Partners Ioannis Alexopoulos and Flore Poloni, Senior Associate Ryan Cable and Associate Thibaud Roujou de Boubée examine the recent modifications of the ICC and LCIA rules in Global Arbitration Review.
Ioannis, Flore, Ryan and Thibaud’s article was published in Global Arbitration Review, 17 November 2020. and can be found here.
Recent modifications of the ICC and LCIA rules are telling as to arbitration users’ concerns, with efficiency and transparency at the fore, along with the effective management of complex cases and the digitalisation of arbitration necessitated by the coronavirus pandemic, argue Signature Litigation lawyers.
Changes in arbitration rules generally reflect the aim of institutions to streamline proceedings and address recent case law. The latest updates made by the LCIA and ICC also impliedly address new pandemic-related concerns and recognise the increasing use of technology and the efficiencies it can bring.
The almost simultaneously released rule revisions make addressing users’ concerns on efficiency a priority, while also providing reasons for the choice of one institution over another.
The revised LCIA rules came into force on 1 October 2020 while the new ICC rules – which may still be subject to amendments – are due to come into force on 1 January 2021. Importantly, the ICC rules will be supplemented with a Note to the Parties and Arbitral Tribunals on the Conduct of Arbitration.
A desire to increase the efficiency of the arbitration process is arguably the leading reason arbitration rules are modified. Given the importance placed on this, one might think previous modifications and current best practices would have already provided the necessary improvements.
However, faced with the difficult balance between allowing parties to fully set out their case and arbitrators’ reluctance to impose measures whose appropriateness is difficult to ascertain at an early stage, both the ICC and the LCIA have considered it worthwhile to add provisions to encourage still more efficiency.
The ICC modified its rules as recently as 2017 and – even before then – committed strongly to efficiency by going so far as to impose financial sanctions on arbitrators who do not render their awards within an allotted time frame of six months. As a consequence, the ICC did not have much to add in this realm.
A focus on efficiency could already be found in general terms within article 22 of the ICC rules, which refers to case management techniques in Appendix IV such as limiting document production and limiting the length and scope of written submissions and oral evidence.
The ICC has nevertheless taken the opportunity to increase the threshold of the automatic application of expedited proceedings to US$3 million: Appendix VI(1)(2). This is a strong validation of the mechanism’s efficiency. Having been among the first to use expedited proceedings ourselves, we can only approve.
The LCIA’s approach is to include in the text of the rules tools for arbitrators to increase procedural efficiency. These are similar to those mentioned in Appendix IV of the ICC rules, such as the power to limit submissions and witness statements: Article 14.6 (i) and (ii).
Arbitrators can now order parties to make good use of technology to enhance the efficiency and expeditious conduct of the arbitration (Article 14.6 (iii)) or determine issues to be discussed at hearings (Article 19.2). The early determination powers of the tribunal (Article 22.1 viii) is a key innovation. It echoes the powers of the English courts, which have made them the favoured forum of users in the banking and finance sector.
According to the LCIA’s latest casework report, the banking and finance sector accounts for the largest percentage of claims filed with the institution (32%). The revisions should render arbitration even more attractive for this category of users.
The new LCIA rules also set deadlines for specific steps in the process: LCIA court appointment of the tribunal within 28 days instead of 35 (Article 5.6); parties to hold the first case management conference within 21 days of tribunal appointment (Article 14.3); and a 3-month benchmark for award determination (Article 15.5).
Transparency and avoiding conflicts of interest
The new arbitration rules seek to limit potential controversy over the enforceability of awards on grounds of conflicts of interest and to silence critics of international arbitration’s lack of transparency. They do so by addressing the ill-defined role of the tribunal secretary and further addressing disclosure obligations.
Article 14A of the new LCIA rules provides a clear framework for the tribunal secretary, preventing him or her from being entrusted with any decision-making functions and requiring the parties to approve their involvement.
Like arbitrators, tribunal secretaries are expected to disclose any circumstances “which are likely to give rise in the mind of any party to any justifiable doubts as to his or her impartiality or independence” and to ensure sufficient time, diligence and industry will be devoted to the case (Article 14.9 of the new LCIA rules).
Although not set out in the new ICC rules, similar guarantees could be found for ICC arbitration in an ICC Note to Parties and Arbitral Tribunals issued on 1 January 2019 (at paragraphs 177 onwards).
In addition, several new provisions have been included in the revised ICC and LCIA rules to ensure or preserve the tribunal’s independence and impartiality. Both rules address concerns that an arbitrator’s nationality could be an issue if identical to that of a party.
Article 6.1 of the new LCIA rules requires the parties to disclose their nationality, while article 13(6) of the new ICC rules prevents treaty-based arbitrations from being conducted by arbitrators of the same nationality as a party.
In light of the increasing prevalence of third-party funding in international arbitration, which is only likely to increase owing to the financial pressures caused by the pandemic, Article 11(7) of the revised ICC rules also requires disclosure 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”.
Management of complex cases
The new ICC and LCIA rules seek further to facilitate complex proceedings from the very outset by introducing additional streamlining to the commencement process. The revised ICC rules go a step further and improve the management of the joinder of third parties during the course of proceedings (ICC Article 7(5)), which is likely to result in reduced costs and minimise the delay usually associated with joinders.
The new LCIA rules address what has been a topic of discussion since the 2017 English Commercial Court case of A v B confirmed that the 2014 rules did not permit a claimant to commence a single arbitration in connection with multiple contracts.
The LCIA’s introduction of composite requests brings its rules in line with those of other leading institutions such as the Singapore International Arbitration Centre (Article 6), the Arbitration Institute of the Stockholm Chamber of Commerce (Article 14) and the ICC (Article 9 in both the 2017 and 2021 versions), which all permit composite requests.
This addition by the LCIA is likely to reflect feedback from users and practitioners, again particularly those in the banking and finance sectors where composite requests are fairly common.
The ICC rules already enabled parties to file composite claims and seek consolidation thereafter. They now, however, give the tribunal new power to permit joinder of additional parties after its constitution on the condition that the third party accepts the constitution of the tribunal and agrees to the Terms of Reference: Article 7(5).
It is no longer necessary for all parties to provide their consent to joinder – arguably a recognition of the nature of many complex commercial disputes, in which it is not always apparent at the outset that there may be a willing co-respondent who would appreciate the time and costs efficiencies of having their dispute resolved in the same proceedings. This is particularly the case when, as often happens, a respondent only has a finite time to prepare its position compared with the claimant.
Digitalisation, a must-have in the covid era
Unsurprisingly, the institutions have had to adapt their rules or provide guidance to encourage the digitalisation of arbitration in light of new working habits during the coronavirus pandemic. This will be a welcome change for practitioners who support the “Green Pledge”, aimed at minimising the environmental impact of arbitration.
Electronic submission of documents is becoming the new norm, as demonstrated by the revised articles 4.1 and 4.2 of the new LCIA rules. These articles make electronic submissions the rule and paper filings the exception, where the tribunal – or the registrar before constitution of the tribunal – grants approval.
The revised ICC rules are not as explicit but the ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic, released earlier this year, makes clear that it requires filing of initiating documents and subsequent communications with the ICC secretariat to be in electronic form.
The ICC guidance note also indicates that tribunals are expected to “encourage the parties to use electronic means of communication for the submissions and exhibits to the full extent possible” (paragraph 13).
It is extremely likely that the new ICC Note to Parties and Arbitral Tribunals, to be published ahead of the revised rules’ entry into force on 1 January 2021, will deal further with electronic submissions.
The development of virtual hearings has also been necessary during the pandemic to avoid the derailing of proceedings as a result of travel restrictions, quarantine measures and social distancing.
The new LCIA and ICC rules provide a welcome solution by allowing for a wide range of hearing options including hearings via telephone, videoconference or other appropriate means of communication (Article 19.2 of the new LCIA rules and Article 26(1) of the ICC rules).
In practice, we have seen that such measures can lead to debate over the parties’ right to a physical hearing as opposed to a virtual hearing.
The new LCIA rules seek to discourage such debate by expressly empowering the tribunal with the authority to “make any procedural order it considers appropriate” with a view to ” to employ “technology to enhance the efficiency and expeditious conduct of the arbitration (including any hearing)” (emphasis added, Articles 14.5 and 14.6 (iii)).
When faced with objections to virtual hearings, arbitrators will doubtless remain mindful of potential issues of public policy at the seat of arbitration or the place of enforcement, as encouraged by the ICC Guidance Note.
Arbitrators are also permitted to “go virtual” through Article 26.2 of the new LCIA rules, which introduces the ability to electronically sign awards. In the event of disparities between the electronic and the paper versions of an award, the electronic version authenticated by the LCIA Registrar will prevail (Article 26.7 of the new LCIA rules).
With the digitalisation of the arbitration process, it had to be made clear that compliance with data protection regulations is mandatory. The new LCIA rules now make this explicit at Article 30A, as did the ICC note to the parties on the conduct of arbitration of 1 January 2019 (see paragraphs 80 onwards).
Such modifications are welcome, demonstrating both institutions’ willingness to accept feedback from users and practitioners in the interest of making the resolution of disputes through international commercial arbitration still more attractive.