The new ICC Rules of Arbitration (2021 Rules) came into effect on 1 January 2021, accompanied by an updated version of the ICC Secretariat’s Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration (ICC Note). Per Article 6(1), the 2021 Rules will apply to arbitrations commenced as of 1 January 2021, unless the parties have agreed to submit to the rules in effect on the date of their arbitration agreement. Following our previous analysis, this post summarizes the potential impact of the 2021 Rules.
- Arbitrator conflicts of interest and validity of the proceedings
There have been a number of changes that promote the avoidance of arbitrator conflicts of interest—whether actual or perceived—and protect the validity of the arbitral proceedings.
- Requirement to disclose third-party funders
Article 11(7) of the 2021 Rules requires parties to “promptly” disclose the identity of any third-party funders involved in the proceeding, ie, “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.” By way of example, the ICC Note provides that a situation in which a non-party is entitled to receive all or part of the proceeds of the award would be covered under this provision (ICC Note, para 20). However, subject to any different determination that may be made by the arbitral tribunal in any given case, this obligation would not cover “(i) inter-company funding within a group of companies, (ii) fee arrangements between a party and its counsel, or (iii) an indirect interest, such as that of a bank having granted a loan to the party in the ordinary course of its ongoing activities rather than specifically for the funding of the arbitration” (ICC Note, para 21). This new rule in Article 11(7) was introduced to avoid arbitrator conflicts of interest.
This change is consistent with the ICC Secretariat’s prior guidance and developments in the arbitration field. For example, in recent proposals for amendment to the ICSID Arbitration Rules, the ICSID Secretariat’s proposed Rule 14 includes a requirement that parties disclose the identity of “any non-party from which the party, directly or indirectly, has received funds for the pursuit or defense of the proceedings through a donation or grant, or in return for remuneration dependent on the outcome of the proceeding.” The ICSID proposal at Rule 14(5) also allows for a tribunal to order further disclosure of information regarding the funding agreement and the non-party providing funding if it deems this necessary. The 2021 ICC Rules do not contain the same level of specificity, nor do they address tribunal’s authority in this regard, ie, ordering disclosure of more information concerning the funding agreement or the funder. Instead, the rules limit parties’ disclosure obligations to the identity of any third-party funders.
Other practical implications remain to be seen. For one, notwithstanding the ICC Secretariat’s guidance, it will be up to tribunals to interpret the definition of “economic interest in the outcome of the arbitration” and decide which scenarios will actually trigger disclosure obligations vis-à-vis a non-party’s identity. Moreover, though the 2021 Rules do not offer any guidance in this regard, a practical consequence of the disclosure of third-party funding could be that a tribunal may take this into consideration in apportioning costs. This issue came up recently in Dominion Minerals v Panama, which was administered under ICSID’s Arbitration Rules, which also do not contain any guidance on whether a third-party funding arrangement may factor into the apportionment of costs. In this case, it has been reported that the claimant sought an award for costs that included reimbursement for 32.4 million USD in third-party funding fees. The tribunal declined to order reimbursement. However, it stated that there could be a scenario in which such costs could be recovered if the funding fee was reasonable.
- Restrictions on choice of counsel
Under revised Article 17, a tribunal can exclude new representatives from participating in the whole or part of the proceedings if necessary, in order to avoid a conflict of interest. The ICC Note clarifies that in deciding whether to exclude a newly introduced party representative, the arbitral tribunal must carefully consider “all relevant circumstances with the aim of safeguarding the integrity of the arbitration, such as (a) the ability of the party that has introduced the new representative to properly submit its case in the absence of that representative, (b) the timing of the addition of such newly introduced party representative, and (c) the disruption to the arbitration that may result from its continuing participation in case of a successful challenge against one or more of the arbitrators” (ICC Note, para 15).
- Constitution of arbitral tribunal
The ICC added Article 12(9), which permits the ICC Court of Arbitration in “exceptional circumstances” to appoint members of the tribunal, even if a different method of appointment is envisaged by the arbitration agreement, “to avoid significant risk of unequal treatment and unfairness that may affect the validity of the award.” As an example, the ICC Note provides that this may occur where the appointment procedure outlined by the arbitration agreement permits one of the parties to constitute the tribunal unilaterally, and such a right is not permitted under the law of the seat of the arbitration. This addition reflects the ICC’s interest in ensuring the equality of the parties in the arbitral proceedings.
- Changes related to investor-state disputes
The 2021 Rules also contain two notable revisions with respect to investor-state disputes.
- Restriction on arbitrator nationality in investor-state disputes
The 2021 Rules introduce greater restrictions on arbitrator nationality for investor-state disputes. The newly added Article 13(6) provides that no arbitrator may be of the same nationality as any of the parties, unless the parties agree otherwise. The ICC Note explains that this is due to the “specific nature of treaty-based arbitration, where the arbitral tribunal has to apply international law and may have to assess the legitimacy of public policies, regulation and legislation taken in the interest of the public” (ICC Note, para 45). Previously, in the 2017 Rules, this nationality restriction applied only to sole arbitrators and presidents of tribunals.
Practitioners and scholars still debate how salient an arbitrator’s nationality is to her or his decision-making or the outcome of a tribunal’s decision, as compared with other factors that may impact how an arbitrator views a case. Whether or not this change will have any discernible impact on the outcomes of awards, the new rule may positively affect the perceived legitimacy of proceedings. In addition, it will be interesting to see what impact, if any, this rule change will have on diversity of the arbitrator pool, given that respondent states may no longer appoint their own nationals to serve.
- Emergency arbitration
In addition, the new rules exclude the application of the emergency arbitration procedure in arbitrations arising from a treaty, which was already the ICC practice and has now been codified in the rules at Article 29(6)(c).
- Further streamlining of the arbitration procedure
The 2021 Rules also contain important revisions to the provisions on joinder and consolidation.
- Joinder
Under the previous rules, no additional party could be joined after any arbitrator was confirmed / appointed unless all parties, including the additional party, consented. Under Article 7(5) of the revised rules, “[a]ny Request for Joinder made after the confirmation or appointment of any arbitrator shall be decided by the arbitral tribunal once constituted and shall be subject to the additional party accepting the constitution of the arbitral tribunal and agreeing to the Terms of Reference.” The effect of this change is that a third party may be joined over the objections of one of the parties to the dispute. The ability to join additional parties in this way could prove advantageous for some parties, in particular in industries where multi-party commercial disputes are common.
- Consolidation
The 2021 Rules clarify at Article 10 that consolidation is possible when the parties have disputes under multiple agreements with compatible arbitration clauses. This provides helpful clarification of a previously open question and will be useful for parties seeking to consolidate multiple proceedings for efficiency reasons.
- Modernization and e-friendly revisions
The 2021 Rules include revisions that facilitate the use of remote hearings and electronic communications. These changes reflect developments in arbitral practice in general, as well as the acute changes to arbitral procedure necessitated by the COVID-19 pandemic.
- Remote / virtual hearings
Article 26(1) of the 2021 Rules explicitly provides that the tribunal may conduct hearings by videoconference or, in an attempt to future-proof the rule, by “other appropriate means of communication.” Tribunals already had discretion to conduct hearings remotely, but the 2021 Rules dispel any lingering uncertainty.
The growing prevalence of virtual hearings has been a topic of much discussion during the COVID-19 pandemic, as legal teams, arbitral institutions and parties adapt to contactless arbitration. When deciding whether an oral hearing should proceed in person or virtually, parties should consider practical concerns such as location of the hearing, existing or potential travel restrictions, and the personal circumstances of the participants. Parties should also be prepared to make the necessary logistical arrangements for a virtual hearing, such as providing all of the witnesses with videoconferencing capabilities and establishing a secure means of communication within the team. In addition, parties may wish to consider how to leverage the increased flexibility presented by a virtual hearing setting in their hearing strategies (eg, scheduling a longer break before closing arguments).
- Email communications
Further signaling an embrace of modernization, the 2021 Rules also shift away from the older presumption that all filings must be made in hard copy. Instead, at Article 3(1), the rules provide that pleadings and written communications be “sent” to each party, arbitrator, and the Secretariat, and that the Secretariat be copied on communications from the tribunal. This change is reflected throughout the rules, in particular Articles 3(1), 4, 5 and Article 1 of the Emergency Arbitrator Rules, including with respect to filing a Request for Arbitration and Answer. However, if the parties wish to proceed with hard copy filings, they may do so.
This flexibility is important, in part because it ensures that a claimant will be able to comply with whatever contractual or local rules govern its notice of dispute (eg, notification by hard copy only) and because situations may arise in which the email address of the respondent is unknown or unreliable.
- Additional efficiency
Finally, the 2021 Rules introduce revisions to facilitate greater efficiency in the proceedings. These include the following:
- Article 36(3) provides that the parties may apply to the tribunal for an “additional award” where the tribunal omits to address claims made in the arbitral proceedings. This is a new post-award possibility in addition to the existing options of correction and interpretation. It is a welcome revision that will allow parties to go back to the tribunal for substantive resolution of claims that the tribunal’s award did not address, which was not possible under the previous rules.
- Article 1(2) in Appendix VI (Expedited Procedure Rules) increases the threshold for automatic application of the ICC’s expedited procedures from 2 to 3 million USD. The expedited procedures were first introduced in 2017 and have proven popular and timely. According to the ICC’s 2019 dispute resolution statistics, “of the 50 final awards rendered in expedited proceedings, 37 were within the six-month time limit, with very limited delays encountered in the balance of cases.” In contrast, the average duration for a non-expedited procedure proceeding was 26 months for cases that reached a final award.
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The ICC’s 2021 Rules introduce a number of significant changes. The full consequences of those changes will crystallize once tribunals begin interpreting the Rules, but parties contemplating a proceeding administered under these new Rules should consider the implications of the changes discussed in this post.