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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
One of the characteristic features of ICC arbitration are the Terms of Reference. Article 13 of the ICC Rules states:
1
Before proceeding with the preparation of the case, the arbitrator shall draw up, on the basis of the documents or in the presence of the parties and in the light of their most recent submissions, a document defining his Terms of Reference. This document shall include the following particulars:
a) the full names and description of the parties;
b) the addresses of the parties to which notifications or communications arising in the course of the arbitration may validly be made;
c) a summary of the parties' respective claims;
d) definition of the issues to be determined;
e) the arbitrator's full name, description and address;
f) the place of arbitration;
g) particulars of the applicable procedural rules and, if such is the case, reference to the power conferred upon the arbitrator to act as amiable compositeur;
h) such other particulars as may be required to make the arbitral award enforceable in law, or may be regarded as helpful by the International Court of Arbitration or the arbitrator.
2
The document mentioned in paragraph 1 of this Article shall be signed by the parties and the arbitrator. Within two months of the date when the file has been transmitted to him, the arbitrator shall transmit to the Court the said document signed by himself and by the parties. The court may, pursuant to a reasoned request from the arbitrator or if need be on its own initiative, extend this time limit if it decides that it is necessary to do so.
Should one of the parties refuse to take part in the drawing up of the said document or to sign the same, the Court, if it is satisfied that the case is one of those mentioned in paragraphs 2 and 3 of Article 8, shall take such action as is necessary for its approval. Thereafter the Court shall set a time limit for the signature of the statement by the defaulting party and on expiry of that time limit the arbitration shall proceed and the award shall be made.
These provisions of Article 13 are complemented by Article 16:
The parties may make new principal claims or counterclaims before the arbitrator on condition that these remain within the limits fixed by the Terms of Reference provided for in Article 13 or that they are specified in a rider to that document, signed by the parties and communicated to the International Court of Arbitration.
The purpose of this study is not to analyse all aspects of the Terms of Reference1 but to describe the Court's function as regards the Terms of [Page60:] Reference (II), and the function of Article 16 and its application by the arbitrators (III). But first it seems advisable to review the purpose of the Terms of Reference, the objectives of the system behind the Terms of Reference (I).
I. Objectives of the Terms of Reference
The Terms of Reference serve several objectives, whose importance may obviously vary from one case to the next given the enormous diversity of ICC arbitration, linked to the origin of the participants (parties, counsels and arbitrators), the nature of the dispute, its economic scope, the political environment, etc.
(a) The drafting of Terms of Reference provides a first opportunity for all participants to meet. The parties and their counsels want to see the "faces" of the arbitrators, with whom they may not yet be acquainted. This applies especially to the co-arbitrator appointed by the opposing party and the chairman or sole arbitrator. Sometimes, the parties do not even know their "own" co-arbitrator, often selected by their counsel.
Conversely, it is obviously extremely useful for the arbitrators to acquaint themselves with the parties' counsels and the parties' representatives (from the corporate management or legal department, etc.) charged with monitoring the arbitration proceedings in-house.
(b) The Terms of Reference are extremely useful for future correspondence between the participants since they offer the name, address, fax number, telephone number, etc. of the parties, their counsels and the arbitrators in a single document (Art. 13 (1), (a) and (b)).
(c) The Terms of Reference are also intended to provide the arbitrators and the parties with a brief overview or picture of the dispute in this stage of the proceedings, thanks to "a summary of the parties' respective claims" (Art. 13 (1) (c)). This is not a perfect formula, as it mixes two things: an overview of de facto and/or de jure arguments, on the one hand, and the parties' respective claims, on the other. However, most Terms of Reference submitted to the Court contain both elements.
(d) The need to draw up Terms of Reference within a relatively short period after receipt of the file forces the arbitrators to read the file, to draw up a first list of de jure and/or de facto issues which seem pertinent in the current state of the case and to reflect on the most effective way of conducting the arbitration proceedings. This is why Article 13 provides that the Terms of Reference must contain:
• a "definition of the issues to be determined" (at (d)),
• the "particulars of the applicable procedural rules" (at (g)).
(e) Moreover, not the least of the virtues of this document is that it fosters co-operation between the parties. Drawing up Terms of Reference is an ideal opportunity to obtain or confirm the parties' agreement to the greatest possible number of points and/or in any event to pinpoint the dispute between the parties. This facilitates future discussions and investigations. Furthermore, the effort to reach a consensus (the Terms of Reference must normally be signed by all arbitrators and all parties; see Section II.A below) is in itself a useful exercise.
Frequently, the Terms of Reference have an educational impact, since their preparation enables the arbitrators to explain certain basic rules and principles to the parties and less experienced counsels.
Even if the parties fail to agree on the Terms of Reference (in which case the Terms of Reference must be approved by the Court; see Section II.B below), the exercise has been useful, for it will at least have enabled the arbitrators to "take the pulse" or "temperature" of the arbitration proceedings and to adjust its management accordingly.
(f) The Terms of Reference may also be a new arbitration agreement, independent of the initial arbitration agreement or of its validity or invalidity.2
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(g) Lastly, drawing up the Terms of Reference obliges the parties to state their claims as clearly as possible. The parties - and the arbitrators - need to know as early as possible who claims what from whom. Until the Terms of Reference, each party can modify its claims and/or make new claims. Despite Article 5(1) of the Rules, the defendant can even file a counterclaim until the Terms of Reference have been drawn up.3 This is the expression and consequence of the agreed-upon nature of the Terms of Reference. However, once the Terms of Reference have been established, new claims can only be made within the limits set by Article 16 of the Rules. The purpose of this is obvious: to make the proceedings as concentrated as possible in order to make them as effective and fast as possible while allowing a certain useful and necessary flexibility (see Section III below).
II. The Court's function with respect to the Terms of Reference
The ICC Rules offer four occasions on which issues connected with the Terms of Reference may be submitted to the Court:
• When the Terms of Reference are signed by everyone - not only by the arbitrators but also by all parties - the document is forwarded to the Court, which must take due note thereof (Article 13 (2), first sub-paragraph).
• If one of the parties refuses to sign the Terms of Reference, the Court must take such action as is necessary for their approval (Article 13 (2), second sub-paragraph).
• If the arbitral tribunal and the parties add a rider to the Terms of Reference, such rider must be forwarded to the Court, which must take due note thereof.
• Lastly, questions connected with the Terms of Reference and Article 16 may be examined during the scrutiny process of the draft award by the Court, in accordance with Article 21.
We will examine these four points in sequence.
A. Transmission of Terms of Reference to the Court
When the Terms of Reference have been signed by the arbitral tribunal and all parties, they are forwarded to the Court, which takes note thereof. Terms of Reference signed by all parties means signed by all parties "without reservation". If a party has signed subject to reservations, e.g. by expressing its disagreement with a given point in the Terms of Reference, the Court cannot "take note" thereof. In this case, two options are available. The Court may invite the arbitral tribunal to examine the possibility of modifying the Terms of Reference, e.g. by including the contents of the reservation expressed by one of the parties as an issue, in order to enable such party to sign without reservation. If this turns out to be impossible, the signature subject to reservation shall be considered as absence of a signature. The Court shall consequently decide whether to approve the Terms of Reference, according to paragraph 2 of Article 13(2) of the Rules (see point 2 below).
If the Terms of Reference are signed without reservation by all parties and if the document complies with the ICC Rules, the Court takes due note thereof ("The Court takes note of the Terms of Reference signed on...").
However, it may happen that the Court takes note of the Terms of Reference while drawing the attention of the arbitrators and the parties to certain points. For example, when Terms of Reference make a general reference to new claims (additional claims or counterclaims), e.g. by stating in the preamble of the defendant's position that "the latter reserves the right to make a counterclaim", the Court will draw the attention of the arbitrators and parties to Article 16 of the Rules.
Another example: when the parties, in the Terms of Reference, authorise the arbitral tribunal to appoint a secretary for the arbitral tribunal without stating the method of payment, the Court will draw the attention of the arbitrators and the parties to the Court's practice with respect to the payment of arbitral tribunal secretaries.
When Terms of Reference use rather general formulas, such as "extension of any time limit" by the arbitral tribunal (or its chairman), in such a way that this formula may be construed as [Page62:] including the time limit by which the arbitration award must be made, as stipulated in Article 18 of the Rules, the Court will draw attention to the fact that the parties cannot derogate from Article 18 of the Rules. However, in all these cases, the Court will also take note of the document.
In very rare cases, the Court notes such anomaly in Terms of Reference that it takes the view that it has not been seized of "Terms of Reference" in the meaning of Article 13, even though the submitted document has been signed by all arbitrators and parties.
Thus the Court has refused to take note of Terms of Reference which expressly provide for derogation from Article 18 of the Rules.
The Court has also refused to take note of Terms of Reference empowering the arbitral tribunal to order an increase in the advance on costs or stipulating compensation for the secretary of the arbitral tribunal which is incompatible with the Rules (e.g. the right for the arbitral tribunal to ask all or one of the parties to pay the secretary's fees directly).
In other words, in the interest of the parties, the Court intends to preserve the controlling function vested in it with respect to the progress of the proceedings (Article 18 of the Rules) and the amount of advances and fees of the arbitral tribunal (Articles 9 and 20 (2) and (3) of the Rules). Certainly, the Court of Arbitration is better placed than the parties to talk with the arbitrators in case of delay in the proceedings, to fix the arbitrators' fees and/or to check the amount of incidental expenses.
By contrast, the Court has taken note of Terms of Reference, without reservation, which derogated from Article 6 (2) of the ICC Rules by stipulating the right of communication between the arbitrator and the parties by ordinary mail instead of hand-delivery against receipt, or registered mail.
Lastly, the Court refuses to take note of Terms of Reference, even if signed by all parties, if they reveal major problems. For instance, the Court refused to take note of Terms of Reference showing total lack of competence on the part of the arbitral tribunal. Given that the revised Terms of Reference were not of higher quality than the original Terms of Reference, the Court decided to replace the arbitrator in application of Article 2 (8) of the Rules.
In another case, the Court refused to take note of Terms of Reference, even if signed by all parties, since the document showed that the co-arbitrator appointed by the defendant had submitted an answer to the arbitration request as well as a counterclaim. In this case, the Court gave the parties a time-limit by which to submit their comments on the independence - or rather lack of independence - of the co-arbitrator concerned.
B. Approval of Terms of Reference by the Court
If one of the parties refuses to take part in the drawing up of the Terms of Reference or to sign them, the Terms of Reference are submitted to the Court for approval (Article 13 (2) second subparagraph).
This text clearly shows that the Court's approval may replace the signature of a defaulting party but not the signature of an arbitrator who refuses to sign. The inability of an arbitral tribunal of three members to agree on the text of Terms of Reference would be so alarming and foreshadow even bigger difficulties for the rest of the arbitration that such problems are better settled in this stage of the proceedings - as necessary, by replacement of an arbitrator - than by substituting the Court's approval for the signature of one of the arbitrators.
The Court can only approve Terms of Reference if a party defaults. However, lack of a signature does not always amount to defaulting. For instance, the Court - in plenary session - refused to approve Terms of Reference because the defendant's country was in a state of civil war and means of communication with this country were so limited and unreliable that the Court had justified doubts about compliance with the principle of due process. The arbitrator was invited to ensure that communications, convocations, etc. had actually been received by the party concerned.
In other, more common cases, the Court has refused to approve Terms of Reference if the party had good reason to (a) refuse to sign them or (b) [Page63:] sign them with reservations only. For instance, the Court refused to approve Terms of Reference which the defendants had signed while protesting against a clause in the Terms empowering the arbitrators to call new parties into the arbitration proceedings without agreement by all parties.
Similarly, the Court refused to approve Terms of Reference providing for application of French procedural law and authorising the arbitrator to rule on documents only, despite opposition by the defendant.
As a general rule, the Court refuses to approve Terms of Reference which contain provisions requiring approval by all parties, such as reference to applicable law not provided for contractually, if no such approval has been achieved. In all such cases, the arbitral tribunal is invited to delete provisions on which there is no unanimous agreement between the parties and, as applicable, to include them as issues to be determined.
In one case, the Court refused to approve Terms of Reference which contained a clause according to which the parties "were to confirm that the sole arbitrator was regularly appointed."
Lastly, the Court has refused to approve Terms of Reference in a case in which it doubted the regularity of the defendant's representation, given that two different legal entities were disputing the right to act on behalf of this party.
In case of a minor difficulty, the Court may approve the Terms of Reference "subject to" a reservation, i.e. provided a given point is deleted or corrected. For example, approval subject to deletion of any reference to an agreement between the parties with respect to the appointment of an administrative secretary; approval subject to deletion of a clause authorising the arbitral tribunal to hold, at its own discretion, any hearing or meeting elsewhere than at the place of arbitration.
In practice, the foregoing means that an arbitral tribunal needs to check the wording of Terms of Reference before submitting them for approval to the Court if one of the parties refuses to sign them. Originally thinking that the Terms of Reference will be signed by all parties, arbitrators often include provisions which are useful but require approval by all parties concerned. Thus, if there is finally no agreement because one of the parties refuses to sign, such clauses must be deleted.
When the Court approves Terms of Reference, it "shall set a time limit for the signature of the statement by the defaulting party and on expiry of that time limit the arbitration shall proceed and the award shall be made" (Article 13(2)). In practice, this time limit is meaningless, given that a party which originally refused to sign the Terms of Reference will nearly always also refuse to sign it after approval by the Court. On revision of the Rules, this provision could quite simply be deleted.
C. Rider to the Terms of Reference
Article 16 of the Rules stipulates that a rider must be added to the Terms of Reference before new claims are made, if such new claims do not stay within the limits of the Terms of Reference. Such a rider must be signed by the parties and communicated to the Court.
According to this text, a rider to the Terms of Reference must be signed by all parties. A "rider" which one of the parties refuses to sign is not a rider in the meaning of the ICC Rules and cannot be approved by the Court.
Although the Rules provide for only one type of rider to the Terms of Reference, i.e. a rider connected with new claims, the Court sometimes receives riders to the Terms of Reference connected with other matters. Such riders do not raise problems if signed by all arbitrators and all parties. Thus, the Court has taken note of a rider signed by the arbitrators and parties in which the co-arbitrator replacing a resigning arbitrator complemented the original Terms of Reference with handwritten particulars connected with an issue.
As a general rule, the setting aside of an arbitration award by a national court does not require new Terms of Reference or a rider to the initial Terms of Reference. For instance, the Court refused to approve a rider signed by the sole arbitrator and the defendant after annulment of an award. The situation is different if the award is annulled because of an irregularity in the composition of the arbitral tribunal, in which case such irregularity and the annulment apply not only [Page64:] to the award but also to the Terms of Reference. In this case, the new arbitral tribunal will not draw up a rider to the original Terms of Reference but replace it with newly prepared Terms of Reference.
If the initial arbitral tribunal is replaced because the award was annulled for other reasons than an irregularity in the composition of the arbitral tribunal, the new arbitrators may, but are not obliged to, countersign the original Terms of Reference. In any case, it is not necessary to draw up new Terms of Reference or complementary Terms of Reference or a rider to the Terms of Reference. Should one of the parties refuse to sign such a document, the Court would not be able to approve it.
Sometimes the Court is asked to approve "riders" to the Terms of Reference which turn out to be agreements between the parties (and the arbitrators) on points of procedure. Thus, in one case in which the Seychelles were the place of arbitration, the arbitral tribunal had scheduled a hearing of several days to hear all witnesses. At the start of the first hearing day, one of the co-arbitrators resigned. Given the damaging consequences of cancelling the hearing (as regards both costs and length of proceedings), the parties and the two remaining arbitrators signed a document entitled "Rider to the Terms of Reference" in which they agreed to hold the hearing with only the two remaining arbitrators. The ICC Court held that this was not a genuine rider but rather a procedural agreement. (The party whose arbitrator had resigned subsequently appointed a new arbitrator and the proceedings continued without difficulty without having to reschedule the hearing.)
As the Terms of Reference are merely a snapshot of the arbitration but do not fossilise the dispute, a change of identity of a party which, following political changes, had been converted into a public enterprise owned by a newly formed state, did not require a rider nor new Terms of Reference which, if one of the parties refused to sign them, would require approval by the Court.
The rider to the Terms of Reference may also be usefully used to join two or more cases. Frequently, a party applies for arbitration in a legal relationship which is already submitted to ICC arbitration proceedings between the same parties. Such a new arbitration request may be presented by the same party as the original request or by the adverse party, in which case it is akin to a counterclaim. As long as the Terms of Reference in the first case have not yet been drawn up, the Court may decide to include the new claim in the ongoing proceedings (Article 13 of the Internal Rules). After the Terms of Reference have been drawn up, claims may only be joined "subject to the provisions of Article 16". In other words, claims may be joined if the arbitral tribunal in the first case considers the new claim "within the limits" set by the Terms of Reference of the first case. If not, claims may only be joined if the parties and the arbitrators draft and sign a rider to their Terms of Reference. Refusal of the arbitral tribunal in the first case to accept a new claim as remaining within the limits of the Terms of Reference, or refusal of the arbitral tribunal or a party to sign a rider, makes joinder impossible.
Riders to Terms of Reference are also used to join arbitration proceedings connected with different legal relationships and/or different parties.
Moreover, a rider is also used to include new parties in ongoing proceedings, subject to unanimous agreement. In one case, the Court even took note of a rider to the Terms of Reference which provided for the conditional inclusion of three defendants should the arbitral tribunal decide that it had no jurisdiction in respect of the original defendant.
D. Scrutiny of draft award by the Court according to Article 21
Interpretation and application of Article 16 falls primarily within the jurisdiction of the arbitral tribunals. Here, the International Court of Arbitration only intervenes to approve draft awards under Article 21.
The Court's interventions in this regard are rather scarce. The Court may draw an arbitrator's attention to the fact that he does not give reasons for his decision to accept or reject a new claim. The Court may also intervene when the arbitrator rejects a new claim solely on the ground that it was not mentioned in the Terms of Reference. In this case, the Court will draw the arbitrator's attention to the fact that a new claim, i.e. a claim made after the Terms of Reference have been drawn up, can "remain within the limits fixed by the Terms [Page65:] of Reference" and can therefore be admissible under Article 16, even if not mentioned in the Terms of Reference and without a rider.
III. Interpretation and application of Article 16 by the arbitrators
A. Interpretation of Article 16
The vast majority of arbitrators construe Article 16 autonomously, i.e. without reference to national law.4 This approach aligns fully with the spirit of the ICC Rules, which aim to be universal and autonomous compared with national procedural law. In fact, Article 11 of the Rules states as follows:
The rules governing the proceedings before the arbitrator shall be those resulting from these Rules and, where these Rules are silent, any rules under which the parties (or, failing them, the arbitrator) may settle, and whether or not reference is thereby made to a municipal procedural law to be applied to the arbitration.
This said, the arbitrator can always refer to national laws to construe Article 16 or fill what he believes to be gaps. Arbitral jurisprudence offers several examples. For instance, in two cases, the arbitrators, located in Paris, referred to the French Code of Civil Procedure, notably Article 70 (1) and (2), on admissibility of counterclaims or additional claims and admissibility of set-off claims.
In another case, the arbitrators, based in Switzerland, interpreted Article 16 of the ICC Rules according to Article 18 of the Swiss Obligations Code and applied the principle of good faith to the proceedings.
B. New claim - new ground for action
It should first of all be remembered that Article 16 of the ICC Rules mentions "new claims." The parties are therefore obviously free, even after the Terms of Reference, to claim and add new de jure and/or de facto arguments. The award made in case 6618 of 1991 clearly indicated:
The thrust of Article 16 is to proscribe the adding of new claims outside the Terms of Reference, not the making of new arguments in support of claims set forth in the Terms of Reference.5
The arbitrators also take account of the evolution of arbitration, notably after partial awards:
It could also lead to injustice if a party were not permitted to make alterations to a pleading on consequence of (but not of course to avoid) the decisions made in partial awards. A party should be given the opportunity not only of eliminating those parts of its case which can no longer be maintained but also the opportunity of revising parts of its case that may have been affected by decisions in a partial award. This in turn may mean that a party may wish to reconsider the basis of the presentation of a claim and to present the claim on an altered legal basis (as stated above) provided that it does not infringe the doctrine of res judicata. (Award in case 5648/1989)
Sometimes, the arbitrators of the parties specify in the Terms of Reference that they do not foreclose de facto and/or de jure arguments, using such formulas as:
These Terms of Reference are designed to enable the parties and the arbitral tribunal to focus on the issues in this arbitration; they are not to be understood as foreclosing the making of arguments or introduction of evidence not expressly referred to herein.
or
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This summary [i.e. a summary of the parties' respective claims under Article 13 (1) (c)] is not exhaustive and the arbitral tribunal shall always refer to the written and oral pleadings of the parties, and not only to the Terms of Reference, in order to know the de facto and de jure arguments of the parties. (Translated from the French original.)
Such new arguments may, of course, raise or create new "issues".
Here it may be useful to mention that some awards are drafted and structured like an answer, point by point, to all issues specified in the Terms of Reference. While this approach is not forbidden by the ICC Rules, it makes it possible to confuse new claims with new grounds or arguments. Now, the list of issues in the Terms of Reference is a provisional first list which may in certain cases remain valid until the award but which in other cases undergoes major changes in the light of the subsequent evolution of the proceedings, the parties' submissions, etc. It is therefore even less advisable to draft the award itself as a point-by-point answer to the issues listed in the Terms of Reference.
Some have wondered whether total or radical modification of legal arguments does not turn the claim concerned into a "new claim" in the meaning of Article 16.6 However, this issue is of relatively limited interest as such claims qualified as "new" generally remain within the limits of the Terms of Reference.7
C. Application of Article 16 to provisional or conservatory measures?
Article 16 of the ICC Rules no longer applies to requests for provisional or conservatory measures made for the first time after the Terms of Reference,8 independently from the question of whether or not such a request could already have been made before the Terms of Reference were drawn up. In the arbitrators' view, this aspect could make urgency a condition precedent for any provisional or conservatory measure, but that is not a problem for Article 16.
D. Increase or modification of a claim
Once the Terms of Reference have been drawn up, the parties frequently raise the amount of their claim, generally without altering their de jure or de facto argumentation. Analysis of the ICC's arbitral jurisprudence shows that such arguments have always been admitted by the arbitrators even if they have not always followed the same reasoning.
Certain arbitrators believe (correctly) that such arguments or adjustments are generally not intended as "new claims" in the meaning of Article 16 of the Rules. 9
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This approach is especially justified in case adjustment has become necessary after the time lapsed since the introduction of the arbitration request (e.g. other royalty payments have fallen due, the damage suffered has increased, etc.). Whether a claim should he qualified as a mere increase or a new claim may also depend on the amount of the increase compared with the original claim. 10
Other, perhaps more cautious, arbitrators examine at least alternatively or complementarily - whether such an increase remains within the limits of the Terms of Reference.
For instance, in case 6266/1991, the arbitrators approved an increase on the grounds that it
• did not change the purpose of the proceedings in any respect;
• did not delay the proceedings; but
• on the contrary, seemed intended to save additional proceedings.11
Award 5514/199012 offers the useful reminder that even mere increase of a claim may nevertheless be inadmissible if the party concerned acted "fraudulently or abusively". 13
While, in the present case, it may be asked why the Company trailed so long before applying higher loan rates than at the start, this can in no event be qualified as a fraudulent or abusive act.14 (Translated from the French.)
On the other hand, change of the currency in which the claim was denominated has been qualified as a new claim in the meaning of Article 16:
There is no doubt possible with respect to the qualification of "new claim". A claim of UAE Dirham or German Mark is different front a Jordanian Dinar claim since the currencies have - as the present issue illustrates - different strengths and risks and different laws may be applicable. The original claim of JD 3,937,013.692 represents approximately a value of UAE Dirham 26,771,690 if the exchange rate of JD 100/UAE Dirham 6.80 is used. The application aims at a revaluation of the claim originally made by 57% to UAE Dirham 42,047,306.23. It is obvious that the claim as amended in the application is different both as to its nature (currency) and its quantum.15
It is obvious that a party may at any time during the proceedings lower the amount of its claim.16
E. The counterclaim and the set-off claim
As its wording indicates, Article 16 of the Rules applies to new claims, whether principal or counterclaims. In other words, Article 16 makes it possible to introduce new counterclaims even after the Terms of Reference have been drawn up, provided they "remain within the limits of the Terms of Reference". The text of Article 16 therefore makes it as easy or difficult for the maker of a counterclaim to add a new claim as it is for the claimant to add a new claim to its original claim. On the other hand, arbitration practice shows that it is much more difficult for a defendant with a counterclaim to introduce a counterclaim for the first time once the Terms of Reference have been drawn up. Obviously, it is less probable for a counterclaim to remain within the limits of the Terms of Reference when there has never been any question of a counterclaim until this stage of the proceedings, including in the Terms of Reference.17
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Sometimes, arbitrators base their (more severe) decision on a first counterclaim made after the Terms of Reference, on the Articles 4 and 5 of the Rules which - even if not expressed as a mandatory rule - demand or rather suggest that counterclaims be made at the time when an answer to the arbitration request is filed.18 In award 7733/ 1994, the arbitrators also took a relatively severe - even rigid - decision toward a defendant that introduced a counterclaim for the first time after the Terms of Reference. In this case, the arbitrators based their decisions notably on the fact that they had reminded the defendant of the right to make a counterclaim before the Terms of Reference were drawn up. This counterclaim was not based on new facts which occurred after the Terms of Reference. Moreover, it raised new issues.
Does Article 16 of the Rules also apply to set-off claims, i.e. when a party does not sue for an award ordering the adverse party to pay a given sum but when such party limits itself to mentioning a given claim as a set-off, i.e. as a defence plea?
This question has been dealt with in several awards.
In case 7056/1995, by virtue of Article 16, the arbitrators admitted a set-off request because it remained within the limits of the Terms of Reference. This is a correct analysis. In fact, given the purpose of the Terms of Reference, there is no reason to distinguish between a new counterclaim and a set-off claim. A set-off claim entails as much risk of extension and delay as a counterclaim and raises the same issues as if the party claimed an award obliging the adverse party to pay the sum concerned.19
However, other awards have accepted set-off claims as a new means of settling debts independently from Article 16 of the Rules.
The arbitral tribunal holds that this is not a new claim in the meaning of the foregoing provision but a new means of settling debt by claiming set-off. (Translated from the French.)
However, the ensuing reasons for this award show that this set-off claim could easily have been declared admissible on the basis of Article 16 of the Rules. In fact, the set-off claim did not hold up proceedings and the arbitrator had no difficulty making an award, as their alternative argumentation shows:
The defendant has neither expressed let alone justified the amount of damage it intends to oppose by way of set-off, which would be enough to dismiss this please given that the burden of proof is incumbent on it in this respect.20 (Translated from the French.)
Applying Article 16 to set-off claims has another advantage, i.e. it maintains coherence between Article 16 of the Rules and Article 16 of the Internal Rules which also takes into account set-off claims in determining the advance on costs, "in the same way as a separate claim, insofar as it may require the arbitrators to consider additional matters". This same issue, i.e. whether a claim calls for examination of additional matters, is also one of the criteria under Article 16 of the Rules (see point F.2 below).
This analysis cannot be countered by the argument that set-off may be by mere declaration, even extrajudicial, or perhaps even without any declaration whatsoever owing to automatic application of the law applicable to the merits of the dispute. In fact, Article 16 of the Rules (as well as Article 16 of the Internal Rules) is a contractual restriction on the right to claim set-off. Since the parties can contractually exclude set-off they can also subject set-off to certain conditions, such as compliance with Article 16 of the Rules and Article 16 of the Internal Rules.21
F. New claims remaining "within the limits fixed by the Terms of Reference"
Arbitrators only rarely base themselves on a single argument to accept a new claim as remaining "within the limits fixed by the Terms of Reference". Generally, arbitrators give a whole array of reasons. The following reasons are often seen:
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One of the criteria applied by arbitrators is the link or intensity of the link between the new claim and the initial claim(s), even without going so far as to demand a connecting tie.
For example, Award 5430/1988 states:
The connection of the new claim with the original claim is obviously close since it has its legal basis in the same contract and - apart from the currency developments - in the same factual narratives.22
And another ICC Award affirms that:
Whereas the principal claim for repair of disorders affecting the construction of the hotel ..., the claim or repair of disorders affecting the bow-window of the same construction, not listed among the principal claim, is linked to it; whereas in fact there is such a link between them that it is in the interest of good justice to judge them together. (Translated from the French)
Conversely, in case 6770/1992, the arbitrators refused to admit a new claim which did not have a "direct or indirect link" with the original claims.
All arbitrators are very attentive to the possibility that examination of a new claim may complicate or delay ongoing arbitration proceedings.
For instance, in case 7213/1993, the arbitrators noted that the "new claim does not raise new de facto and/or legal issues" (translated from the French). In case 6266/1991, they noted that modification of the claim "does not affect the purpose of the proceedings and does not delay resolution of the arbitration proceedings" (translated from the French). In case 5261/1988, the arbitrators noted that the new claim "will not require substantial further proceedings and will not imply any delay for rendering the award".23
Arbitrators are obviously extremely aware of the interest of avoiding new arbitration proceedings without overly delaying or complicating the ongoing arbitration proceedings. 24
The larger a new claim, the harder it will be to consider as falling within the limits of the Terms of Reference.
Although one may admit that, because they relate to the same contractual relationship, A's new claims are linked to the conclusions stated in the request for arbitration and recorded in the Terms of Reference, one should also consider that these claims go .far beyond A's initial conclusions. (Award 7709/I994)25
Generally, arbitrators also look at whether a new claim is presented belatedly or not. For example:
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The claims mentioned above and regarding variation orders as well as the claims mentioned ... above were not included, either expressly or implicitly, in the initial Terms of Reference nor in the addendum thereto. They were filed by claimant during the course of these arbitration proceedings and for most of them, for the first time in claimant's final submission.26
The way in which the Terms of Reference are worded (which naturally concerns both the summary of the parties' respective claims and determination of the issues to be settled) has an undeniable impact on application of Article 16. The briefer the summary and the shorter the list of issues (e.g. "Does the defendant owe claimant the sum of X ...?"), the more new claims are likely to remain within the limits such Terms of Reference.27 As a general rule, the arbitrators construe Terms of Reference according to their intention and the intentions of the parties.28
Sometimes, arbitrators and parties add specifics on the admissibility of new claims to the Terms of Reference. For instance, in one case, the Terms of Reference set the limits "by reference to such pleadings that might be permitted by the arbitral tribunal".
In another case, the arbitrators and parties provided for the right of the parties to make- new claims "provided they are connected with the principal claim".
In a further case, the Terms of Reference stipulated as follows:
Each party reserves the right to modify or complement the foregoing claims at the latest by ... except where extension is granted by the tribunal. (Translated from the French.)
A few awards grant a certain importance to unilateral reservations by one of the parties to the Terms of Reference. For instance, Award 5294/1988, (Yearbook XIV/1988, 137 s, Recueil des sentences CCI, vol. 2, 188), admitted a significant increase in the claimed amount, among others mentioning that: "In the request for arbitration, claimant had reserved the right to increase its claims; this was also noted in the Terms of Reference."
In case 7709/1994, the arbitrator rejected a new claim, among others on the grounds that the party concerned had not reserved this right in its submissions and in the Terms of Reference.
Finally, it should be noted that A was conscious and knew about the likely or, at least, possible forfeiture of the consortium at the moment of signing the Terms of Reference. In particular, it mentioned this possibility during the preliminary hearing ... (prior to the drawing up of Terms of Reference). Therefore, it was up to A to request that its conclusions as recorded in the Terms of Reference contain a reservation about the damages that might result from a forfeiture of the consortium.
However, this same award also noted that a general or unlimited reservation would be without effect:
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A's reservation is drafted in too broad terms, and it would be against the trend of decisions and opinions issued in connection with this procedure to admit that a party may unilaterally, by such a wide reservation, extend the scope of this arbitration procedure.29
Conclusion
The often cumulative application of the foregoing criteria30 enables the arbitrators to achieve the purpose of Article 16 of the ICC Rules, a purpose which the arbitrators summarised as follows in Award 6204/1991:
This rule aims at a reasonable balance between the interest to let arbitration proceed expeditiously on the basis of the original claim on the one hand, and the interest of procedural economy and efficiency which favours solutions where connected claims are examined rather in one and the same arbitration than in several separate arbitration proceedings. Thus, the closer the original claim and the new claim are connected with each other and the earlier the amendment of the request is applied for, the more the new claim remains within the limits. On the other hand, the contrary is true as well: the more a new claim causes additional time-consuming procedural steps and the more it disturbs the future program of the proceedings, the more it falls outside the limits of Terms of Reference.
Thus interpreted and applied, Article 16 harmoniously completes the system of Terms of Reference provided by Article 13 of the Rules.
1 On the Terms of Reference in general, see Arnaldez, "L'acte déterminant la mission de l'arbitre", Mélanges Bellet, 1991, p. 1 & fol.; Craig/Park/Paulsson, International Chamber of Commerce Arbitration, 2nd ed., 1990, p. 51 & fol.; Lazareff, "Terms of Reference under the 1988 ICC Arbitration Rules - A Practical Guide" issued by the ICC's Commission on International Arbitration, The ICC International Court of Arbitration Bulletin, Vol. 3, No. 1, 1992, p. 24 & fol.; Reiner, Handbuch der ICC-Schiedsgerichtsbarkeit, p. 169 & fol.; Schäfer, "Terms of Reference in the past and at present", The ICC International Court of Arbitration Bulletin, Vol. 3, No. I, 1992, p. 8 & fol.
2 See, for instance, American Construction Machinery Equipment Corporation Ltd. v. Mechanised Construction of Pakistan, Ltd. , 659 F Supp. 426 (United States District Court, SDNY 1987: "By signing the Terms of Reference, MCP had accepted the Arbitrator's jurisdiction and Geneva as the location of the arbitration ..."
3 Notably see awards 3987 (1983), JDI 1984, p. 943 ; Recueil sentences CCI, Vol. I, p. 521; 4367 (1984), Yearbook XI (1986), p. 134, Recueil sentences CCI, Vol. 2, p. 18; and Reiner (supra, note 1), p. 176; Sandrock, "Die 'Terms of Reference' and die Grenzen der Präklusionswirkungen", RIW 1987, p. 653.
4 Reiner (supra, note 1) p. 178. Contrary to what Arnaldez (supra, note 1) p. 29, seems to imply, it is less frequent that arbitrators interpret Article 16 against the applicable procedural law or the law applicable to the merits of the case.
5 For a similar reasoning, also see the award made in case 5864/1989, which confirmed the right of the parties to base themselves on legal stipulations not specified in the Terms of Reference and on award 5029/1988 in which the arbitrators examined the challenge of jurisdiction even though raised for the first time after the Terms of Reference had been drawn up and even though the issue of jurisdiction had therefore not been mentioned in the list of issues; Arnaldez (supra, note 1) p. 29; Derains JDI 1982, p. 990; Nicklisch, Terms of Reference, RIW 1988, p. 764; Sandrock (supra, note 3) p. 659.
6 For this view see the decision of the Court of the Vaud Canton on 3rd July 1979 and Poudret/Raymond/Wurzburger, "L'application du Concordat intercantonal sur l'arbitrage par le tribunal cantonal vaudois", Journal des Tribunaux 1981, p. 89; Reiner (supra, note 1), p. 178 and Award 6733/1992: for the opposite view see award 5648/1989: "An alteration of the legal basis of the claim is simply a matter of the presentation of the claim." "... The Claimant's case still falls within their original framework. This is simply a different matter of presenting their case." See also Award 6919/1992: "Mere altering of the legal basis for a claim or a mere addition should not be considered modification of the said claim in the meaning of Article 16 of the Rules of Conciliation and Arbitration. But even if this were the case, the modification or addition would as applicable remain within the limits of the Terms of Reference" (translated from the French); Sandrock (supra, note 3) p. 658 & fol.
7 For example, see Award 6618/1991 on replacement of a contract claim (contract breach) by a tort claim (tortious interference). Award 6503/1990, in 1995, p. 1022, with comments by Derains, seems to have hesitated on whether the findings on the nullity of a contract remained within the limits of Terms of Reference ... mentioning submissions to validate termination of the contract accompanied by an offer to pay a contractual indemnity. However, at least implicitly, the arbitral tribunal declared the new claim (or the modification of the original claim) admissible.In Award 6733/1992, the arbitrators declared a new plea "inadmissible under Article 16 of the ICC Rules". However, here, too, the arbitrators nevertheless examined it and declared it "moreover totally groundless". The defendant, which had initially claimed wrong performance of the contract by the claimant, subsequently claimed nullity of the contract for defect of consent. The arbitrators declared that "absence of consent had not been established and seemed even less plausible in that the contract with ... had first been submitted for approval to the X government (the defendant's country)." (Translated from the French.)
8 Award 5835/1992, also see Jarvin's comments under 4126/1984, JDI 1984, p. 936 & fol.; Recueil sentences CCI, Vol. 1, p. 415.
9 For example, see Award 6763/1992 and Award 8268/1995 which, quoting Reiner (supra, note 1) p. 177, Craig/Park/Paulsson (supra, note 1) p. 255 and Arnaldez (supra, note 1) p. 28 & fol. states: "The Arbitral Tribunal considers that the counterclaim was sufficiently substantiated, even if part of the damage was not already known and quantified. The further quantification of the same claim will not be considered a new claim in the sense of Article 16 of the ICC Rules."
10 Reiner (supra, note 1) p, 107, note 403.
11 See also Award 7105/1992, which specified that an increased claim is also based on the same "issue"; Award 6097/1993, which specified that "the grounds for the claim have remained the same" (translated from the French); Award 5411/1991, which refused to qualify "modifications, additions, updates or evaluations" (translated from the French) of the initial claim as a new claim; Award 707011993, which accepted an increase in a counterclaim on the basis of "new evidence or different matter of calculation". In case 7210/1992, the arbitral tribunal accepted an increase of about 100%, based on the outcome of the investigations.Also see Award 7213/1993, which accepted an increase "provided it does not result from new factors and/or legal points compared with the dispute thus far submitted and such modification makes it possible to save proceedings. Moreover, modification of a claim needs to have a certain connection with the evolution at the dispute from the date on which the Terms of Reference are signed." (Translated from the French.)
12 JDI 1992, 1022, 1025.
13 See Reiner (supra, note 1) p. 178, for the same view.
14 Clearly, the interest rate increase did not disturb the progress of this arbitration and did not raise many complementary issues. Thus, the interest rate hike was easy to justify on the grounds, not relevant according to the present writer, that the Terms of Reference did not specify the claimed amount of damages and costs.
15 Award 6204/1991. See also Award 2375/1975 JDI, 1976, p. 973, Recueil sentences CCI, Vol. 1. p. 257, concerning modification of a demand in US dollars to a demand made in Swiss francs.
16 Award 3181/1981, JDI 1982, 990, Recueil sentences CCI, Vol. I, p. 451, Award 7108/1992.
17 For example, see Award 0647/1991: "Since the Terms of Reference do not even mention the facts giving rise to the counterclaim, the arbitrator finds that the counterclaim cannot be deemed to be within the limits of the Terms of Reference. Therefore, the arbitrator holds that she is not empowered to rule on the counterclaim ..."
18 For example, see Award 6012/1989.
19 For the same construction, also see Lazareff (supra, note 1) p. 40. no. 182, and Reiner (supra, note 1) p. 179.
20 Also see Award 6673/1992, JDI 1992. p. 992 & fol.
21 Claiming contractual interdiction of set-off may in certain cases amount to abuse of right, as when claiming that there can be no set-off with a receivable resulting from an executory title. However, in this case, the arbitrator will find it easy to admit a set-off claim given that it results from an executory title and will therefore generate little or no additional matter for consideration.
22 Also see Award 6197/1995 ("sufficient link", quoting Lazareff, (supra, note 1) p. 29; Award 7810/1995; Award 4462/1985, Yearbook XVI (1991), p. 54: "tight link which by itself could justify the application of Art. 16"; Award 7709/1994 "so closely linked and similar that they can be considered as a mere updating of initial claims within the framework of the Terms of Reference"; Award 5261/1988 "strongly connected"; see also Arnaldez (supra note 1) p, 29 and Reiner (supra, note 1) p. 178.
23 Also see Award 7976/3993: "no new issues to be decided, no complication or extension of the proceedings", Reiner (supra, note 1) p. 178.
24 For example, see the Awards 5430/1988; 5548/1989 ("It is generally desirable that all related disputes arising out of the same transaction are resolved by a single tribunal"); 6266/1991; 7184/1994 ("there exists a close relation ... and if is, besides, in both parties' interest to have defendant's counterclaims considered as admissible, and thereby have the entire dispute settled together"); 7213/1993.
25 Also see Award 7071/1996: "There has been no conduct in the present case by the claimant could be considered as adding a new cause of action which attaches a totally new monetary dimension into the dispute"; Reiner (supra, note 1) p. 179, as well as Craig/Park/Paulsson (supra, note 1) p. 254 & fol. and the case of Carte Blanche (Singapore), Ltd. v. Carte Blanche International, Ltd. , ICC Case 5447/1988, 3 Int. Arb. Rep. 4 (1988).
26 Award 3267/1984, Yearbook XII (1982) p. 96; Recueil sentences CCI, vol. 2, p. 43. See also Award 2626/1977, JDI 1978, p. 981; Recueil sentences CCI, Vol. I, p. 316: "... counterclaim submitted by the defendant long after the Terms of Reference were drawn up" (translated from the French). On the other hand, in case 5294/1988, Yearbook XIV (1989) p. 137; Recueil sentences CCI, Vol. 2, 1988, the arbitrator admitted a considerable increase in the claimed amounts on the ground that the new amounts were already mentioned in the first pleas ordered by the arbitrator. Also see Craig/Park/Paulsson (supra, note 1), p. 254; Award 7071/1996: "There has been no conduct in the present case by the claimant which could he considered as 'delay in the proceedings'"; Award 6542/1993: "The claim falls entirely outside the Terms of Reference. It has neither been made in time nor investigated. Accordingly, it is inadmissible." (Translated from French.) Also see Award 6658/1992, which declared late modification of a claim inadmissible by virtue of Article 16, and Award 7779/1995, which rejected a new counterclaim "presented after examination of witnesses at a late stage in the proceedings".
27 For example, see Award 4462/1985: "the summary of the parties' claims appearing in the Terms of Reference was drafted in a manner encompassing the new claims" Yearbook XVI (1991) p. 54, 71-72. The reasoning of the arbitrators in case 5514/1990, who admitted an increase in the claimed amount of damages and costs on the grounds that the amount of damages and costs was not specified in the Terms of Reference, seems rather excessive, especially given that Article 13 merely stipulates a summary of the parties' claims without obliging arbitrators and parties to stipulate the amounts involved.
28 For example, see Award 4798/1994 and Award 7709/1994; in this respect also see Lazareff (supra, note 1) p. 41.
29 Also see Reiner, p. 179, and Award 7243/1994: "The reservation made by claimant to adjust its claim for damages has nothing to do with the entirely new claims filed by it and is not binding on the arbitrators anyway."
30 In a few rare cases the arbitrators also seem to base themselves on appropriateness to reject a new claim. For instance, in case 6553 they used Article 16 to reject a new claim "that the arbitral tribunal must order the claimant to suspend the proceedings brought by it before the Council of State of country X". Perhaps they preferred - for "diplomatic" reasons - to declare this claim inadmissible instead of rejecting it on the merits. In any case, this approach seems legitimate and compatible with Article 16. Also see Award 5721/1990, which used Article 16 to reject a claim to order the adverse party to pay a fine.