On 4 November 2016, the International Court of Arbitration of the International Chamber of Commerce (the ICC Court) has announced amendments to the ICC Rules of Arbitration introducing expedited procedure (the ICC Rules on Expedited Procedure). The revised rules will apply from 1 March 2017 and are aimed at increasing the efficiency and transparency of ICC arbitrations.
The ICC Rules on Expedited Procedure have only been public for the past 4 days and they already sparked more attention and debate among arbitration practitioners than any other arbitration-related news that I can remember recently. These are the two most controversial provisions:
- The ICC Rules on Expedited Procedure will automatically apply to all arbitrations with amounts in dispute below USD 2 million and to cases involving higher amounts on an opt-in basis.
- Under the ICC Rules on Expedited Procedure, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement.
For good order, the ICC Rules on Expedited Procedure also state that, awards must be made in six months from the case management conference, there are no Terms of Reference, the applicable financial scale provides for significantly reduced fees and the tribunal will have discretion to decide the case on documents only, with no hearing, no requests to produce documents and no examination of witnesses.
Importantly, under Article 30 (3)(a) of the new ICC Rules, the ICC Rules on Expedited Procedure do not apply if the arbitration agreement was concluded before the date on which the ICC Rules on Expedited Procedure came into force. Therefore, the ICC Rules on Expedited Procedure only apply prospectively, to arbitration agreements concluded on or after 1 March 2017. The parties may however opt-in even in case of older arbitration agreements.
Put simply, under the ICC Rules on Expedited Procedure, the ICC Court will appoint a sole arbitrator to decide the dispute even if the parties agreed on a three-member tribunal in the arbitration agreement. No other mainstream arbitral institution (to my knowledge) has ever placed its discretion over the parties’ agreement in this question, especially in such an important aspect of an arbitration proceeding. However, there are always two sides to a coin. Here are some of the arguments for and against this bald amendment that I already gathered from personal and virtual discussions.
I. The ICC Rules on Expedited Procedure are justified
- Previous practice of the ICC Court
It is not an issue of novelty that the ICC Court would appoint a sole arbitrator in cases with small amounts in dispute. In fact, “it has in the past been unusual for the [ICC] Court to decide in favour of three arbitrators where the amount in dispute is below US$ 5 million […]” (J. Fry, S. Greenberg, F. Mazza, The Secretariat‘s Guide to ICC Arbitration, ICC Publication 729, 2012, p. 140). The USD 2 mil. threshold therefore is not controversial.
- Expeditious decision-making
An experienced sole arbitrator is able to conduct a proceeding more effectively than a panel of three arbitrators. While I agree with José María de la Jara and Nicolás Rosero that “an arbitration tribunal may render an award as quickly or quicker than a sole arbitrator if properly organized”, it could be said that this is less likely. A sole arbitrator will never have to check its co-arbitrators’ calendars to schedule a meeting, discussion, etc. On the one hand, a sole arbitrator does not have the benefit of its co-arbitrators’ opinion but on the other hand, there can also be no disagreement leading to a dissenting opinion, which would prolong the arbitration.
This is perhaps the strongest argument. Arbitration is not cheap and according to ICC’s online calculator, the advance on costs in case of a USD 2mil. arbitration heard by three arbitrators is circa USD 214k (excluding VAT). An award by a sole arbitrator would cost USD 92k (this amount should even be reduced under the ICC Rules on Expedited Procedure). For some claimants, this is relevant for various reasons. First, claimants will likely end up paying the entire advance on their own. Second, some claimants are in a difficult financial position and paying USD 92k instead of USD 214k can be a decisive factor in their decision whether to seek justice against their opponent. No third-party funding is possible in case of disputes below USD 2 mil. Some would therefore argue that the ICC Court is in fact enabling due process in this way.
II. The ICC Rules on Expedited Procedure are illegal and not justified
- Implicit consent with the ICC Rules on Expedited Procedure
As already explained above, the ICC Rules on Expedited Procedure will apply automatically to all ICC arbitration agreements concluded on or after 1 March 2017. In their ICC arbitration agreements, the parties will therefore implicitly agree with their provision on the choice of a sole arbitrator in a dispute under USD 2 mil. (even if the arbitration clause explicitly states that a dispute will be resolved by a panel of three arbitrators).
The opposition argues that “implicit consent does not accurately represent the intention of the parties” and that the “the [ICC Rules’] amendment ignores the explicitly stated wishes of the parties, strips them of their freedom and prevents them from choosing [their arbitrator] in good faith.” It is also worth citing the famous Dutco case, which established that the right to appoint an arbitrator is fundamental.
Moreover, a special agreement of the parties either in the arbitration agreement or after a dispute arises should take precedence over the institution’s rules. This proposition has substantive contractual grounds, e.g. based on article 2.1.21 of the UNIDROIT Principles, according to which “In case of conflict between a standard term and a term which is not a standard term the latter prevails.”
- Domestic courts & enforcement
Under Article V(1)(d) of the New York Convention, recognition and enforcement of an arbitral award may be refused if “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties […]”. Therefore, if the parties specifically agreed on a panel of three arbitrators and the ICC Rules on Expedited Procedure override this agreement, the arbitral award may face difficulties in the enforcement stage.
- Lower value does not always equal lower importance
A claim for a declaratory relief does not have to necessarily reach the USD 2 mil. threshold but can be much more important than a claim for damages amounting to USD 2.1 mil., which reaches the threshold for a panel of three arbitrators.
This concern will however be partially addressed by Article 30 (3)(c) of the new ICC Rules, which states that the ICC Rules on Expedited Procedure do not apply if the ICC Court determines that it is inappropriate in the circumstances.
- Overstatement of value
It is possible that claimants, who will not want the ICC Rules on Expedited Procedure to apply will simply overstate the value of their claims. Conversely, respondents can introduce unsubstantiated counterclaims for the same reason.
- Arbitration agreement not capable of being performed
A cunning respondent could even argue that an ICC arbitration agreement referring to three arbitrators is not capable of being performed in respect of disputes below USD 2 mil. It could insist on the appointment of a panel of three arbitrators, while the ICC, according to the ICC Rules on Expedited Procedure, would only appoint a sole arbitrator.
- It is new and therefore necessarily bad
Last but not least, we should not forget about the psychological element of the ICC Rules on Expedited Procedure. Essentially taking away the parties’ right to have a party-appointed arbitrator is unheard of in the modern arbitration practice. And due to its novelty, there will always be opponents of the idea, which is new and to a certain extent unpredictable.
I am sure that the ICC carefully analyzed all of the above arguments and many more. In the end, the ICC made a bald decision to do what it considers will improve the arbitration proceedings as we know them. It remains to be seen how the ICC Rules on Expedited Procedure will work in practice, especially with regard to enforcement proceedings.
written by Peter Plachy