The International Chamber of Commerce (“ICC“) unveiled its 2021 Rules of Arbitration (“2021 Rules“) on 1 December 2020. The 2021 Rules entered into force on 1 January 2021 and replaced the 2017 version of the Rules of Arbitration, which had been in force since 2017 (“2017 Rules“).
The 2021 Rules include significant modifications that will affect practitioners in a number of important areas. The top six changes introduced that may affect the practitioners are:
- Expanding the arbitral tribunal’s power to order joinder and consolidation in recognition of the complex disputes;
- New mechanisms introduced to address due process concerns;
- Inclusion of tailor-made provisions for investment treaty-based arbitration, namely a third-state nationality requirement for arbitrators and the exclusion of provisions on emergency arbitrators;
- An increased threshold from USD 2 million to USD 3 million for Expedited Procedure, which will apply automatically;
- Introduction of additional awards for omitted claims; and
- Amendments to promote the efficiency and flexibility of the arbitral proceedings with a green and online arbitration.
In addition to these six changes, the ICC has also introduced a new Article 43 pertaining to claims arising out of or in connection with the administration of the arbitration proceedings by the ICC Court under the Rules. Pursuant to new Article 43, these claims are governed by French law and grants exclusive jurisdiction to the Paris Judicial Tribunal (Tribunal Judiciaire de Paris).
ICC Court President Alexis Mourre said, “The amendments to the Rules mark a further step towards greater efficiency, flexibility and transparency of the Rules“.
1. Facilitation of Complex Arbitrations
The 2021 ICC Rules introduce amendments intended to facilitate the joinder of third parties and to clarify the process for the consolidation of arbitrations conducted between different parties and/or based on different contracts.
According to Article 7 of the 2017 Rules, no additional party could join after the confirmation or appointment of the arbitral tribunal without all parties’ consent. The 2021 Rules alter paragraph 5 of Article 7 granting the arbitral tribunal the ability to allow the joinder of a third party where the additional party consents and agrees to the Terms of Reference. The arbitral tribunal should take into consideration “all relevant circumstances” such as prima facie jurisdiction over the additional party, the timing of the request for joinder, possible conflicts of interests, the impact of the joinder on the arbitral procedure, cost and time efficiency.
ICC Court President Alexis Mourre announced that this provision is likely to be particularly useful in the context of multi-party and complex multi-contract disputes, where a party who should have been included in the arbitration at the outset; was excluded for whatever reason.
Article 10 of the 2017 Rules did not expressly address whether the consolidation of arbitrations is permitted only if all of the claims in the arbitrations arise out of the same arbitration agreement or also if the dispute arises from multiple contracts that contain identical arbitration agreements. Article 10 of the 2021 Rules expands the scope of the consolidation to clarify this issue and accordingly, Article 10(b) of the 2021 Rules allows the consolidation of arbitrations involving different parties where the arbitration agreements are the same. Therefore, the current revised provision allows that even if the parties to the arbitration are not the same, the consolidation is possible provided that the arbitration agreements are the same under the multiple contracts. Moreover, the subparagraph (c) is revised to allow consolidation when a different arbitration agreement or agreements may be involved, provided that those agreements are compatible, the parties are the same and the disputes were associated with the same legal relationship.
These amendments have made the ICC Rules more suitable for multi-party and multi-contract arbitrations. In addition, these amendments are consistent with Article 22.7 of the London Court of International Arbitration (“LCIA“) Rules that entered into force on October 2020 which provided greater flexibility for the consolidation of arbitrations brought under compatible arbitration agreements arising from the same transaction or a series of related transactions. Most importantly, parties should scrutinize each agreement’s arbitration provision to ensure that all of the arbitration agreements are either identical or at least compatible if they contemplate consolidation.
2. Transparency and Due Process Principles
The 2021 Rules introduce new provisions on third-party funding, party representation and arbitral appointments aimed at enhancing transparency and guaranteeing the equal treatment of the parties.
The ICC did not turn a blind eye on the growing participation of third-party funders in arbitration and inserted subparagraph 7 into Article 11 which requires each party to promptly disclose “the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration“. This insertion is in relation to the arbitrators’ duties of disclosure pertaining to independence and impartiality. This was already the ICC’s existing approach as evidenced in the ICC’s Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration (2019), where “an arbitrator or prospective arbitrator should consider relationships with non-parties having an interest in the outcome of the arbitration“. Similarly, General Standard 7 of the IBA Guidelines on Conflicts of Interest in International Arbitration extends a party’s disclosure obligation to “entities having a direct economic interest in the award to be rendered in the arbitration“. The fact that the disclosure obligation is limited to parties that are funding the arbitration and have an economic interest in the outcome of the arbitration also leaves open the question of whether straightforward insurance coverage of a claim should be disclosed or not.
The title of Article 17 was changed from “proof of authority” to “party representation” and the newly added first paragraph requires each party to the arbitration to promptly inform the ICC Secretariat, the arbitral tribunal and other parties of any changes in its representation. The second paragraph gives the arbitral tribunal power to take any necessary measure to avoid a conflict of interest arising from a change in party representation, including by excluding the new counsel from participating in the proceedings in whole or in part. A tribunal under the 2021 Rules will thus be expressly empowered to exclude new party representatives, thereby limiting a party’s freedom to choose its legal representatives if and to the extent needed to avoid a conflict of interest of an arbitrator, and consequently, to delay of the arbitration procedure. The change seeks to protect the integrity of ongoing proceedings and ensure a pending arbitration is not derailed by a change in counsel.
Another noteworthy change that increases transparency is the ninth paragraph of Article 12, which provides that, in exceptional circumstances, the ICC Court may appoint each member of the arbitral tribunal if the application of the parties’ arbitration agreement would lead to a significant risk of unequal treatment and unfairness.
This provision allows the ICC Court to disregard unacceptable arbitration agreements that may create a risk to the validity of the arbitral award and designed for exceptional cases. For instance, if more than one party exists on the respondents’ side and they cannot agree on the arbitrator, the ICC Court may appoint an arbitrator on behalf of the claimant as well, not only on behalf of the respondents, and thus overrule the claimant’s nomination in order to prevent an unequal situation. The new provision aims to further ensure fairness and equality in the constitution of arbitral tribunals and to limit the risk of setting aside of arbitral awards by domestic courts on the basis of lack of fairness and equal treatment. This approach is also compatible with Article 42 of the ICC Rules which stipulated that the Court and the arbitral tribunal shall make every effort to make sure that the award is enforceable. Although how the ICC Court will interpret the “exceptional circumstances” is unknown for the time being, certainly any liberal interpretation of the provision would likely lead to a rise in petitions to set aside the award or to oppose its recognition and enforcement on the ground that “[t]he composition of the arbitral authorities […] was not in accordance with the agreement of the parties“.(1) Nevertheless, this provision can be defined as one of the most controversial revisions because it stipulates a limitation on the right of the parties to nominate their arbitrator.
3. Tailor-made Provisions for Investment Treaty-based Arbitration
The 2021 Rules includes two new provisions focusing on investor-state disputes based on a treaty for the first time. These new provisions are a reflection of the growing share of investment arbitrations(2) and the ICC’s will to consider investment disputes and to encourage the parties to consider the ICC Rules as an option for resolving investor-state disputes.
The new Article 13(6) titled “appointment and confirmation of the arbitrators” provides that in investment arbitrations, no arbitrator shall have the same nationality as any party to the arbitration unless all parties agree otherwise. It aims to ensure the complete impartiality of the tribunal in investor-state arbitration involving the public interest.
The second amendment regarding the investor-state disputes is Article 29(6)(c), which codifies the ICC Court’s policy regarding emergency arbitration for treaty-based arbitrations. According to this provision, emergency arbitration shall not apply if the arbitration is based on an arbitration agreement under a treaty. In other words, investment arbitrations are excluded from the scope of the emergency arbitration provisions of the 2021 Rules.
4. Increased Threshold for Expedited Arbitration
The expedited arbitration procedure has proven popular – the ICC’s 2019 Dispute Resolution Statistics noted that 146 cases were being conducted under expedited procedure provisions as of the end of 2019, and that at that time, 37 of the 50 awards had been finalised within the six-month time limit.(3) The 2021 Rules increased the automatic threshold from USD 2 million to USD 3 million with Article 1(2) of Appendix VI, which is a provision is referred under Article 30(2)(a). The new threshold depends on the conclusion date of the arbitration agreement: if the agreement is concluded after 1 March 2017 and before 1 January 2021, the threshold will be USD 2 million; if it is after 1 January 2021, the threshold will be USD 3 million. This change may increase the use of expedited procedures and therefore, efficiency.
5. Issuance of Additional Awards
The ICC introduced a provision on additional awards by inserting the third paragraph to Article 36 and including “additional award” in the title of the provision. Firstly, it should be highlighted that the 2017 Rules already permitted the correction and interpretation of existing arbitral awards. Nevertheless, this new provision complements these legal concepts. Article 36(3) allows each party to apply for an additional award for claims made in arbitral proceedings but which the arbitral tribunal did not decide on. This application should be made within 30 days from receipt of the award. The arbitral tribunal shall grant the other party a short time limit to provide their comments. The arbitral tribunal must then submit its decision in draft form to the ICC Court no later than 30 days following the expiry of the time limit for receipt of the other party’s comments or within any other time period that the ICC Court may decide. This new provision is efficient because under the 2017 Rules, where the law of the seat does not allow for additional awards, parties would need to commence a new arbitration in respect of issues that were not covered. Additionally, to limit the risk of challenge to awards on the ground of infra petita, the parties will now be able to apply for an additional award on these matters to be issued by the same tribunal.
6. Promotion of Green Arbitration and Remote Hearings
The last but equally important changes meriting highlighting concern the increasing use of technology. As a result of the Covid-19 pandemic and global lockdowns, embracing technology has been a pressing issue all over the world. Before the Covid-19 pandemic, technology was already a significant issue due to climate change, and there have been discussions regarding the digitalizing the arbitration procedure and documentation in order to save a considerable amount of paper and ink.
The 2021 Rules foresee electronic submission instead of hard copies in accordance with its Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic released in April 2020 (“Guidance Note“). Article 3(1) provides that all submissions, notifications and communications “shall be sent” to each party, arbitrator and the ICC Secretariat, with all communications from the tribunal to the parties also “sent in copy” to the Secretariat. It is clear the Articles 4 (“Request for Arbitration”) and 5 (“Answer”) of the 2021 Rules require the claimant and respondent to submit their initial pleadings “in a sufficient number of copies […] for each other party, each arbitrator and the Secretariat” only if the claimant or the respondent, as the case may be, requests the transmission of such pleadings “by delivery against receipt, registered post or courier“.
As in the 2020 LCIA Rules, the 2021 ICC Rules introduce important and timely provisions aimed at normalizing and facilitating the holding of virtual hearings and making of electronic submissions. Pursuant to Article 25(2) of the 2017 Rules, “the arbitral tribunal shall hear the parties together in person“. The 2021 Rules version of this provision was deleted and included the amendments to Article 26(1) which allows the arbitral tribunal to “decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication“. This new provision that stipulated the virtual hearings are a reflection of the Guidance Note that launched to prevent effects of the Covid-19 pandemic and it removes doubts regarding the accuracy of holding hearings remotely.
The 2021 Rules are designed to make ICC arbitration more attractive, flexible, transparent and effective. During a global launch event on 1 December 2020, ICC Court President Alexis Mourre stated that a part of the 2021 Rules endorse and crystalize practices in a contemporary way. In accordance with this, the 2021 Rules are mostly a reflection of the current practice.
In particular, the changes providing for the increased use of technology will be welcomed by arbitration practitioners due to the uncertainty unleashed during the Covid-19 pandemic. From a broader perspective, although the 2021 Rules do not contain major changes and amendments, it will ensure a more efficient, flexible and transparent arbitration process.
The ICC Court also released an updated version of its Note to Parties and Arbitral Tribunals on the Conduct of Arbitration, which can be accessed by clicking here.
The compared version of ICC Arbitration Rules 2017 and 2021 can be accessed by clicking here.
(1) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), Article V.1(d) pursuant to which “[r]ecognition and enforcement of the award may be refused, at the request of the party against whom it is invoked” if “[t]he composition of the arbitral authorities […] was not in accordance with the agreement of the parties“.
(2) In 2019, 20% of new cases involved a state or state entity. This figure represents an important 67% increase in the number of states and state-owned parties in ICC Arbitrations over the past five years and sets a new all-time ICC record (2019 ICC Dispute Resolution Statistics). ICC Dispute Resolution 2019 Statistics can be accessed by clicking here.
(3) If you would like to get more information regarding the ICC’s 2019 Dispute Resolution Statistics, you can review our legal alert regarding this issue by clicking here.