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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Guillermo C. Jimenez
International legal disputes can be far more costly and troublesome than domestic disputes. Litigation in foreign countries is frequently prohibitively time consuming and expensive. Even the relatively faster and less expensive alternative of international commercial arbitration can still prove quite costly. Both litigation and arbitration usually compel a company to retain expert international counsel, and often, foreign counsel as well.
In addition, the complexity of law and regulation governing international commerce is such that in the event of loss or damage to the goods it can be difficult for the parties themselves to ascertain who is liable, and to what extent. Differences in languages and business customs can make it difficult for traders to negotiate a clear contract, and may make it difficult for them to compromise when a dispute arises.
For all these reasons, international firms should prepare a dispute resolution strategy specifically adapted to their international transactions. Ideally, the parties will include appropriate and specific dispute resolution provisions in a well drafted contract clause. It is possible for parties to agree to arbitration or ADR (alternative dispute resolution) even after a dispute has arisen, but such agreement becomes less likely if the parties have adopted adversary positions.
“ICC Arbitration” refers to arbitration under the auspices of the ICC International Court of Arbitration, the world’s leading arbitration institution. Though there are many other arbitration institutions, ICC’s was the first devoted to international commercial arbitration. ICC has achieved leadership status through decades of experience with an arbitration procedure which is rigorously supervised and enforced.
In addition to arbitration, Emergency Arbitrator Rules, Expedited Procedure Rules, and appointment of arbitrators or other services when ICC acts as appointing authority in UNCITRAL or other ad hoc arbitration proceedings, ICC offers a range of alternative dispute resolution (ADR) services and procedures, including mediation, appointment of experts, the DOCDEX system for documentary credit and collection disputes, and dispute boards and panels for resolving disputes in long term contracts.
All business disputes are troublesome, but international disputes can be particularly costly. In fact, it is not un-common for traders to walk away from a certain financial loss rather than seek to assert their legal rights in a distant, foreign jurisdiction.
Here is just a partial listing of the additional cost factors of international litigation:
> Foreign counsel A firm may be forced to retain foreign counsel.
> Travel Company executives may be compelled to travel to distant and even hostile venues.
> Translation Voluminous documentation may need to be translated; interpreters may need to be hired.[Page89:]
> Evidence Gathering of remote evidence abroad can be expensive and difficult.
> Outcome risk It is harder to predict the outcome of proceedings under unfamiliar laws or procedures. Given the complexity of international commercial law, it can be difficult to determine who is fault and to what extent.
> Enforcement costs Even if a firm is successful in litigation or arbitration, it can be difficult and time– consuming to enforce the money award.
> Loss of Relationships International business partners represent a significant investment — the loss of a foreign counterparty or partner due to hostile litigation can be devastating in a particular market and take years to overcome.
For all these reasons, firms should devote time and attention to preparing for international negotiations so as to foresee and eliminate the most likely sources of dispute.
Parties should carefully verify that their international contracting partners are trustworthy and solvent. The contract should be sufficiently precise so that difficulties of complying with the contractual provisions are unlikely, but also sufficiently flexible so that foreseeable contingencies fall within the scope of the agreement. Adaptation and price-escalation clauses can be helpful ways of building flexibility into a long-term contract. If the parties desire an ongoing commercial relationship, they may wish to specify in their contract that disagreements be initially addressed by re-negotiation, mediation or conciliation or other forms of dispute-resolution mechanisms as an alternative to court or arbitral proceedings. A well-drafted contract will also contain a clear and precise clause specifying the dispute resolution technique agreed upon by the parties.
International arbitration is the most common way of solving international business disputes. Arbitration is considered to be more neutral, faster, cheaper, less adversarial and more confidential than state court litigation.
> Adversary Posture after Dispute Arises
If the parties have failed to provide for a specific dispute resolution mechanism in their contract, they may try to come to an agreement after a dispute has arisen. This, however, becomes more difficult when the parties have adopted hostile, defensive postures. Reaching an agreement on elements such as the place of arbitration, the applicable law to the merits of the case and the selection of an arbitral institution may be impossible. It often happens that a party conscious of its own responsibility or liability will adopt all sorts of dilatory tactics with a view to delaying justice.
> Contractual Flexibility and Adaptation Clauses
Adaptation clauses are useful in contracts expected to last for a period of years or which are expected to begin a continuing business partnership. These have already been discussed above as regards the contract of sale. Force majeure and excusable delay clauses are what might be termed automatic adaptation clauses, in that certain future events automatically trigger a suspension of a number of contract responsibilities, provided these events do not totally frustrate the contractual transaction. Wars and natural catastrophes are usually considered by the parties to the contract and case law as force majeure circumstances that excuse non-performance by one or all of the parties. The ICC Model Force Majeure Clause is discussed in detail in our lesson on International Sale Contracts.
Price provisions are often linked to an escalation clause in the case of long-term contracts. A given price may remain in effect, say, for six months, and thereafter be pegged to a publicly available inflation index. A buyer may also be given a “best price” or “most favoured” clause, according to which the buyer is assured that it will never pay a higher price than any other customer. The validity of such clauses must, however, be carefully studied in respect of competition law and financial regulations.[Page90:]
Adaptation clauses often relate to products the manufacturing, delivery or sale of which is contemplated by the contract. Product specifications may be subject to updating of catalogues or verifiable changes in market conditions. Variation and substitution clauses may allow a party to deliver goods that are functionally as good as the contract goods, but which may differ slightly in composition. Delivery provisions may be made flexible by allowing for excusable delays or time extensions, particularly in the event of unexpected occurrences. Specific clauses are often drafted to excuse non-performance or to limit liability resulting from non-compliance with the contractual provisions as a result of significant changes in the factual or legal framework, such as drastic changes in government policy, legislation or tax rules.
> Waiver
A common response to minor contractual breaches is to excuse them. It is quite common for minor breaches to be forgiven, as for example with respect to lateness in delivery, delivery of a different quantity of products or with failure to reach minimum sales targets in agency and distributorship contracts. From a legal point of view, such forgiveness can be problematic because it may amount to a “waiver” or abandonment of the aggrieved party’s right to object.
One way of preserving one’s rights and avoiding an unwitting waiver is to insert a clause in the contract specifying that all contractual modifications must be in writing, or a clause stipulating that any waiver would have to be expressly accepted in writing by the party for the benefit of which the unperformed obligation was stipulated. Another option, in the event that a party may wish to tolerate a particular breach on a single occasion, but not as a general rule, is to object in writing to each breach.
> Re-negotiation
The parties can always mutually agree to modify an existing contract. In some cases, they expressly include a clause that gives an option or binds executives of the two parties to meet for formal re-negotiation in the event of a disagreement. Under such a clause, depending on the binding nature or not of the obligation to re-negotiate, the parties may commit themselves to a concerted effort to avoid more acrimonious forms of dispute resolution, such as litigation.
> Assistance of an Expert
An independent expert in the relevant field can often assist parties in resolving their controversies. The opinion of an expert is a much less formal and aggressive procedure than court proceedings or even arbitration. For example, an expert could be requested to give an opinion on questions of a legal, financial or technical nature.
The typical fields of activity in which experts are often called upon include:
> technical assessment of machinery or processes;
> testing the quality of a product or construction artifact;
> investigating the performance or conformity of industrial plants;
> investigating the causes of failures of a deal;
> investigating the causes and consequences of delays;
> assessing the value of a company’s shares.
The role of an expert in advising on such matters could include during the construction of a plant, advice on the conformity of materials or services with contractual specifications that may later be used as a “record of the factual situation”, or could later form the basis of recommendations; and assisting lawyers in the preparation of a legal submission.
The purpose of the expert’s findings, decisions or recommendations varies according to the parties requesting them. Alone, they will usually not form the basis of a binding,[Page91:] enforceable decision. However, such findings, decisions or recommendations, made close to the time of the disputed events — and whether embodied in a report or not — can be highly persuasive for judges or arbitral tribunals.
Parties who need the services of an internationally recognized expert in a given field may request the ICC International Centre for ADR (the “Centre”) to furnish the name of such an expert in the particular field concerned. The expertise services, established in 1976, operate under the ICC Expert Rules (available at www.iccexpertise.org). The Centre deals with technical, financial, legal, or other questions calling for specialized knowledge. The parties may refer to the Centre’s Expert Rules in their contracts or at a later date.
Any party or arbitral tribunal may request the Centre to propose the name of an expert. The requesting party or the arbitral tribunal will not be obliged to call on this expert’s services. A party could require an expert’s opinion in various situations either inside or outside a dispute. For example, outside a dispute a party may seek advice on technical matters before entering into a contract. An arbitral tribunal, in resolving a dispute, may seek an expert opinion on a technical matter or a specific point of law.
Dispute resolution via recourse to public courts or tribunals (litigation) is generally the slowest, most costly and most confrontational of the various dispute resolution options. Experienced traders and their counsel often try to avoid the possibility of court actions by negotiating for the inclusion of ADR or arbitration clauses or multi-tiered clauses in their contracts.
Considering the limitations of litigation, it may seem surprising that some traders and lawyers resort to litigation as the principal means of resolving commercial disputes, even minor ones. Some companies and some countries appear to be more litigious than others. This may be partially due to training or lack of it (i.e., an ignorance of procedures like international commercial arbitration, ADR and the benefits of adaptation and re-negotiation clauses).
However, litigation can provide a strategic advantage for a party in an especially strong negotiating position. Such a party can impose a contractual requirement of recourse to its own local courts in the event of a dispute. Practical or economic considerations and the threat of costly court procedures may intimidate the weaker party from pursuing a legal claim, even a valid one. In some cases, the reputed slowness of litigation can be beneficial to one of the parties. A party that is in the wrong and expects to ultimately lose a case may prefer to stall the case in a national court system and delay judgement as long as possible.
International litigation is often considered to be vexingly slow, complicated, unfriendly and expensive. It is technically difficult and often requires specialized professional counsel. In addition, some parties fear a risk of court bias when the court decision has to be enforced in the country of the party having the same nationality as the state court before which enforcement is sought.
Litigation is final after appeals are exhausted and enforceable in the country in which it takes place. However, in an international context, arbitration is often more effective than litigation in terms of enforcement, because arbitral awards are supported by the widely ratified 1958 United Nations New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the 1958 New York Convention), and other regional conventions for the recognition and enforcement of arbitral awards.
Lawsuits must be brought in the proper courts or arbitral tribunal, i.e, a court or tribunal competent to hear a case. The first thing an aggrieved party must do in an international dispute is choose a court or tribunal (a “forum”) that has jurisdiction over the case.[Page92:]
Under the Roman law principle, actor forum rei sequitur the plaintiff was required to bring suit in the defendant’s local courts. As modern international trade developed, aggrieved traders wished to assert jurisdiction over a foreign defendant in any jurisdiction where that defendant had assets. As international centres of commerce grew in the 19th and early 20th centuries, their courts developed legal theories for exercising jurisdiction over foreign defendants.
Today, most courts asked to hear a case arising out of an international business dispute will look first to the contract to see if it contains a choice of forum clause (see below), and will then determine in light of the circumstances and national law whether to assert jurisdiction.
If a contract is silent on the country of the proper court, the parties involved in a dispute may want to invoke the jurisdiction of the national courts in which they think they have the highest likelihood of success, or the courts which are most convenient for them. This practice, known as “forum-shopping”, can create problems. A party might try to bring suit in a country only tangentially related to the contract or, after a lawsuit has commenced in one country, bring a counter-suit in yet another country.
In order to avoid these uncertainties, parties to an international contract will generally include a dispute resolution clause, which may include a forum selection or choice of forum clause, as well as a choice of law clause (see Chapter 5). Commonly, the party with the stronger negotiating position will propose this clause stipulating that lawsuits must be brought in the stronger party’s domestic courts or before the courts where its thinks it has the greater chance of success.
Choice of forum clauses may be subject to a test of reasonableness: the chosen forum should bear some logical relation to the subject of the contract. Thus, in a lawsuit arising under a distribution contract between a large German manufacturer and a small Puerto Rican distributor, it was held that a choice of forum clause specifying Mexico as the appropriate forum was not reasonable. The court held that the tacit effect of such a provision was to render it difficult for the Puerto Rican distributor to undertake any legal action. However, even where the choice is reasonable, choice of forum clauses may not be respected in all countries or in all situations. For example, the Brazilian courts have been notably willing to ignore forum selection clauses which impose foreign litigation on a Brazilian counterparty.
Winning a lawsuit is sometimes not enough to make an aggrieved party whole, because the other party may refuse to comply with a foreign court’s or tribunal’s decision.
The legal judgement must then be enforced through the local courts of the losing party. If the complaining party obtains a judgement directing the other party to pay money damages, the prevailing party may be forced to apply for a court order in the losing party’s home jurisdiction compelling the loser to pay over the funds.
The likelihood of ultimately being able to enforce a judgement is something that must be thoroughly considered before the lawsuit begins. It may be useless to receive a money judgement against a party who is likely to declare bankruptcy or disappear. Thus, a party wishing to begin a lawsuit should assure itself that the other party has sufficient assets to satisfy a money judgement. It may be necessary to apply for an injunction or temporary restraining order (a court order) freezing the defendant’s assets until the case is decided.
Difficulties often arise when a judgement is obtained over a foreign party who has no assets in the jurisdiction where the judgement is rendered. In this case, the successful party will look for countries in which the other party has assets to satisfy the judgement. Such assets can often be found in the jurisdiction where the losing party is domiciled. A court procedure commonly known as an exequatur or “execution of judgement” must then be held in that country. An exequatur involves a hearing by a court that is being asked to recognize a foreign court’s judgement.[Page93:]
Will the exequatur result in enforcement of the foreign judgement? The situation varies widely from country to country. In the European Union, the Brussels and Lugano Conventions and European regulations have made enforcement of foreign judgements from other European Union countries a routine matter. In other countries, the courts will often ask whether there is a relationship of reciprocity between the courts of the two countries. In essence, this means, “we will enforce your judgements if we find you have enforced ours”.
As a general rule, courts will not enforce a foreign judgment that is still under appeal in the foreign court system.
International commercial arbitration is widely considered the most appropriate dispute resolution mechanism for international transactions.
The advantages of arbitration are numerous:
> Neutrality
The choice of arbitration allows the parties to deal with the otherwise troublesome negotiating point of deciding where a lawsuit should be brought in the event of a dispute. Many traders may hesitate to take the risk that they would have to sue in a foreign court, where they may not only be unfamiliar with language, procedure, law and customs, but where they may even have doubts about the neutrality of the judges or judicial system. With arbitration, the parties may agree that the case will be heard in a neutral country (although arbitration can take place anywhere, including the country of one of the contract parties).
> Confidentiality
Arbitration is private, usually considered to be confidential and does not generate publicly available records of decisions. Companies may not wish to take the risk that unfounded charges against them gain publicity by being debated in open court.
> Expense
Arbitration is generally faster and cheaper than litigation. Experienced lawyers can sometimes take advantage of complicated court procedures to stall and delay the resolution of a case, while arbitral procedures are less amenable to dilatory tactics with similar impact. In many countries, the courts are so backlogged that even getting to the initial phases of hearing a case can take years.
> Finality
Arbitral awards are normally final, whereas court judgements can usually be appealed to higher courts. Finality in arbitration means that the dispute-resolution process is less disruptive to business and usually cheaper, because the dispute will usually be resolved after only one set of proceedings.
> Language
International arbitration proceedings can be held in any language. As well as providing added convenience, this may reduce costs related to translations.[Page94:]
> Expertise
The parties in a dispute may be able to designate an arbitrator who is an expert in the relevant technical field, or who at least has experience in the relevant business sector. Experienced trial attorneys often complain that judges, on the other hand, do not really understand the technical issues upon which they are called to rule. The expertise of the arbitrator may also contribute to obtaining a more rapid final decision, because the arbitrator will not have to receive as much “education” as a judge.
> Enforcement
Enforcing international arbitral awards may be simpler than enforcing judgements from foreign courts due to the existence of international conventions, in particular the 1958 New York Convention.
Although arbitral awards will normally be enforced by the courts, they may be subjected to a court challenge by the defendant. If allegations of fraud or partiality on the part of the arbitrators can be established, enforcement of arbitral awards may be blocked.
Despite the foregoing, certain reservations are also sometimes voiced about arbitration.
> Cost and Delay are not Negligible
Although it is said that arbitration is relatively cheaper and faster than litigation, there are many examples of arbitral proceedings that were very expensive or dragged on for many years (which is not to say that those cases, had they been litigated, would not have been even more expensive and time-consuming). With litigation, by comparison, there is no need to pay the judges’ salaries nor the rental of the courtroom.
Nonetheless, arbitration is widely believed to be less expensive than litigation overall, because the procedure is swifter and not open to appeal. Moreover, arbitration permits greater flexibility and party control over the procedures. In a sense, with arbitration you get what you pay for. However, parties are well advised to understand that the assertion that arbitration is cheaper and faster does not necessarily mean that it is always cheap or fast.
> Few Procedural Safeguards
The many procedural devices allowed in litigation, while often having the effect of slowing the progress of a case, are not without potential benefits for both sides. Some lawyers experienced in civil litigation have found themselves frustrated by what they perceived to be the relative informality of arbitration, which in their eyes constituted a lack of “rigour” or “order”. However, the inherent flexibility of arbitration means that whenever the parties agree that it is in their interests, proceedings can be pre– structured so as to have effective procedural safeguards. For example, complex arbitration proceedings can be conducted with transcripts or written records.
> Lack of Appellate Review
In litigation, losing parties may appeal to a higher court to have the matter reconsidered. However, in arbitration, the enforcement of an arbitral award may be challenged only to a limited extent in the appropriate court. In general, recourse against an arbitral award is much more limited than against an initial court judgement.
Not all disputes may be submitted for arbitration, even if the parties agree to do so. For example, in many European countries employment disputes must go before special courts and are considered non-arbitrable.[Page95:]
The ICC International Court of Arbitration (“ICC Arbitration”) is the world’s leading forum for international arbitration. In 2010, an International Arbitration Survey of corporate counsel by Queen Mary University of London identified ICC Arbitration as the preferred and most widely used form of institutional international arbitration. This tendency was again confirmed in an updated survey of 2015.
ICC arbitration is distinguished by certain key features:
> Universality
Unlike many other arbitration or ADR institutions, ICC is global in scope and open to the management of virtually any conceivable kind of dispute. ICC arbitral proceedings may involve parties from any industry and from all corners of the globe (including private and government entities). Although the International Court of Arbitration (the “Court”) is based in Paris, Court sessions may also take place in other cities; the Court recently met for instance in Singapore and New York. Also, ICC arbitral proceedings may take place anywhere. In fact, the majority of proceedings take place outside of Paris. ICC arbitrators and proceedings are also global — more than 76 nationalities were represented among ICC arbitrators in 2016, and arbitrations were conducted in over 60 different countries.
> Professional Supervision of Caseload
Compared with ad hoc arbitration (where the parties must conceive and supervise their own arbitration procedure), ICC Arbitration offers the assistance and guidance of a professional support staff.
ICC Arbitration is professionally supervised. The Court employs approximately 100 staff members, more than half of whom are attorneys. This staff relieves the arbitrators of the need to oversee case management issues, such as supervising payment of fees and expenses. The ICC Secretariat (“Secretariat”) also distributes much of the necessary documentation. The Court carefully scrutinizes the arbitral awards prior to their approval — a unique and important feature of ICC Arbitration. Finally, it is the Court, rather than the arbitrators, that notifies the parties of the ultimate award. The Court relies on a state-of-the-art computerised case management system to track all arbitrations information and documents.
> Stature
After nine decades as the world’s pre-eminent arbitral institution, ICC has acquired a reputation for neutrality and integrity. Even in difficult negotiations, parties will not have to convince their counterparties of the neutrality of ICC Arbitration.
ICC recommends the use of the following standard clause:
All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
[Page96:]
This clause can be complemented by the addition of stipulations as to the:
Sophisticated international traders wishing to craft an efficient dispute resolution process should consider incorporating such precise stipulations into the standard arbitration clause. If the parties can agree in advance on applicable law, it will save time wrangling about this issue later in the event of a dispute. A common solution is to stipulate the applicable law of a neutral country. The stipulation of a sole arbitrator is the easiest way to make sure that the cost of arbitration is kept to a minimum.
However, additions or modifications to the ICC standard clause should only be drafted by experienced arbitration attorneys. Parties should take care that additions to it do not create ambiguity. Parties have been known, for example, to add the words “in Paris” after “International Chamber of Commerce”. This may cause confusion as to whether they mean that the place of arbitration should be Paris.
Although it is possible for parties to mutually decide on submitting a case for ICC Arbitration after the dispute has arisen, it is more common for the choice of ICC Arbitration to be made in the arbitration clause in the contract. After a dispute arises, one party may wish to delay the process — and that party is therefore less likely to agree to a swift procedure such as arbitration.
8.6.3 ICC Court and Secretariat
The Court consists of a President, several Vice-Presidents and more than 180 members from over 110 countries. The Court is an administrative body attached to ICC but independent from it. The function of the Court is not to decide the case submitted to arbitration, but rather to verify the application of the ICC Rules of Arbitration (the “Rules”).
The Court does not decide disputes (which is the role of the arbitrator or arbitrators). Rather, the Court oversees the conduct of proceedings and ensures that they conform to the Rules. The Court’s main tasks are to:
The Secretariat (the ICC administrative body which oversees arbitrations) is composed of a Secretary General, Deputy Secretary General, Managing Counsel, General Counsel and several arbitration teams, each headed by a Counsel (an attorney specialized in arbitration procedure). The Court also employs a Special Counsel and lawyers in charge of the documentation center, the ICC Court Bulletin and Court publications, the ICC Commission on Arbitration & ADR, the promotion of dispute resolution services, as well as support staff. Also, a team is in charge of the ICC International Centre for ADR.
[Page97:]
In ICC Arbitration, the parties may nominate the arbitrators (though confirmation by the Court is required). If the parties do not choose the arbitrators, the Court will appoint a neutral arbitrator from a neutral country. The Court requires all arbitrators to be completely independent from all parties; arbitrators must make an initial statement to this effect. “Independent” means free of any bias or conflict of interest. Arbitrators must remain independent from the parties throughout the entire arbitration proceedings. Parties may challenge the arbitrator’s independence. In such case, if the Court finds that the arbitrator is not independent, he or she will be replaced. When an arbitrator is not otherwise properly fulfilling his or her duties, the Court may replace him or her.
Most disputes are decided by one or three arbitrators. If the parties do not specify the number of arbitrators, the Court will appoint a sole arbitrator, except when it appears to the Court that the dispute is such as to warrant the appointment of three arbitrators. In deciding the number of arbitrators, the Court takes into account factors such as the complexity of the case and the amount of money in dispute. The contractual choice of three arbitrators is very common, in part because it allows each party to nominate one arbitrator. However, parties should also keep in mind that stipulating three arbitrators will increase the overall costs, and may cause delay.
A large degree of flexibility is built into the ICC Arbitration procedure. Pursuant to the ICC Rules of Arbitration, the sequence of events is generally as follows:
> Request for Arbitration
One or several parties (“Claimant(s)”) must send a written Request for Arbitration (the “Request”) to the Secretariat accompanied by a non-refundable advance of US$ 5000 for administrative expenses. The Rules require that the Request identify all the relevant parties and describe the case. The Secretariat will then notify the other party or parties “Respondent(s)” of the Request, forwarding all relevant documents. The Respondent(s) must submit an “Answer” to the Request within 30 days, setting forth its defence, any counterclaims and any comments on the constitution of the arbitral tribunal. The Claimant is allowed 30 days to reply to any counterclaim. After receipt of the Respondent’s Answer, the Secretariat submits the case to the Court. Unless the parties have made specific provisions, the Court fixes the place of arbitration and chooses the arbitrator(s).
> Terms of Reference
A key feature of ICC Arbitration is the use of “Terms of Reference”, a summary document drafted by the arbitral tribunal in consultation with the parties, which describes the case, defines the issues and indicates the place and applicable rules for the arbitration.
The Terms of Reference are submitted to the parties for comment (the arbitral tribunal may or may not amend the document according to the parties’ input) and then for signature, and ultimately to the Court. If any of the parties refuses to sign the Terms of Reference, the Court will decide whether or not to approve them. If all parties sign, the Court will only take note of the Terms of Reference. The arbitration can go forward regardless of the refusal by a party to sign the Terms of Reference.
The use of Terms of Reference in arbitral proceedings has been the subject of a long-standing debate within the international arbitration community. Some experts believe that the benefits derived from the Terms are not sufficient to justify the time spent on their preparation. However, the international consensus has been that some form of preliminary procedure is useful.
ICC considers that Terms of Reference are an essential part of the ICC procedure and that they contribute significantly to refining the issues in dispute, thereby increasing the effectiveness of later hearings and, in a significant number of instances, showing [Page98:] the parties that their legal positions are not so different, thus creating the conditions for a possible settlement negotiation. Moreover, the Terms of Reference can be prepared very quickly when the parties cooperate.
> Time Limits
The Terms of Reference must be submitted to the Court within one month after the arbitral tribunal receives the case file, and the arbitral tribunal must make its award within six months after the signature of the Terms of Reference. However, the Court may authorize extensions of the time limits following a reasoned request or on its own initiative.
> Proceedings
The Rules are designed to be very flexible, allowing the parties to agree on their own procedural rules if they wish. If the parties fail to agree, however, the procedure will be determined by the arbitral tribunal, which will further decide on the need for hearings (although the parties have a right to be heard if they so request), examination of witnesses or the appointment of experts.
> Applicable Law
If the parties do not agree on the applicable law it will be decided by the arbitral tribunal. Parties and arbitrators enjoy a large degree of liberty in choosing the applicable law. It can be a national law as well as a set of general principles of law, such as the UNIDROIT Principles of International Commercial Contracts and the new law merchant, often referred to by its Latin terminology (the lex mercatoria).
> Award
Final or interim decisions by the arbitral tribunal are called awards. Awards must be in writing and rendered by unanimous decision, by majority or, failing these, by the President. In cases with three arbitrators, dissenting opinions may also be rendered. If the parties are able to work out a settlement, they may wish to have it formalized as an award, thereby facilitating enforcement. Such awards are called “awards by consent”. The award also determines the apportionment of the costs of the arbitration, including legal costs.
The award is first submitted in draft form to the Court, which may lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision, draw its attention to points of substance. The parties are then notified of the award, but only after they have fully paid the costs of the arbitration.
If one of the parties refuses to comply with the award, the other party may seek enforcement in a competent court. Such recourse is simplified by the existence of the 1958 New York Convention, which has been signed by over 150 countries.
> Costs
Costs include the arbitrators’ fees and expenses, ICC’s administrative expenses, the fees of any experts and lawyers’ fees and expenses.
Upon receipt of the Request for Arbitration, the Secretary General determines an appropriate provisional advance to cover the arbitral tribunal’s fees and expenses and the ICC’s administrative expenses until the Terms of Reference have been drawn up. The file will not be transmitted to the parties until this provisional advance is paid. When the case is first submitted to the Court, the Court sets the amount for the required advance against costs. Each side (i.e., Claimant(s) and Respondent(s)) is required to pay 50% of the advance on costs. ICC’s administrative expenses and the range of possible fees for the arbitrators are calculated depending on the amount in dispute and according to a fixed Scales of Administrative Expenses and Arbitrator’s Fees contained in the Rules.
An arbitration cost calculator for estimating the costs of a future arbitration proceeding can be found on the International Court of Arbitration’s website (www.[Page99:]iccarbitration.org). If one party fails to pay its share of the advance on costs, the other party is given the opportunity to pay it, or to supply a bank guarantee, so that the arbitration can proceed.
> ICC Fast-Track Clause
A fast-track arbitration is one in which both parties have agreed to expedited proceedings. Care should be taken in drafting a fast-track arbitration clause, and it is recommended that parties engage experienced counsel for this purpose. Some fast-track practitioners set deadlines for every step in the arbitral procedure, e.g., answering the request for arbitration, constitution of the arbitral tribunal, filing of challenges, rendering of the award, limits to any possible extensions, submissions and hearings, etc. A simpler alternative is to set a single deadline for the rendering of the final decision.
When both parties are sophisticated and committed to expedited proceedings, disputes can be resolved rapidly. ICC has reported handling large, complex cases under fast-track provisions in 60 to 80 days.
On 1 January 2012, the new Rules of Arbitration came into force. These new Rules were the result of a three-year process involving contributions from arbitration professionals in over 40 countries.
The new Rules adapted and revised the previous 1998 Rules to reflect the changing demands of international arbitration, to address the growing complexity of disputes (and the increasing need for urgent interim remedies), and to improve cost-effectiveness and efficiency.
On 1 March 2017, the Court made a few amendments to the Rules.
Key changes in the 2012 Rules:
> Emergency Arbitrator
Under Article 29 and Appendix V of the new Rules, parties may seek “urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal” from a specially appointed Emergency Arbitrator even before arbitration has commenced. Parties may also “opt-out” if they wish to exclude any recourse to the Emergency Arbitrator Provisions.
Following an application by a party, an Emergency Arbitrator will be appointed by ICC within two working days. The appointment can be challenged within short-time limits. The Emergency Arbitrator is required to issue an order within 15 days, extendable where necessary. The emergency order does not bind the arbitral tribunal, which may modify, terminate or annul any order made by the Emergency Arbitrator.
The application must be filed with a payment of US$ 40,000, regardless of the amount of the claim. These costs may be increased at the discretion of the President of the Court.
This rule does not preclude any party from seeking urgent interim relief from a competent judicial authority.
> Multiple Parties
Several new provisions clarify the practice and facilitate the management of complex and multi–party arbitrations:
> Joinder of Additional Parties (Article 7) Any party may join a third party to the arbitration by filing a Request for Joinder with the Secretariat (provided this is done before an arbitrator is appointed or confirmed). Once an arbitrator has been appointed or confirmed, joinder requires agreement of all the parties.
> Claims between Multiple Parties (Article 8) In arbitrations involving more than two parties, any party may make claims (or counterclaims) against any other party before the approval of the Terms of Reference (thereafter such claims/ counterclaims require permission).[Page100:]
> Multiple Contracts (Article 9) Claims arising out of or in connection with more than one contract may be made in a single arbitration.
> Consolidation of Arbitrations (Article 10) Under circumstances which have been clarified, the Court may consolidate arbitrations pursuant to a party’s request.
> Constitution of the Arbitral Tribunal: Impartiality and Direct Appointment
Under Article 11, arbitrators are required to remain impartial as well as independent of the parties involved in the arbitration (previous rules did not expressly refer to impartiality). Furthermore, arbitrators must inform the Secretariat of any circumstances that might call into question their independence or impartiality.
The new Rules permit the Court to appoint arbitrators directly in certain circumstances, as for example, where the ICC national committee fails to make an appointment within the time allocated.
As an increasing number of arbitrations involve states or state entities, the new Rules provide that the Court can directly appoint as an arbitrator any person whom it considers suitable where one or more parties is a state or claims to be a state entity (Article 13).
> Procedure to Consider Prima Facie Existence of ICC Arbitration Clause
The new Rules allow objections to the existence, validity and/or scope of an arbitration agreement to be referred directly to the arbitral tribunal rather than necessarily to the Court (Article 6).
> Challenges to Jurisdiction
Whereas previously jurisdictional challenges went to the Court, the new Rules expedite this process because, by default, any question of jurisdiction is normally decided by the arbitral tribunal.
Prospective arbitrators must sign a statement of confidentiality before being appointed. The arbitral tribunal may issue confidentiality orders tailored to the specific needs of the case before them. This can include confidentiality as to the existence of the arbitration and/or measures being taken to protect trade secrets and confidential information (Article 22).
> Management of the Arbitration
Under the new Rules, the parties and the arbitral tribunal are required to make every effort to conduct arbitrations in an expeditious and cost-effective manner, having regard for the complexity and value of the dispute. This duty encompasses a number of case management techniques set forth in an appendix to the new Rules, which include:
> The obligation of the arbitral tribunal to convene a case management conference and consult with the parties when drawing up the Terms of Reference or shortly thereafter;
> The adoption by the arbitral tribunal and the parties of procedural measures that ensure effective case management (the rules now incorporate a number of recommendations reported in the ICC publication “Techniques for Controlling Time and Costs in Arbitration”);
> Notification by the arbitral tribunal to the Secretariat and the parties of the date by which it expects to submit its draft award to the Court for review. The award must be rendered within six months of the conclusion of the Terms of Reference, although the period can be extended (Article 30); and
> Taking into consideration by the arbitral tribunal, when ruling on the issues of costs, the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner.[Page101:]
> Only ICC Court may Administer Arbitrations Pursuant to ICC Rules
The new Rules provide that the Court will be the only entity authorized to administer arbitrations under the Rules. By agreeing to arbitration under the Rules, the parties accept that the arbitration will be administered by ICC.
Key changes in the 2017 Rules:
> Expedited Procedure
The most significant of the 2017 amendments is the introduction of Expedited Procedure Rules providing for a streamlined arbitration with a reduced scale of fees. This procedure is automatically applicable in cases where the amount in dispute does not exceed US$ two million, unless the parties decided to opt out. It will apply only to arbitration agreements concluded after 1 March 2017.
One of the important features of the Expedited Procedure is that the Court may appoint a sole arbitrator, even if the arbitration agreement provides otherwise.
The Expedited Procedure is also available on an opt-in basis for higher-value cases, and will be an attractive answer to users’ concerns over time and cost. Also, there are no Terms of Reference in expedited procedures.
To further enhance the efficacy of ICC arbitrations, the time limit for establishing Terms of Reference has been reduced from two months to one month.
> Reasons for Court Decisions
ICC arbitrations has become even more transparent, for the Court will now provide reasons for a wide range of important decisions, if requested by one of the parties, Article 11(4) has been amended to that effect.
The ICC International Centre for ADR administers the ICC Rules for Documentary Credit Instruments Resolution Expertise (DOCDEX) (www.iccdocdex.org). DOCDEX was established in 1997 by the ICC Commission on Banking Technique and Practice to facilitate the rapid settlement of disputes arising under the Uniform Customs and Practice for Documentary Credits (UCP), the Uniform Rules for Bank-to-Bank Reimbursement under Documentary Credits (URR), the Uniform Rules for Collections (URC) and the Uniform Rules for Demand Guarantees (URDG), the latter of which was added in a later amendment to the DOCDEX rules.
DOCDEX is an expedited dispute settlement mechanism providing for a document-based expert decision made by three experts, scrutinized by the technical adviser of the ICC Banking Commission and issued by the International Centre for ADR. The DOCDEX decision is not binding unless the parties have agreed otherwise. In most instances, the parties can expect the final opinion six to twelve weeks after ICC has received the request, but exceptionally complex cases may take longer.
Mediation and conciliation (sometimes generally referred to as Alternative Dispute Resolution or ADR) are amicable methods of resolving disputes with the assistance of a neutral third party. Mediation/conciliation is theoretically a cheap and fast form of dispute resolution, but unlike arbitration, it is non-binding- the parties may choose to ignore the decision of the mediator. The parties are usually not obliged to take part in the ADR proceedings unless otherwise agreed by them, so they can simply walk away from the mediation/conciliation if they are unhappy with the process.
Whether ADR succeeds will depend on such factors as the commitment of the two sides to a friendly resolution and the personal skills and dedication of the mediator/ conciliator. In most legal systems, the agreement reached by the parties to a mediation/conciliation has the nature of a contract and not of a judgement.[Page102:]
> ICC ADR Rules
ICC has been receiving mediation/conciliation proceedings since 1923 under specific rules, the ICC ADR Rules (www.iccadr.org), which provide a flexible framework for the amicable resolution of business disputes through the services of a third party known as a Neutral. The ICC ADR Secretariat handles proceedings under the ICC ADR Rules.
> Commencing ICC ADR Proceedings
ICC ADR procedures require the agreement of the parties to submit the dispute to the ICC ADR Rules. The simplest method is to include an ICC ADR clause in the parties’ contract. The parties may also agree to ICC ADR after the dispute has arisen.
ICC ADR proceedings are commenced by the filing of a mutual or a unilateral request of the parties with the ICC ADR Secretariat. In this latter scenario, the ICC ADR Secretariat then notifies the Request to the other party (or parties). If the other party accepts to engage in ICC ADR proceedings, the proceedings can begin. If there is no agreement, the proceedings cannot commence.
Four alternative ICC ADR clauses are suggested by ICC for the parties to insert into their contracts. These are not model clauses the parties are required to incorporate into their contract without modifications, but rather suggestions that may be adapted to the parties’ needs. They are presented in the order of increasing obligations on the parties to resort to ADR, from purely optional ADR to a binding obligation to submit a dispute to the ICC ADR Rules, and according to whether or not the ADR proceedings are combined with ICC arbitration proceedings.
> ICC ADR Procedures
The ICC ADR Rules allow the parties to choose a dispute–resolution technique appropriate to the circumstances. Possibilities include: a) mediation, where the Neutral acts as facilitator to help the parties reach an agreed solution; b) referral to the Neutral for an opinion on one or more matters; c) mini-trial, whereby a panel comprising the Neutral and an executive of each party renders an opinion; or d) a combination of various techniques. Under the Rules, mediation is the default choice if the parties do not express a preference for a particular method.
Whatever technique is adopted, the success of the procedure will depend greatly on the Neutral’s professionalism and inter-personal skills. The parties may jointly designate the Neutral or agree upon the qualifications or attributes required of the Neutral to be appointed by ICC. In appointing the Neutral, ICC will appoint a person who is independent of the parties.
A party dissatisfied with the appointment of the Neutral can submit a reasoned objection to the appointment within 15 days of receipt of the notification of her/his appointment, and ICC will appoint another Neutral.
Once the proceedings have begun, an initial discussion takes place between the parties and the Neutral in order to define the procedure to be followed.
> Result of ICC ADR Proceedings
ICC ADR proceedings aim for a final settlement or compromise agreement on some or all of the disputes between the parties. If the parties do not reach a settlement agreement, ADR proceedings do not result in a binding outcome. This is in sharp contrast to arbitration, which results in a final award enforceable against the opposing party.
ADR may, however, be structured so as to complement binding procedures like arbitration. For instance, parties may turn to ADR in the course of arbitration proceedings if it seems likely that their dispute could be settled amicably. Alternatively, parties may choose a dispute resolution method which provides first for ADR and, in the event of failure to reach an amicable settlement, for arbitration.
Confidentiality is a key characteristic of ICC ADR, as it is of ICC Arbitration.[Page103:]
> ICC Dispute Board Rules
In long-term contracts, disputes may arise due to changes in the parties’ circumstances over the life of the contract. In order to prevent interruption or deterioration of the relationship, parties may consider setting up a Dispute Board (DB) as an alternative to arbitration or litigation. ICC has elaborated a series of documents for these kinds of situations: the ICC Dispute Board Rules, three standard DB clauses and a Model Dispute Board Member Agreement.
Although it is preferable to set up a DB at the outset of a contract, parties sometimes establish it after the dispute has arisen. DBs are standing bodies comprising one or three independent members thoroughly conversant with the contract and its performance. The role of the DB members varies according to the different types of DBs envisaged by the ICC Dispute Board Rules (www.iccdisputeboards.org):
> Dispute Review Boards (DRBs) issue recommendations that become binding if the parties accept (specifically, if they have not expressed dissatisfaction with it within a stated period of time). If one of the parties expresses dissatisfaction with the recommendation, the parties are not obliged to, but may comply with it pending the outcome of the arbitration or court proceedings that usually follow unsuccessful DB proceedings.
> Dispute Adjudication Boards (DABs) issue decisions, and as such are a less consensual dispute resolution mechanism than DRBs. The parties are contractually bound to comply with the decision as soon as it is received. If a party expresses dissatisfaction with the decision within a stated period of time, it remains bound to comply with it, although this party may have the right to submit the dispute to arbitration or to the state courts if so agreed in the contract.
> The third type of DB has been created by ICC to respond to business’ need for flexibility in the DB procedure. Combined Dispute Boards (CDBs) normally issue recommendations, but may issue a decision at one party’s request and failing an objection of the other parties. If one party objects, it will be for the CDB to decide whether to issue a recommendation of a decision.
ICC does not administer these proceedings but plays a subsidiary role, which may include appointing and deciding on a challenge of DB Members and reviewing the form of DB decisions at the parties’ request.
> Appointment of an Expert
Parties who need the services of an expert may request the ICC International Centre for ADR (the “Centre”) to nominate an expert in the particular field concerned.
As an alternative to seeking the proposal of an expert, parties may agree to apply to the Centre for the appointment of an expert to provide an analysis of a question often embodied in a written report or recommendation. The choice of the expert made by the Centre will bind the parties, who will be required to call on this specific expert to help them resolve questions amicably or to establish certain facts.
Among the services provided by the Centre, the Rules include the basic procedures applicable from the request to appoint an expert up to the notification of a complete expert’s report. Examples of the Centre’s cases include: assessing the operational capacity of a product unit, assessing corrosion of materials, the financial audit of a company during a takeover, revaluation of a contract price and assistance relating to dispute adjudication boards in international construction projects.[Page104:]
Test Your Knowledge: International Dispute Resolution
True/False
Answers: 1. T 2. F 3. T 4. F 5. T 6. F 7. T