REUTERS | Clodagh Kilcoyne

Compliance Reinforcement Mechanism in 2021 Delos Rules of Arbitration: continuing a tradition of bold innovation

The 2021 Delos Rules of Arbitration came into effect on 1 November 2021, the first major revision since the institution was established in 2014. The updated rules introduce a number of innovations aimed at maximising the time and cost efficiency of arbitrations. Most notably, Delos has introduced a unique Compliance Reinforcement Mechanism aimed at promoting greater voluntary compliance with awards, which earned a nomination for the 2022 GAR Award for Innovation. The 2021 Rules also introduce updates in areas such as joinder and consolidation, the disclosure of third-party funding, and changes to the Delos “safe seat” regime.

Delos Dispute Resolution, an independent arbitral institution established by arbitration practitioners in Paris, seeks to improve the user-experience for arbitration participants by using innovation to increase time and cost efficiency. The institution has launched a number of cutting-edge initiatives since it was established, including its Open Access Arbitrator Database, aimed at improving diversity in arbitrator appointments.

Compliance Reinforcement Mechanism

The introduction of the Compliance Reinforcement Mechanism (article 16 and Appendix 6) is the most notable feature of the 2021 Rules. It aims to tackle a growing trend of non-compliance with awards and reflects a desire on Delos’ part to continue to support parties in the post-award phase of a dispute, where other institutions typically cease their involvement once the award is rendered.

The Compliance Reinforcement Mechanism enables an award creditor to apply to Delos to publish a “Compliance Failure Notice” on its website when an award debtor fails to comply with an award. This can only be done after the time-limits for recourse against the award have expired at the seat of the arbitration without the award having been annulled.  The Compliance Failure Notice will contain the names and nationalities of the parties (although a recent amendment allows non-defaulting parties to exclude these details), details about the award, and the extent of the failure to comply. The notice will also contain a brief statement (200 words or fewer) from both parties if they choose to submit one. In essence, it adopts a “name and shame” approach intended to persuade award debtors to pay up.

The mechanism applies by default under the 2021 Rules unless the arbitration agreement was concluded before 1 November 2021 or the parties opt-out. Parties may also opt–in in their arbitration agreement or during the course of their dispute.

Following an application from an award creditor, Delos will invite the award debtor to respond, and the parties will be permitted one round of responses or updates to their proposed notice statements. Delos will then decide whether to publish the Compliance Failure Notice and give brief reasons for its decision. Once published, the notice may be varied by application to Delos following the same process. The parties are at liberty to amend their notice statements at any time, and the award creditor may remove or reduce the level of non-compliance stated in the Compliance Failure Notice.

This mechanism has its roots in early versions of the ICC Rules. Article XLI of the 1922 ICC Rules provided for the relevant National Committee of a recalcitrant award debtor to be notified, and for the Chamber of Commerce or other organisation to which the debtor belonged to be asked to “take suitable measures”.  It also made provision for the defaulting party’s name and the text of the unexecuted award to be published in the official publications of the ICC and its National Committees. A similar provision appeared in article 25 of the 1927 ICC Rules, but the blacklists were removed in that iteration due to concerns about libel liability if an award was annulled. The notification provision was eventually removed in the 1955 edition of the ICC Rules.

Delos has sought to address the concerns that affected the ICC approach by providing expressly that a Compliance Failure Notice can only be sought after the time limits for annulling an award have expired and the award has not been annulled, and that the parties agree that the decision to publish a notice does not violate the confidentiality of the arbitration (Appendix 6, paragraphs 1 and 7).

Few modern arbitral institutions have introduced such a mechanism in their rules, although it will be familiar to those with experience of commodities arbitrations.  A number of commodities industry bodies have included defaulter provisions in their standard arbitration rules which provide for the publication (either publicly or to their members) of the names of companies that default on awards. The defaulter provisions in article 24 of the GAFTA Arbitration Rules No. 125 are one example. Those provisions permit the Council of GAFTA to publish the names of companies who default on awards to other GAFTA members and on the GAFTA website. Similar regimes can be found in the arbitration rules of the London Metals Exchange, the International Cotton Exchange and the Federation of Cocoa Commerce.

It will be interesting to see whether parties take up the Compliance Reinforcement Mechanism. The structured process of engagement with the institution may help to open a window for settlement.  Where that is not possible, the “name and shame” approach may well be effective in encouraging parties to comply.

In any event, the aim of encouraging parties away from contentious enforcement proceedings, which add time and cost, is certainly commendable. As is the desire to continue to provide parties with institutional support in the post-award phase. Difficult questions about whether to publish a notice may arise in less straightforward cases of non-compliance, and it will be interesting to see how the institution addresses those.  It remains to be seen, too, whether other institutions will follow suit.

Other updates

The 2021 Rules contain a number of other, more modest updates.  Changes have been made to the consolidation and joinder provisions (articles 9 and 10), and express provision for remote hearings has been added (article 12.4(d)), bringing the Delos Rules into line with those of other major institutions.

The 2021 Rules also now require parties’ legal representatives to disclose the identity of non-parties from whom they are taking instructions and funding throughout the arbitration (articles 7.2 and 7.3), in an effort to assist arbitrators in making disclosures.

Changes have also been made to permit ex parte interim measures such as security for costs (article 12.4(e)(ii)), and to permit the tribunal to include a pause in the arbitration timetable to nudge parties into considering settlement discussions (article 12.3(a)).

Finally, Delos’s approach to “safe seats” has evolved.  Previously, Delos had tied the time and costs schedule in the Rules to a list of “safe seats” (from its Guide to Arbitration Places) from which the parties could choose. If the parties chose a seat not on the list, the institution retained full discretion on time and costs. Parties now have greater autonomy to choose seats that are not on the list, with costs being determined within a fixed framework provided by Delos, which sets a floor and a ceiling for costs based on the value of the dispute (article 14, and Appendix 7). The institution will, nonetheless, continue to have regard to the choice of seat when fixing costs and the time limit for submission of the award.

Conclusion

The 2021 Delos Rules continue the institution’s tradition of bold innovation. The changes mark a welcome attempt to steer the parties towards co-operation wherever possible and away from costly satellite litigation, with the aim of minimising time and costs.

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