UK: The 2021 ICC Arbitration Rules: Keeping Up With Changing Times

Co-Authored by Aonkan Ghosh

The latest version of the ICC Rules came into force on 1 January 2021 (the "2021 ICC Rules"). The revisions that have been made to the 2017 edition are intended to address the changing needs of arbitration users based on learnings from the past four years.

The 2021 ICC Rules will apply to all arbitrations commenced after 1 January 2021 (save to the extent that parties have agreed to submit to an earlier version of the ICC Rules as in force on the date of their arbitration agreement).

The ICC also released a revised Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under the ICC Rules of Arbitration (the 2021 "Note").

In this article, we take a look at the main changes made in the latest version and discuss their effect and desirability.

1. Joinder and Consolidation

Joinder

Until now, the ICC Rules did not allow joinder of additional parties after the confirmation or appointment of an arbitrator, unless all existing parties to the proceedings and the additional party to be joined consented to such joinder.¹ This rule stood in contrast with other institutional rules (including those of the LCIA² and SIAC³).

Whilst that baseline remains, new Article 7(5) now introduces a carve-out to that general rule by introducing the possibility of a third party being joined to an arbitration after the appointment of an arbitrator provided that the additional party i) accepts the constitution of the tribunal and ii) agrees to the Terms of Reference (where applicable).

In deciding whether or not to join a party, the tribunal is required to take into account all relevant circumstances – including prima facie jurisdiction over the additional party, the timing of the request for joinder, possible conflicts of interest, and the impact of the joinder on the arbitral procedure.⁴

In these circumstances, the need for the consent of the other existing parties to the proceedings to such joinder is vitiated. The prior check and balance of all-party consent has therefore been removed, with greater reliance instead being placed on the tribunal's application of the above guidance.

Compared to joinder provisions in other institutional rules, Article 7 now differs in two nuanced respects.

First, it retains the principle that joinder shall be allowed if all parties – including the additional party to be joined – consent to it without the need for any further determination by the tribunal. ⁵ The SIAC Rules on the other hand provide the tribunal with discretion to disallow requests for joinder even if all parties concerned consent to it.⁶

Second, the guidance in terms of built-in criteria is unique to the 2021 ICC Rules.

This enhanced clarity is extremely useful for arbitrators and parties alike.

Consolidation

One of the most significant changes to the rules has been to the provisions concerning the consolidation of arbitrations.⁷ The ramifications of these revisions are best understood by comparing the respective provisions of the 2017 and 2021 editions.

Pursuant to the 2017 ICC Rules, the consolidation of arbitrations was possible in three situations:

- where all parties agree to the consolidation;

- all claims in the arbitrations are made under a single arbitration agreement (even if there is no party common to the different sets of proceedings); or

- where claims are made across not the same, but compatible arbitration agreements and by the same parties in respect of the same legal relationship.

However, this consolidation regime proved sub-optimal in certain circumstances. When executing large projects, parties and their affiliates often enter into suites of agreements with their counterparts — for example: an SHA and an SPA for an acquisition; or a Supply Contract and a Service Contract for a construction project. Any dispute that arises will likely involve claims under both contracts.

Under the earlier regime, two or more arbitrations which engaged both contracts could only be consolidated if either all parties agreed (i.e. (i) above) or they were between the same parties in relation to the same legal relationship (i.e. (iii) above).

Absent the agreement of all parties, these provisions therefore excluded the possibility of the consolidation of two sets of proceedings if either: a) one party was not common to both set of proceedings or b) where the two agreements involved two different legal relationships between the same parties.

Article 10 has now been revised to fill this gap. It now envisages the possibility of arbitrations being consolidated even the claims in question arise under multiple agreements and involve parties who are not common to both sets of proceedings.

The Note explains the change in the following manner:

For example: parties A, B, C and D are parties to a Share Purchase Agreement (SPA) and a Shareholders Agreement (SHA). Parties A and D are parties to arbitration 1, while parties B and C are parties to arbitration 2. In such a scenario, consolidation of arbitrations 1 and 2 may be possible.⁸

By addressing the lacuna that existed under the 2017 ICC Rules with respect to multi-party, multi-contract situations (which therefore fell to be addressed either by bespoke drafting at the time of contracting; or subsequent agreement when a dispute had already arisen), the revised 'default' position under the 2021 ICC Rules now allows consolidation to be effectively employed in a far larger set of circumstances. This furthers ICC's avowed objective of making arbitration more efficient and cost effective.

2. New Measures to Tackle Conflicts of Interest

Third-Party Funding and Disclosure

Third-party funding continues to become increasing popular in international arbitration. Given that some high-profile arbitrators are retained as advisors by litigation funders, the increase in the use of third-party funding has also been accompanied by growing and understandable concerns about the impartiality and independence of arbitrators and their disclosure obligations.

In its latest working paper on potential amendments to the ICSID Rules, the ICSID Secretariat has proposed a rule requiring parties to disclose any third-party funding arrangements they have in place, including the identity of the funder.⁹ The Draft Code of Conduct for Adjudicators released by the ICSID and UNCITRAL Secretariats further requires arbitrators to make reasonable efforts to disclose any professional, business, or other significant relationships with third-party funders within the past five years.¹⁰

Against this backdrop, the newly introduced Article 11(7) is an important, and unprecedented step forward.¹¹ It requires that each party promptly disclose to the Secretariat, the tribunal, and the opposing party the "existence and identity of any non-party who has entered into an arrangement for the funding of claims and defences and under which it has an economic interest in the outcome of the arbitration".

This new provision is clear on its face that, in order to qualify for disclosure under this provision, a third party must i) have entered into an arrangement for funding of claims and ii) have an "economic interest in the outcome of the arbitration". According to the ICC, agreements with a non-party that is entitled to receive all or parts of the proceeds of the award would qualify under this provision.¹² However, working capital or funding arrangements whose repayment terms are unrelated to the outcome of the arbitration would not appear to come within the scope of this new obligation to disclose.

The key difference between the ICSID/UNCITRAL Draft Code of Conduct and Article 11(7) of the 2021 ICC Rules is that, in the latter, the obligation of disclosure rests on the party, and there is no express corresponding obligation on the arbitrator. Given the paucity of jurisprudence and established practice, it is difficult to determine the precise nature of what an arbitrator would need to disclose and in what circumstances his/her impartiality might be impugned as a result of any pre-existing relationship with the funder in question. The IBA Rules on Conflict of Interest provide that relationships with funders must be equated with relationships with the party for the purpose of this assessment.¹³

Expectedly, there is also no explicit sanction for non-compliance with Article 11(7) of the 2021 ICC Rules; and it is difficult to see what the immediate consequences would be for a party in the arbitration aside from an adverse costs ruling if it failed to comply with its obligation (although, if a conflict were subsequently identified, this may give rise to a challenge to any resulting Award).

Whilst introduced "[i]n order to assist prospective arbitrators in complying with their duties", the introduction of Article 11(7) may also have other knock-on strategic consequences in proceedings for which funding has been secured.

Faced with a claim by a seemingly impecunious Claimant (who may or may not in fact have funding arrangements in place), a deep-pocketed Respondent might consider resorting to e.g. extensive procedural correspondence and an onerous Document Production phase in order to divert the impecunious Claimant's resources away from other more pressing areas of its case preparation.

Whilst the compulsory disclosure of a funding arrangement that might ensure greater equality of arms between the parties might dissuade a Respondent from such an approach (a seemingly positive development that reduces reliance on guerrilla tactics), a similar tactical consideration may now manifest themselves in applications for security for costs (which, in the ICSID context, was one of the drivers for the inclusion of an obligation to disclose).¹⁴

Party Representation

Amended Article 17 now imposes a duty on the parties to keep the tribunal and the other party informed of any changes in their legal representation; and allows the tribunal to take measures to avoid conflicts of interest that might arise from such a change. Those measures include the power to exclude the new party representative(s) from either the whole or part of the proceedings. This provision is similar to Article 18.4 of the LCIA Rules.

Whilst the consequences of this power – if exercised – could therefore be severe, parties electing to refer disputes to arbitration pursuant to the ICC Rules are on notice – by reason of the 2021 Note – that they should refrain from introducing counsel "if a relationship exists between that representative and one or more of the arbitrators that affects the arbitrator's independence and impartiality".¹⁵

Such a stringent measure appears to be a direct response to the increasing tactical trend of introducing counsel with past relationships with arbitrators during the pendency of live proceedings, often at a very late stage and often leading to significant procedural disruption.

However, it is a delicate issue – two ICSID tribunals have reached diametrically opposite conclusions on the power of the tribunal to exclude the participation of counsel in such circumstances¹⁶ – and it is left to the parties themselves when appointing counsel whether or not a relationship exists that does in fact affect an arbitrator's independence, rather than only potentially affecting it. This amendment also poses questions about how parties should proceed when new in-house counsel become involved in proceedings (given that many experienced in-house disputes counsel have previously been in private practice); or when appointing Experts (who may have appeared before Tribunal members in other, unrelated proceedings and for whom the late introduction into proceedings can be similarly problematic as with legal counsel). Neither situation is expressly addressed in the 2021 ICC Rules.

These points aside, the revision is a welcome modification and goes a long way in shielding arbitrations from undesirable strategic manoeuvring and corresponding delay.

3. ICC Court enhances role in the appointment of arbitrators

Creating a line of defence against defective arbitration agreements

In the landmark decision in Dutco, the French Cour de Cassation held that even where there are more than two parties to a dispute, they must have an equal right in the appointment of arbitrators, unless they waive this right after the dispute has arisen.¹⁷ As a matter of French law, therefore, 'asymmetric' arbitration agreements (in which one party is afforded greater rights than the other e.g. to elect to a refer a given dispute to the national courts) are invalid. The Dutco decision led to the introduction of Article 1453 of the French Civil Code, which provides that, should the parties fail to agree on a tribunal, either the administering institution or a judge would appoint the entire tribunal.

The new Article 12(9) of the 2021 ICC Rules mirrors the position from the French Civil Code and provides the ICC Court with the power - in "exceptional circumstances" – to appoint each member of the arbitral tribunal in order "to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award". Critically, this provision applies "[n]otwithstanding any agreement by the parties".

As with amended Article 17 (concerning party representation), the parties' ability to determine the composition of the tribunal that will determine their dispute is one of the oft-cited advantages of arbitration over national courts. The power of the ICC Court pursuant to new Article 19(2) to appoint the entire tribunal in spite of the parties' prior agreement – albeit one that is only to be exercised in "exceptional circumstances" – might therefore be seen as a strike at one of the principal attractions of arbitration as a means of commercial dispute resolution.

It will therefore be interesting to observe how often the ICC Court is called upon to exercise this power; and how it then exercises it in practice – particularly as to whether it adopts the strict approach of the French Cour de Cassation or whether, either as a result of the international composition of the membership of the ICC Court or of the applicable law of the seat of the arbitration in question, its practice will reflect the more tolerant approach to 'asymmetric' arbitration agreements found in many other jurisdictions.

Enhanced limits for expedited arbitrations

The threshold amount under which disputes will be automatically made subject to expedited procedures (subject to the same not having been disapplied) has been increased from USD 2 million to USD 3 million. As with the balance of the 2021 ICC Rules, this change will affect arbitration agreements entered into on or after 1 January 2021.

While it is understandable that the ICC may wish to have the last word on appointment procedure in the "exceptional circumstances" identified or intend that low-value disputes are dealt with exclusively under the expedited procedures — the idea that the ICC Court could (if the expedited procedures themselves had not been disapplied by the parties) overrule the parties' express choice either in terms of the number of arbitrators or the method of their appointment creates tension with and is at odds with party autonomy. This issue has arisen before, with the Shanghai International Trade Court holding in 2018 that the appointment of a sole arbitrator under the SIAC's expedited procedure fell foul of Article V(I)(d) of the New York Convention insofar as the composition of the tribunal ignored the parties' stipulation of a three-member tribunal.¹⁸ Although other courts have taken a different position,¹⁹ this issue is far from settled.

Parties intending to include an ICC arbitration clause in their commercial agreements should therefore consider carefully whether they should seek to disapply the expedited procedures, and/or Articles 11(7) (disclosure of third party funding), 17 (party representation) and 12(9) (appointment of tribunal by ICC Court) when drafting their arbitration agreements.

It will be interesting to follow the approach that the ICC Court takes should parties seek to do so – particularly as regards Article 12(9), which purports to override the parties' agreement in the first place.

4. Additional Award to Pre-empt infra petita challenges

Amended Article 36(3) now allows the tribunal, upon an application made within 30 days of the award, to issue an additional award in respect of issues it omitted to decide in the previous award(s).

This represents a calibrated modification to the previous position that may have left awards vulnerable to challenge of infra petita (i.e. an objection on the ground that the tribunal failed to decide all the claims presented before it); and brings the 2021 ICC rules in line with similar provisions in other arbitral rules.²⁰

5. Treaty Arbitration and the ICC

With a view to bringing ICC practice in line with international practice in terms of the appointment of arbitrators, revised Article 13(6) now requires that no member of the tribunal to be constituted in a treaty-based dispute shall share the nationality of any of the parties. We recall a similar prohibition applies only to the president in commercial arbitrations.

Article 29(6)(c) now expressly disapplies the emergency arbitrator provisions for treaty-based disputes. This modification has been made by way of abundance of caution since the ICC has itself previously indicated that the existing Article 29(5) already disapplies the emergency arbitration from investment arbitration since "the ICC considered that the investor and the host state are not signatories of the arbitration agreement formed by the state's offer contained in the BIT..".²¹

6. A Push for Transparency

The 2021 ICC Rules contain a number of provisions referring to the composition and operation of the ICC Court — its President,²² members (including as to the maximum number of terms they can sit),²³ and the work of its committees.²⁴ The internal rules of the Court have also been modified to disclose greater detail in terms of its decision making.²⁵

As the arbitration community yearns for greater diversity, new blood and increased transparency (not only in the decision making by the tribunal but also of the administration of the arbitration), these changes are to be viewed positively.

The most significant change, however, is that the 2021 edition of the ICC Rules now provides a party the possibility (though not a right)²⁶ of getting access to the reasoning of the ICC Court in respect of decisions relating to the prima facie existence of arbitration agreement, consolidation of arbitrations, appointment of arbitrators, challenges to arbitrations and their replacement.

It is not uncommon for parties, particularly when unsuccessful in their procedural motions to point to the lack of transparency surrounding unreasoned decisions made by the ICC Court. This change should alleviate those concerns. However, any request for reasoning must be made prior to the decision whose reasoning is sought is rendered.²⁷

7. COVID-19-specific Changes

The COVID-19 pandemic has necessitated the swift adoption of virtual hearings and the remote administration of arbitrations. This has served as a testament to the flexibility inherent in the arbitration process. There is an emerging view in some quarters that, for the right case and in the appropriate circumstances, virtual hearings could replace in-person hearings even in the post-COVID world, thereby realising time- and cost-efficiencies which can be passed on to the parties.

The 2021 ICC Rules contain a number of changes to formalise and enlarge the tribunal's power to hold hearings 'remotely' (i.e. other than in-person).

Article 25(2) now no longer mandates that the arbitral tribunal "shall hear the parties together in person if any of them so requests". Whilst it nevertheless remains open to the parties to request an in-person hearing, some may see this provision as the removal of a party's right to 'have its day in court'. However, this provision presented a significant hurdle in replacing in-person hearing with remote hearings and served as fertile ground for dilatory tactics.

As well as removing the ability to insist on an in-person hearing, Article 26 has also been bolstered to expressly allow the tribunal to conduct remote hearings. These changes are a welcome addition to the expertly drafted Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic released in April 2020.

Another significant change is the removal of the presumption of the requirement to carry out hard copy filings. The 2020 LCIA Arbitration Rules had earlier in the year replaced this requirement with electronic submission, and the ICC has followed suit – with parties now only being entitled to a hard copy if requested.²⁸

Conclusion

While the 2011 and 2017 ICC Rules introduced ground-breaking, headline-grabbing procedures (such as the emergency arbitrator provisions and expedited arbitration respectively), the 2021 edition represents a more understated evolution of the ICC Rules, albeit one that is no less significant in terms of making the ICC arbitral process more efficient, effective and transparent.

As will be evident from the above, the revised 2021 ICC Rules cover a number of discrete issues that, but for the revisions, could have had an adverse impact on the conduct of ICC arbitrations. Given the influential standing of ICC, it is to be anticipated that some of the changes that have been implemented – especially those relating to third-party funding and tribunal control over party representation - might find their way into the next editions of other institutional rules as part of an industry-wide move towards greater efficiency and transparency.

Footnotes

1. Article 7(1), ICC Rules 2017.

2. Article 22.1(x), LCIA Rules 2020.

3. Rules 7.1 and 7.8, SIAC Rules 2016.

4. Article 7(5). 2021 ICC Rules.

5. Article 7(1), ICC Rules 2021

6. Rules 7.8, SIAC Rules, 2016.

7. Article 10, 2021 ICC Rules.

8. 2021 Note, ¶19(b).

9. Proposed Rule 14, Working Paper No.4, Proposals for Amendment of the ICSID Rules.

10. Draft Article 5(2), Draft Code of Conduct

11. Note that Rule 24(1) of the SIAC Rules, 2016 does provide the tribunal with the power to seek disclosure of existence of third-party funding arrangement, but no obligation on the parties to disclose sua sponte.

12. Note, ¶20.

13. Explanation to General Standard 6 (b), IBA Rules on Conflict of Interest in International Arbitration (If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.) (https://bit.ly/3nW097p)

14. Proposed Rule 63 (4), ("[t]he tribunal may consider third-party funding as evidence relating a circumstances in paragraph (3), but the existence of third-party funding by itself is not sufficient to justify an order for security for costs").

15. Note, ¶13.

16. Hrvatska Elektroprivreda d.d. v. Republic of Slovenia, ICSID Case No. ARB/05/24, Concerning Participation of Counsel, p.15 where the tribunal barred the newly introduced counsel from participating in the proceedings; cf, The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Decision of the Tribunal on the Participation of a Counsel, 14 January 2010, ¶25 where the tribunal held ("the Hrvatska decision might be better be seen as an ad-hoc sanction for failure to make the proper disclosure in good time than as of a holding of more general scope.)

17. Siemens & BMKI v. Dutco: Bull. Civ. I, No. 2; Rev. arb. 1992.470, Cass. 1e`re civ. 7 January 1992,

18. Noble Resources International Pte. Ltd. v Shanghai Good Credit International Trade Co., Ltd (2016) Hu 01 Xie Wai Ren No. 1 (https://bit.ly/3poWkrJ).

19. AQZ v ARA [2015] SGHC 49 (https://bit.ly/37SoHII)

20. Rule 33, SIAC Rules 2016; Article 27, LCIA Rules 2020.

21. ICC Commission Report, States, State Entities and ICC Arbitration (https://bit.ly/3hk4AXb), ¶¶51-52.

22. Article 3(1), Statute of the Court (Appendix I), ICC Rules 2021.

23. Articles 3(5) and 3(6), Statute of the Court (Appendix I), ICC Rules 2021.

24. Articles 4-6, Statute of the Court (Appendix 1), ICC Rules 2021.

25. Appendix II, ICC Rules 2021.

26. The ICC Court may decline providing reasons in "exceptional circumstances" (see, Article 5(3), Appendix II, ICC Rules, 2021).

27. Article 5(2), Appendix II, ICC Rules 2021.

28. See, Article 3(2), 4(4)(b), 5(3), ICC Rules 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.