In October 2020, the ICC released the new ICC Rules 2021 in draft. The rules could still be subject to editorial changes, but, once finalised in December, will come into force on 1 January 2021. This current draft of the new rules leaves the fundamental framework introduced in 2012 largely unchanged and this is unsurprising. Few were expecting a seismic shift in approach only eight years after the 2012 revisions, given how fundamentally they changed the shape of arbitral procedure for the community and arbitral institutions globally.
So what changes have been made in the 2021 Rules? Many of the changes are to be found not in the main body of the rules, but in Appendix I and Appendix II and relate to the internal running of the ICC Court. These include the appointment of the President of the ICC and the formation of committees and special committees to carry out the work of the ICC Court and to streamline process. There are also provisions about the constitution and decision-making processes of those committees. For many, particularly users of the ICC Rules, the internal workings of the ICC will be of passing interest, but of relatively little practical significance.
An obvious and expected change has been to include amendments that are necessary or helpful to smooth the administration of the ICC Secretariat through the COVID-19 pandemic, and also to provide more clearly for the practice of virtual or remote hearings. This has been done through amendments to article 26.1 (hearings) and by shifting away from the presumption that pleadings and written communications will be submitted in hard copy in multiple sets. We also see helpful efforts made by the ICC to clarify the interpretation or application of its provisions on consolidation and joinder.
But not all the changes are purely administrative, clarificatory, or in response to the pandemic. In this blog post, we will focus on three more substantive changes to the ICC Rules which seek to address long-running questions in arbitral practice and discuss why the ICC’s approach is likely to be of interest and importance to practitioners and users alike.
Changes to party representation
Back in 2014, the new LCIA Rules introduced a novel provision. Article 18 of the LCIA Rules provided for a tribunal to be able to withhold the approval of any intended change or addition to a party’s legal representatives where such change or addition could compromise the composition of the arbitral tribunal or the finality of any award (on the grounds of possible conflict of interest or other like impediment). At the time, this provision caused considerable interest and some controversy. Some hailed it as an answer to situations similar to that which arose in Hrvatska Elektroprivreda v Republic of Slovenia, in which the addition of new legal counsel (a barrister from the same chambers as one of the arbitrators) shortly before the final evidentiary hearing raised an issue as to the independence or impartiality of the arbitral tribunal. Other commentators criticised the new power in the LCIA Rules as introducing limits on the parties’ freedom to choose their legal representatives and as an excess of power for the tribunal.
Some six years have passed since the 2014 LCIA Rules, and that provision has remained in place in the 2020 LCIA Rules. In that intervening period, we’ve seen a requirement in the SIAC and HKIAC rules that parties immediately inform the tribunal of any change in their representation, but not a wider adoption of the LCIA’s approach. However, the fast pace of change in the arbitration community is perhaps evident in the ICC’s decision to adopt a very similar provision to that of the LCIA in its new article 17.2. This article allows the tribunal to:
“…take any measure necessary to avoid a conflict of interest of an arbitrator arising from a change in party representation, including the exclusion of new party representatives from participating in whole or in part in the arbitral proceedings.”
Just as with the LCIA Rules, the intention behind the provision is extremely sound, designed to prevent parties from making “tactical” appointments to derail an arbitration by creating a conflict of interest. However, the concerns raised in 2014 will remain. A provision of this nature does expressly empower a tribunal to limit a party’s ability to appoint legal representatives of its choice. It is to be hoped that the inclusion of the provision will act as a warning and deterrent to parties considering this sort of tactical game playing, rather than to limit party freedom to change representation where that is genuinely necessary.
Restrictions on unequal tribunal appointment
A further long-running question in arbitration has been whether parties may agree contractually to an unequal method of forming an arbitral tribunal, particularly in a multi-party situation. The issue became live in 1992 when the Supreme Court of France, the Cour de Cassation gave judgment in the case of Siemens v BKMI and Dutco. The decision focused on the potential conflict between the right to appoint an arbitrator against the right to an equal treatment of the parties in the appointment process and party autonomy. As was standard practice at the time, the two respondents in the ICC arbitration were asked to agree on a joint arbitrator, while the claimant appointed the other. The two respondents challenged the proper composition of the tribunal on the basis that their interests were not aligned, a position which was rejected by the Paris Court of Appeal. However, the Cour de Cassation disagreed, finding that the appointment process was contrary to public policy. The court held that each party must have equality in the appointment of arbitrators, and that this right could only be waived after the disputes in question had arisen. This threw into doubt purported waiver of the right of appointment at the contractual stage (whether that was by incorporation of the ICC Rules into the parties’ arbitration agreement, or by express waiver drafting in the arbitration clause itself).
The decision of the Court de Cassation in Dutco led to a series of changes to the rules of many arbitral institutions, including the ICC. The 1998 ICC Rules provided for the formation of claimant and respondent “sides” for the purposes of appointment in multi-party arbitrations, and, where the parties could not agree to those “sides”, for the arbitral institution to appoint the entire tribunal, thus ensuring equal treatment. This approach was retained in the 2012, 2017 and 2021 amendments. However, the new 2021 Rules also include a new article 12.9, which can be viewed as a further extension of that principle. Under this article, the ICC Court now has a fallback discretion “in exceptional circumstances” to deviate from any agreement by the parties on the method of constitution of the arbitral tribunal, and for the ICC Court to appoint the entire tribunal. The new provision states that this power may be invoked “to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award”.
This provision may well raise some eyebrows, particularly amongst users who view their ability to nominate their preferred arbitrator as a fundamental right, a major advantage of using arbitration and a cornerstone of arbitral practice. For many, there may well be questions about where the limits of that party autonomy and choice lie, particularly in an arm’s length contractual negotiation between experienced commercial parties. Fault lines on this issue may well arise between common and civil law practitioners, particularly on whether any general public policy principle of equality in this area even exists. We may well see efforts made by some practitioners to draft express provisions to limit or disapply these powers under the ICC Rules, or to confirm the parties’ agreement to potential inequality in certain circumstances. Given the ICC’s strict approach to the adoption of the full ICC Rules (compared to other sets of institutional rules which may allow for any provisions to be disapplied), this may not be successful. Other users may be concerned by the fairly open and discretionary nature of the provision, how the ICC will interpret the requirement of “exceptional circumstances” in future and how frequently it will be applied. In practice, these concerns may only be resolved with time and a clearer understanding of how the ICC intends to exercise its powers going forward.
Whether or not a party should be required to disclose its funding arrangements to its counterparty and any arbitral tribunal is a much-debated issue that we also see addressed within the revisions to the ICC Rules. There is currently no general rule requiring parties to disclose a third-party funding agreement. In 2014, the International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration addressed the disclosure of third-party funding agreements (where funders and insurers have a “direct economic interest in the award”) in the context of arbitrators’ impartiality and independence. Arbitral institutions adopted different approaches, with the AAA, SIAC and LCIA choosing not to include specific provisions within their rules requiring the disclosure of funding arrangements. Meanwhile the HKIAC adopted an entire article, article 44, setting out an express requirement for the disclosure of funding agreements, and the proposed changes to the ICSID Rules similarly would create a new duty to disclose third-party funding.
The ICC’s 2019 Note to Parties and Arbitral Tribunals may have given a fairly strong steer on what was coming in future changes to the ICC Rules. Paragraphs 24 and 28 of the Note confirmed that arbitrators needed to disclose in their conflicts of interest relationships with “any entity having a direct economic interest in the dispute”. As with the IBA Guidelines, the obligation was placed firmly on the arbitrators themselves, and fulfilment of that obligation rested on the parties to supply the necessary information. New article 11.7 of the ICC Rules now requires that each party promptly notify the Secretariat, tribunal and the other parties “of 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” in order to assist prospective and appointed arbitrators in complying with their duties of disclosure. This is a shift in approach, moving the requirement out of ICC guidance and into the rules themselves. It has also placed a new express obligation and burden of disclosure on the parties, who must now disclose their funding arrangements throughout the life of their arbitration.
The decision to include this provision in the ICC Rules is important and can be viewed as part of a broader acceptance at institutional level of the potential relevance of relationships between arbitrators and non-parties to questions of independence and impartiality. As with the HKIAC Rules, however, the ICC Rules have not sought to go any further in addressing issues it has been suggested by some commentators that third-party funding may raise in respect of the arbitral procedure and decision-making. There is currently no consensus either in, commercial or investment arbitration, on the question of whether third-party funding arrangements should be relevant to issues such as security for costs and this change to the ICC Rules certainly does not purport to answer that question.