changes are minor in terms of textual amendments, they are potentially significant in terms of their aims and implications. They encourage and empower arbitrators and parties to use new technology and ways of working in order to facilitate arbitrations that are procedurally efficient and cost-effective. The Rules also recognise the practical realities of international arbitrations, including the increasing use of third-party funding and other situations that may give rise to a conflict of interests, and they provide means of greater transparency and neutrality in such situations.

These themes can also be found in the LCIA’s updated Arbitration Rules, which came into force on 1 October 2020 (see our Law-Now here). SIAC also announced in Summer 2020 that it had commenced a revision of its rules, promising “state-of-the-art” updates dealing with, among other things, consolidation and joinder, expedited/emergency procedures, new technology and arbitrator appointment and challenges. So in 2021 we are likely to see a continuation of this trend towards flexibility, efficiency and transparency in international arbitration.