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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
[Page11:]
Introduction
International arbitration continues to be the preferred means of resolving cross-border disputes, according to the 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration (the 'Survey').1 The Survey also found that institutional arbitration was preferred to ad hoc arbitration, with ICC being the overwhelming favourite among the institutions cited in the Survey. These results are an eloquent endorsement of arbitration as a whole and ICC arbitration in particular.
However, the Survey also identifies areas of concern where there is still room for improvement, such as costs, the efficiency of tribunals and institutions, and transparency in the appointment of arbitrators. The Survey also revealed a demand for simplified institutional rules for cases under a certain value as a way of making arbitration more affordable for a wider range of cases. In addition to these concerns raised by users, at a political level events such as the European Commission's opposition to investor-state arbitration in the context of negotiations over the Transatlantic Trade and Investment Partnership have diminished the legitimacy of international arbitration as a legal institution in the public eye. As public perceptions are often dependent on the amount of information publicly available, or not available, the need for greater transparency in international arbitration has become critical.
Against this backdrop, the ICC International Court of Arbitration (the 'ICC Court') has in the past year taken a number of important steps to inject greater efficiency and transparency into its procedures. It is important to note that these measures are the continuation of ICC's unremitting efforts over the past decade to tackle some of these concerns. Since 2006 ICC has published guidelines on questions of time, costs and effective case management, and in 2012 introduced new arbitration rules strongly focused on improving efficiency and transparency.
The new policies and practices introduced by ICC over the past year can be divided into six categories: (1) increased efficiency and transparency in the rendering of awards, (2) increased transparency in the constitution of arbitral tribunals, (3) increased transparency and guidance in the disclosure of conflicts of interest, (4) increased transparency in the decision-making of the ICC Court, (5) increased transparency and guidance in the ICC Court's practices in relation to costs, and (6) new rules and services. These policies and practices have been incorporated into the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration. Each of them will be addressed below after an initial description of the Note
The Note
The Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration is a document issued by the Secretariat of the ICC Court (the 'Secretariat') pursuant to Article 5 of Appendix II to the ICC Rules of Arbitration (the 'ICC Rules'). It is designed to give parties, counsel and arbitral tribunals a better understanding of the application of the ICC Rules, the role played and services offered by the ICC Court and the Secretariat during the arbitration and beyond, and institutional policies adopted by the ICC Court.
In the past, there were separate notes on specific issues such as distinctive features of the ICC Rules, administrative secretaries, arbitrators' expenses, deposits for funds other than the advance on costs, and applications for correction and interpretation of awards. Most of these notes have since been revised and are now merged into one, the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration (the 'Note').
Currently, the Note comprises nine sections. The first contains general information about the ICC Court and the Secretariat. This is followed by a section containing information for the parties on the initial stages of the arbitration and a section relating to the duties and obligations of arbitral tribunals. The six remaining sections contain information on the conduct of the arbitration proceedings; the appointment, duties and remuneration of administrative secretaries; arbitral tribunal expenses; administrative services offered by the ICC Court and the Secretariat; the ICC International Centre for ADR; and the dispatch of materials to ICC and customs charges.
It is intended that all notes for parties and arbitral tribunals dealing with different aspects of ICC arbitral procedure should be revised and merged in the coming months. [Page12:]
Once this is done, there will be just three notes: the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration, the Note to Parties and Arbitral Tribunals on ICC Compliance, and the Note to ICC National Committees and Groups on the Proposal of Arbitrators.2
Awards
One of the aspects of arbitration procedure about which users have expressed considerable concern is delay in the rendering of awards.
The responsibility for the conduct of the arbitration is shared between the institution, the arbitral tribunal, and the parties and their representatives. The procedural timetable is prepared in consultation and very often in agreement with all of the parties. Thus, to a certain extent, parties have some degree of control over the length of the arbitration until the last hearing or written submissions take place. Thereafter, the proceedings are mainly in the hands of the arbitrators (who are in charge of drafting the awards) and, in the case of ICC arbitration, the ICC Court (which is in charge of the scrutiny and approval of awards). Any delay or lack of information during this phase is a cause of frustration for the parties.
In ICC arbitration, unlike other institutional arbitration systems, the institution is in charge of fixing the fees of the arbitrators and it does so by applying an ad valorem scale. As further explained below, the ICC Court will fix an advance on costs at an early stage of the proceedings, which is intended to cover the funds required to pay the fees of the arbitrators and ICC's administrative expenses. The ICC Rules provide that, when fixing the fees of the arbitrators, the ICC Court takes into account various factors including 'the timeliness of the submission of the draft award' (Appendix III, Art. 2(2)).
To increase transparency and encourage greater efficiency at the stage of the award, the ICC Court has introduced seven new measures:
The time limit is three months from the hearing or the last substantive written submission (excluding submissions on costs) in the case of a three-member arbitral tribunal, and two months in the case of a sole arbitrator. These correspond to the time limits the ICC Court has been applying in practice.
This is usually achieved by increasing the advance on costs at an appropriate stage of the proceedings, in order to have sufficient funds available at the end of the proceedings to cover the increase. In that respect, the Secretariat constantly monitors the arbitration proceedings and will recommend to the Court an increase in the advance on costs when there are elements in the file suggesting that such increase is appropriate or necessary. Arbitrators and parties are reminded, however, that the advance on costs will not necessarily be used in full at the end of the proceedings. Once the ICC Court has all the necessary information, including on the timeliness of the submission of the draft award for scrutiny, it may decide to reimburse part of the advance on costs to the parties. Another way in which the ICC Court may cover the increase is by distributing as fees any remaining unused funds which had been budgeted for tribunal or administrative expenses.
The ICC Court has established and published a scale of reductions applicable in the event of unjustified delays. The reductions range from 5% to over 20% depending on the length of the delay. The ICC Court exercises extreme care when examining the circumstances that could lead to a reduction. During the eight months since this new measure was introduced, 196 final awards have been approved by the ICC Court, 47% of which were rendered within the applicable time limit. Of those awards rendered outside the time limit, in only 28 cases (i.e. 30% of the cases submitted outside the applicable time limit) did the ICC Court decide to reduce the fees of the arbitrator(s). In 17 of those cases, the fees were reduced by between 5% and 10%, in 10 by between 10% and 20%, and in one case by more [Page13:] than 20%. In the other 70% of the cases submitted outside the applicable time limit, the ICC Court considered that the delay was not great enough to justify a reduction, or the delay was justified by the circumstances.
Parties are now systematically informed when a draft award has been received by the Secretariat for scrutiny and approval and when such award is submitted by the Secretariat to the ICC Court. The parties are also informed as to whether the award has been approved or has to be resubmitted to the ICC Court at a later date.
This is between three and four weeks and corresponds to prior ICC Court practice. Draft awards are normally submitted to one the ICC Court's weekly Committee Sessions. The duration of the scrutiny process may increase by one or two weeks if the draft award needs to be submitted to one of the ICC Court's monthly Plenary Sessions. Draft awards containing a dissenting opinion or involving states or state entities are normally submitted to a Plenary Session.
Under the new policy, the ICC administrative expenses may also be reduced in the event of unjustified delay by the ICC Court or the Secretariat during the scrutiny process. During the first four months of its application, this new policy has resulted in a reduction of the ICC administrative expenses in only three cases. In all three cases there was a delay of one week and a 5% reduction was applied.
It is not unusual for the members of an arbitral tribunal to be in far-flung locations around the world or to be constantly travelling, which may significantly delay the process of signing and notifying an award. The Note provides that, subject to any requirements of mandatory law that may be applicable, the parties may agree that (1) any award be signed by the members of the arbitral tribunal in counterparts, and/or (2) all such counterparts be assembled in a single electronic file and notified to the parties by the Secretariat by email. The Note also indicates that, in any event, a courtesy copy of the PDF signed original of the awards will be sent to the parties by email.
Constitution of arbitral tribunals
Another ground-breaking change introduced by the ICC Court is the publication on its website3 of information about the composition of arbitral tribunals in ICC arbitrations, including the identity and nationality of the arbitrators in a given case, the role they play within the arbitral tribunal, the method of their appointment, and their status and that of the case. The measure is being applied to arbitrations registered on or after 1 January 2016 in which Terms of Reference have been established. It is important to note that parties may opt out of the publication of the names of the arbitrators in their case, even when such publication would not necessarily reveal any material information about the case This is the reason why the establishment of the Terms of Reference has been selected as the trigger for publication of the information, as it is common for confidentiality clauses, if any, to be included at that stage.
The benefits of this new policy are numerous and include the following:
The public at large will now be able to see for themselves that this belief is mistaken when it comes to ICC arbitration. Indeed, ICC statistics show that in 2015 alone the ICC Court made 1,313 appointments and confirmations of arbitrators, which encompassed 907 different individuals from 77 countries.4[Page14:]
Being able to identify the number of ICC arbitrations in which a particular arbitrator is sitting will help parties to have a better idea about the arbitrator's availability. While the information published on the ICC website is very limited (for instance, there is no information about the characteristics of the case or the stage the proceedings have reached), it may constitute a useful starting point, from which parties may make further enquiries.
A fear is sometimes expressed that parties and their representatives may not have equal access to such information. While law firms and companies that regularly participate in international arbitration have access to such information by virtue of their participation, those who do not may be disadvantaged by their lack of sources of information. The information provided by ICC helps to level the playing field, at least with respect to basic information.
For instance, parties may be interested in searching the number of cases in which a particular individual appears, or individuals of a certain nationality, or the number of individuals who have occupied a particular role within an arbitral tribunal. The website also allows parties to see who is sitting with whom in different cases.
Publication of arbitrators' names may allow parties to become aware of and consider for appointment individuals who would otherwise have remained unknown to them.
It is worth noting that, pursuant to the Rules, the ICC Court may appoint arbitrators directly or upon the proposal of one of the 92 ICC National Committees and Groups spread around the globe. The ICC Court has recently made publicly available a Note to National Committees and Groups of the ICC on the Proposal of Arbitrators describing how ICC National Committees and Groups should exercise their right to propose arbitrators for appointment by the ICC Court and highlighting ethical rules that should be observed, the expected quality of their proposals and the openness they should adopt to foster different types of diversity. The ICC Court will follow a similar approach when making direct appointments itself.
The ICC Court recently signed the Equal Representation in Arbitration Pledge (the 'Pledge').5 In doing so, it has pledged, among other things, to ensure, whenever possible, that (1) gender statistics for appointments (distinguishing those made by parties from other appointments) are collated and made publicly available, and (2) a fair representation of female arbitrators will be appointed. The publication of information about the composition of arbitral tribunals will be an important contribution to the Pledge and will help the ICC Court to honour the commitment it has made in this respect.
Disclosure of conflicts of interest
Another move towards greater transparency in ICC arbitration has been the publication of guidance on the disclosure of conflicts of interest by arbitrators. Like many other rules and arbitration laws, the ICC Rules set a general standard of disclosure without giving specific examples of situations that ought to be disclosed. With respect to independence, the ICC Rules provide that arbitrators shall disclose 'any facts or circumstances that might be of such a nature as to call into question the arbitrator's independence in the eyes of the parties'. With respect to impartiality, arbitrators are required to disclose 'any circumstances that could give rise to reasonable doubts as to the arbitrator's impartiality'.
Guidance on how such standards are to be applied could until recently be found only in the Statement of Acceptance, Availability, Independence and Impartiality (the 'Statement of Acceptance') that arbitrators are required to complete when they accept their mandate. The Statement of Acceptance indicates that, when deciding whether to make a disclosure, arbitrators should take into account 'whether there is any past or present relationship, direct or indirect, whether financial, professional or of any other [Page15:] kind between [the arbitrator] and any of the parties, their lawyers or other representatives, or related entities and individuals'.
Traditionally, arbitrators have sought guidance in the IBA Guidelines on Conflicts of Interest in International Arbitration (the 'IBA Guidelines'). The recently released Report on the Reception of the IBA Arbitration Soft Law Products has shown that the IBA Guidelines are broadly accepted and used worldwide.6 However, valuable though they are, the IBA Guidelines are not meant to be binding on arbitrators or arbitration institutions, and they do not and cannot cover every single situation that may arise.7
It was therefore necessary, given the rising number of cases and players and increased scrutiny by state courts and the public at large, to provide more guidance to arbitrators as to what is normally expected to be disclosed.
The guidance now contained in the Note is not intended to have the same scope or role as the IBA Guidelines, so arbitrators in ICC cases may wish to continue referring to the IBA Guidelines for guidance. Unlike the IBA Guidelines, the Note does not list specific situations that should or should not be disclosed. Instead, it provides simply a number of potential areas of conflict, described in a broad manner, which the arbitrator should consider when deciding whether to make a disclosure. Those areas of conflict were drawn from the ICC Court's vast experience in dealing with situations in which conflicts of interest have been alleged. They include: (1) whether the arbitrator or his or her law firm is currently representing or acting against the parties or their affiliates or has done so in the past; (2) past or present relationships between the arbitrator or his or her law firm and the parties or their affiliates; (3) whether the arbitrator or his or her law firm has an interest in the outcome of the case, or has previously had any involvement in the case; (4) past or present relationships between the arbitrator or his or her law firm and counsel to the parties; (5) involvement of the arbitrator in cases involving the parties or their affiliates or which otherwise are related; (6) previous appointments by the parties, their affiliates or their counsel; (7) relationships between arbitrators sitting together on arbitral tribunals; and (8) relationships between the arbitrator or his or her law firm and any related entity having a direct economic interest in the dispute.
Finally, the Note highlights three general principles applicable when disclosing conflicts of interests. First, it reiterates the principle already contained in the Statement of Acceptance and the IBA Guidelines that an arbitrator should opt for disclosure in the event of doubt; second, it clarifies that a disclosure does not imply a conflict; and third, it clarifies that, while failure to disclose is not in and of itself a ground for disqualification, the ICC Court will consider such failure when assessing whether a challenge or an objection to the confirmation of an arbitrator is well founded.
Communication of reasons for decisions of the ICC Court
This is another major step in improving the transparency of ICC arbitration for its users. The ICC Rules contain a general prohibition on the communication of reasons for the ICC Court's decisions on the appointment, confirmation, replacement and challenge of arbitrators. Considerations of cost-efficiency, constraints related to the manner in which the ICC Court operates and reaches its decisions and, for a long period of time, concerns among a majority of users that reasoned decisions could be challenged before state courts are some of the factors that explain this prohibition.
However, an ever-rising number of arbitrations and players, the increasing frequency of commercial and investment arbitrations involving states and state entities, and greater public scrutiny have led to a demand for more transparency in all aspects of arbitration proceedings, whether commercial or investor-state. As a consequence, the ICC Court has modified its policy regarding the provision of reasons for its decisions and has done so in four stages: [Page16:]
The report recommended that, if all parties agreed to waive the prohibition contained in the ICC Rules, the ICC Court could communicate reasons for decisions concerning challenges against arbitrators in investor-state arbitrations.
In implementing the recommendation, the ICC Court decided to go further and, upon the agreement of all parties, communicated reasons for decisions on challenges in two commercial arbitrations involving state entities. In one case the challenge was accepted on the grounds that the challenged arbitrators were at the same time representing several concessionaires of the state party against such party in other ongoing cases. In the other case, the challenge was rejected and concerned the nomination of the challenged arbitrator in an unrelated matter by one of the law firms involved in the case.8 To the ICC Court's knowledge, there has been no subsequent litigation over the issues covered in the challenges since the ICC Court's decisions.
The conditions under which the policy is applied are mentioned in the Note and include the requirement that all parties agree to the communication of reasons in advance of the ICC Court's decision.
Challenges are decided by the ICC Court at one of its monthly Plenary Sessions. A Court member prepares a report and issues a recommendation. The floor is then opened for debate and the Court members try to reach a consensus on the outcome. When a request is made for the communication of reasons, Court members are required to reach a consensus not only on the outcome but also on the reasons. A letter recording such consensus is then drafted by a three-member Committee of the Court and is communicated to the parties. Such letters are usually two to three pages long and they are usually notified within the two or three days following the ICC Court's decision. To date, the ICC Court has communicated reasons for decisions on challenges in two cases, in both of which the challenge was rejected. In one case, it had been filed more than 30 days after the final award was rendered and was considered to be inadmissible by the ICC Court. The other challenge related to an ongoing professional relationship between two arbitrators sitting together on the tribunal in the case in question. There have been no requests for the communication of reasons for other types of decisions.
In this most recent development, which will take effect in early 2017, the prohibition has been removed from the ICC Rules. In light of this modification, the ICC Court will elaborate on its practice of communicating reasons at the request of at least one of the parties in a future revision of the Note.
ICC Court's practices with respect to the costs of the arbitration
As noted above, costs are one of the main concerns of arbitration users. According to a recent study, arbitrators' fees and the ICC's administrative expenses amount to 18% of the total costs of the arbitration.9 ICC's ad valorem costs system, unlike systems where costs are charged on the basis of an hourly rate, provides users with transparency and predictability. The ICC cost scales provide for a minimum and a maximum fee for arbitrators on the basis of the amount in dispute. An online cost calculator10 allows parties to have a clear idea, even before a dispute arises, of the total amount of arbitrators' fees and administrative expenses they would incur in an arbitration. [Page17:]
However, it may not be enough for parties to know the total amount of costs as they may reach a settlement and withdraw their case at any moment. A very significant 57.7% of cases registered with the ICC Court are withdrawn before the rendering of a final award. It was therefore necessary for the ICC Court to develop practices for the payment of arbitrators' fees and administrative expenses at different stages of the proceedings. These practices have now been published in the Note.
The Note first clarifies that advances to cover these costs will normally be fixed on the basis of the average fee pursuant to the scales and that they can be readjusted on the basis of a lower or higher amount. The Note also clarifies that the advance on costs may not necessarily be used in its entirety when fixing the costs at the end of the arbitration.
The Note then includes a general estimate of the percentages of fees that will be paid to arbitrators when they request an advance on fees or when the case is terminated before reaching the stage of the final award. For instance, by way of guidance only, the Note indicates that arbitrators may be paid 50% of the minimum fee once the Terms of Reference have been established, the minimum fee after a partial award has been issued or a major hearing held, and between 50% of the average and the average fee when multiple partial awards have been issued, and the entire average fee upon rendering the final award. As far as ICC administrative expenses are concerned, 25% may be charged once the file has been transmitted to the arbitral tribunal, 50% upon the establishment of Terms of Reference, 75% after the completion of major procedural milestones and 100% upon scrutiny of the final award.
New ICC Rules and expanded services
The ICC Court's policy of further enhancing transparency and efficiency is not only implemented through the establishment and publication of practices such as those described above but also through (1) amendments to the ICC Rules, and (2) widening the scope of and publicising the services it offers in relation to the arbitrations it administers.
As indicated in the Message of the President in this issue of the Bulletin,11 the ICC Executive Board has just approved certain modifications to the ICC Rules with a view to even further increasing efficiency and transparency. The most noteworthy modifications in this regard are (1) the elimination of the prohibition on the ICC Court to communicate to the parties the reasons for its decisions on the appointment, confirmation, challenge and replacement of arbitrators; (2) the shortening of the time allowed for establishing Terms of Reference to one month; and (3) the introduction, on an opt-out basis, of an expedited procedure. These modifications will be further explained in future editions of the Note and elsewhere.
The ICC Court has also recently added a new section to the Note entitled 'Administrative Services', which aims to provide transparency with respect to the services the ICC Court and the Secretariat can offer throughout the life of a case and which can contribute to the efficient conduct of the arbitration. Some of the services mentioned were already offered by the ICC Court and the Secretariat but were not sufficiently known to users; some services were only offered on an ad hoc basis; and some are new. The services are divided into two groups: (1) those relating to the deposit of funds other than the advance on costs and (2) those relating to assistance with the conduct of the arbitration.
Regarding the first, ICC will act as the depositary of funds for (1) VAT and similar charges related to arbitrators' fees; (2) fees, expenses and charges of experts acting in the arbitration; and (3) escrow accounts. The deposit accounts are administered in either US dollars or euros and do not yield interest for the parties or the arbitrators.
With respect to the conduct of the arbitration, the Secretariat can assist parties and arbitral tribunals by acting as a depositary for documents, organising conference calls, identifying administrative secretaries, providing model case management documents, publishing information related to legal transparency obligations, and facilitating liaison with the ICC International Centre for ADR and ICC Commercial Crime Services. The Secretariat can also assist the parties with the organisation of hearings and meetings by liaising with the ICC Hearing Centre, supplying information available on other hearing facilities, hotels and hearing-related services, and providing information required for obtaining visas. [Page18:]
Conclusion
As service providers, arbitration institutions need to adapt their rules and practices to the constantly evolving demands of private and public users. Yet they also have a role to play in maintaining the legitimacy of international arbitration as a legal institution in the face of heightened public scrutiny.
The ICC Court has led international dispute resolution for almost a century. It has been capable of innovating and adapting its rules, practices and procedures to the needs of users while maintaining services of the highest quality. The policies and practices described above are a further example of the ICC Court's leadership in the field. At the same time, and most importantly, they contribute to making arbitration a more transparent and efficient and, thus more legitimate, dispute resolution mechanism.
1 The Survey was undertaken by the School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London, with the support of White & Case.
2 The Note and other ICC case management documents can be viewed and downloaded at: http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Practice-notes,-forms,-checklists/
3 http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/ICC-Arbitral-Tribunals/
4 For the full 2015 statistical report see '2015 ICC Dispute Resolution Statistics' [2016:1] ICC Dispute Resolution Bulletin 9.
5 For more information regarding the Pledge visit http://www.arbitrationpledge.com/
6 The report was issued in September 2016 and can be accessed at: http://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Default.aspx
7 A recent study shows that only around 60% of the situations analysed by the ICC Court in the context of challenges and confirmation of arbitrators were covered by the IBA Guidelines. See S. Greenberg and J.R. Feris, 'References to the IBA Guidelines on Conflicts of Interest in International Arbitration when Deciding on Arbitrator Independence in ICC Cases' (2009) 20:2 ICC International Court of Arbitration Bulletin 33, 2009; A. Carlevaris and R. Digón, 'Arbitrator Challenges under the ICC Rules and Practice' [2016:1] ICC Dispute Resolution Bulletin 23.
8 José Ricardo Feris and Ana Serra e Moura, 'La Participación de Estados y entidades públicas latinoamericanas en el arbitraje de la Cámara de Comercio Internacional: diez años de experiencia' in International Investment Law in Latin America: Problems and Prospects (Brill/Nijhoff, 2016).
9 See Techniques for Controlling Time and Costs in Arbitration, 2d ed. (2012) and Decisions on Costs in International Arbitration (2015), both reports of the ICC Commission on Arbitration and ADR, available online at http://www.iccwbo.org and http://www.iccdrl.com.
10 http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/cost-and-payment/cost-calculator/
11 See pages 3-5.