ICC & LCIA International Arbitration in 2021
Following Brexit, international arbitration has become an even more appealing option for dealing with cross-border disputes, as discussed in a recent article. At least until the post-Brexit recognition and enforcement regime becomes clearer, parties may be inclined to take the arbitration route when it is available.
The London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) are two of the big players in cross-border arbitration – and both have made rule changes recently. These modifications may make arbitration more attractive, especially in the somewhat uncertain world in which we now find ourselves.
The alterations made by both the LCIA and ICC fall into three broad categories:
- due process, and
While there are differences in emphasis between the bodies, it does not alter the fact that the changes made by the LCIA and ICC broadly follow the same patterns. Indeed, many of the ICC’s new rules (in force as of 1 January 2021) directly overlap with the LCIA’s October 2020 revisions. As such, this article takes a look at the modifications made by both bodies and provides insight into the future direction of travel in international arbitration.
Changes as a result of the Covid-19 pandemic
The obvious place to start is a consideration of the changes that have been at least partially prompted by the coronavirus outbreak. The LCIA was the first arbitration body to release a rule update that fully took account of the effects of Covid-19. The virus looks set to affect the shape of society for a long time to come, perhaps permanently: it is duly well worth looking at how it is impacting the field of arbitration.
In essence, these modifications focus on bringing virtual proceedings to the fore. Article 19.2 of the LCIA rules spells this out clearly:
“…As to form, a hearing may take place in person, or virtually by conference call, videoconference or using other communications technology with participants in one or more geographical places (or in a combined form).”
The previous iteration of the LCIA rules was released in 2014. Video conferencing was of course well established by then – and in the context of parties residing in different countries, it was already a very useful tool. However, while arbitration hearings were in practice sometimes already conducted virtually, it had never been formally recognised in the rules. Covid-19 prompted mass adoption of video calling, to the point where it became advisable for the LCIA to acknowledge it explicitly.
Skip forward to the start of 2021, and the ICC has followed suit. In this case, it is Article 26(1) that states:
“The arbitral tribunal may decide, after consulting the parties, and on the basis of the relevant facts and circumstances of the case, that any hearing will be conducted by physical attendance or remotely by videoconference, telephone or other appropriate means of communication.”
This empowers the arbitrator to insist upon virtual proceedings. As with the LCIA, this discretion did already exist in practice prior to the revisions. But codification ensures greater clarity, and reduces the risk of the form of hearing selected becoming a bone of contention between parties. Elsewhere in the rules, any language potentially favouring one form of hearing over another has been stripped out. As such, for the future, remote arbitration is imbibed with just as much legitimacy as in-person procedures.
That is not to say that this cleans up all issues in this area. Discrepancies in local laws always lurk in the background of international arbitration; it is no different here, with some jurisdictions less eager than others to recognise the legitimacy of wholly electronic awards. Argentina and Costa Rica, for example, take a dim view of foreign e-signatures unless a reciprocity treaty is in place with the relevant country. But the LCIA and ICC updates ensure that the arbitration bodies are doing everything within their own powers to allow virtual processes to run smoothly.
Neither the Singapore International Arbitration Center (SIAC) nor Hong Kong International Arbitration Center (HKIAC) currently make express provision for remote proceedings. Given the example set by the LCIA and ICC, it would not be surprising to see other arbitration bodies such as these codify the practice of virtual hearings in their next sets of revisions.
Changes to improve due process
Where countries are wary of entirely electronic procedures, it is generally out of (admirable) concern for due process. This is a concern shared by arbitration bodies, and the ICC in particular has shored up its procedural rules in its latest update to the rules. The main revision in this regard is to be found in Article 12(9):
“Notwithstanding any agreement by the parties on the method of constitution of the arbitral tribunal, in exceptional circumstances the Court may appoint each member of the arbitral tribunal to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.”
This is probably the most controversial change made to either of the arbitration rulebooks. Article 12 deals with the constitution of the arbitration panel at the ICC Court – in usual circumstances, it is a matter to be decided between the parties. If they have elected to use a sole arbitrator, then that individual is to be chosen by mutual agreement. If they wish to convene a three-man panel, each party nominates one arbitrator, with the Court selecting the third (who acts as president). This is broadly consistent across all arbitration bodies, so any changes naturally attract scrutiny.
What Article 12(9) does is to allow for a modification to this process in “exceptional circumstances”. It is unlikely that the ICC Court will exercise this discretion liberally, given that selection of arbitrators is such a foundational part of arbitration. Rather, it has been inserted into the rules in order to deal with situations where selection of an arbitrator by one of the parties involved would critically challenge the integrity of the award – potentially to the point where a national court would refuse to uphold it.
Cases of actual bias by appointed arbitrators are so rare as to be negligible, but Article 12(9) gives the ICC power to step in and appoint the panel of arbitrators where this is necessary to prevent the appearance and risk of bias. This is a central tenet of procedural fairness. So, while controversial, this provision has laudable intentions, particularly given that it reduces the aforementioned risk of national judiciaries failing to recognise the validity of awards.
Similar rationale underpins a change in Article 13(6), dealing specifically with arbitration under the terms of an international treaty. It stipulates that no arbitrator will be of the nationality of any of the parties involved, save where all parties agree otherwise. Again, this helps to eliminate the possibility of any accusations of unfair or unequal treatment. Interestingly, there are no equivalent changes in the LCIA rule update. It will be worth watching this space to see if future updates to arbitration rules follow the example of the ICC.
Changes to improve efficiency
Finally, both the LCIA and the ICC have made revisions and tweaks aimed at improving the efficiency of their respective processes.
One way in which both bodies have done this is through greater use of consolidation – the joining together of two or more cases. In the past, the LCIA required requests arising from multiple contracts to be filed separately; consolidation was still a possibility, but it could only be sought once all of the individual proceedings had been commenced. This has now changed, as per Article 1(2):
“A Claimant wishing to commence more than one arbitration under the LCIA Rules (whether against one or more Respondents and under one or more Arbitration Agreements) may serve a composite Request in respect of all such arbitrations.”
This change allows for a more efficient process from the outset in cases where one party has multiple related grievances. Furthermore, per Article 22A, the new rules allow the Arbitral Tribunal to order consolidation in certain circumstances. These circumstances extend beyond mutual consent of the parties: if two or more arbitrations are commenced between the same parties, or arise from the same agreement, the LCIA can insist upon consolidation.
These adaptations are broadly mirrored by the ICC’s January changes. Article 22(2) provides that tribunals shall have a duty to ensure that the process is managed efficiently. This is backed up by specific provisions, including Article 10(c): this allows for consolidation of any claims arising from a common legal relationship, provided they are “compatible” with one another. This represents a fairly significant move away from the rigid rules that previously dictated consolidation at the ICC – and it is a change that brings the rules largely into line with the LCIA.
Other changes aimed at efficiency include expansions of expedited procedures. Again, these changes have been made by both the LCIA and the ICC. For its part, the LCIA has given the Tribunal power to modify the arbitration process based on contextual factors, encouraging efficiency-based alterations in relatively simple cases. These powers are contained in Article 22. The same section spells out an early determination process, designed for cases that are particularly ‘open and shut’:
“The Abritral Tribunal shall have the power…to determine that any claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect (an “Early Determination”).”
This is quite an alteration to the previous rules. Only time will tell how widely tribunals interpret their power to dismiss claims that are “manifestly without merit”, but the ability to do so could save both time and money. SIAC and HKIAC both implemented similar systems in their previous rule changes, so this update brings the LCIA into line with what is rapidly becoming the norm in international dispute resolution.
At the ICC, meanwhile, the pre-existing automatic expedited procedure has been extended. The upper eligibility limit for the abridged process has been raised from $2 million to $3 million. Parties are still able to opt out of the process, per Article 30(3)(b). Where they have not done so, however, the ICC Court can decide to appoint a sole arbitrator, limit the length of submissions, and even proceed without a hearing or witnesses in some circumstances.
This is not a new protocol, but the raising of the claim value limit will result in more arbitrations being conducted in this fashion.
There is still no direct equivalent to summary judgment in arbitration; indeed, this is often cited as one of the major drawbacks. However, these developments in early determination and expedited procedures give the LCIA and ICC more flexibility in dealing with simpler cases.
Additional changes include a simplification of the process for joining additional parties to an arbitration at the ICC (Article 7), and a reduction in the time limit for convening a tribunal at the LCIA (28 days, down from 35). Further, the LCIA has clarified that awards should be made “as soon as reasonably possible” – within three months where at all possible. These more minor adjustments are also aimed at making the process of arbitration smoother and more efficient.
The rule changes made by the LCIA and the ICC are significantly aligned. The alterations fall into three broad categories: Covid-19, due process and efficiency. The ICC has placed more of an emphasis on the due process side of things, but many of the changes made by the two bodies are effectively identical.
As such, they give a good indication of the direction of travel for international arbitration. Processes such as virtual hearings and expedited procedures are likely to be here to stay.
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