What Happened: Both the London Court of International Arbitration (“LCIA”) and the International Court of Arbitration (“ICC”) have revised their arbitration rules.
The Bottom Line: The LCIA Arbitration Rules 2020 are now in effect, and the 2021 ICC Rules of Arbitration will take effect on January 1, 2021. Parties that commence LCIA and ICC arbitrations before the revisions take effect will apply the rules’ former versions.
The Full Story: Two of the leading arbitral institutions, the LCIA and ICC, have revamped their arbitration rules to enhance efficiency and respond to COVID-19 challenges. In announcing the changes, the LCIA President, Paula Hodges, described the LCIA’s revisions as a “light touch,” whereas the ICC Court President, Alexis Mourre, characterized the ICC’s amendments as a “further step.” The LCIA 2020 Arbitration Rules came into force on October 1, 2020. Any LCIA arbitrations commenced before this date will continue to apply the 2014 LCIA rules. The LCIA will update its Guidance Notes, in due time, for parties, arbitrators, and emergency procedures.
In a similar fashion, last month the ICC formally adopted the 2021 ICC Rules of Arbitration. A formal launch of the rules will occur on December 1, 2020, and they will enter into force starting January 1, 2020. Before the revisions take effect, the ICC will release an updated Note to Parties and Arbitral Tribunals on the Conduct of Arbitration, providing practical guidance to parties and arbitral tribunals regarding the ICC Rules of Arbitration and the practices of the International Court of Arbitration. Any ICC arbitrations commenced prior to the effective date will apply the 2017 Rules of Arbitration and the January 2019 Note to Parties and Arbitral Tribunals on the Conduct of Arbitration.
The LCIA Arbitration Rules 2020 introduced additional tools to expedite proceedings. The most important of the new tools is a Summary Dismissal Rule, which authorizes a tribunal to determine that any claim or defense is manifestly outside the tribunal’s jurisdiction, or is inadmissible or manifestly without merit. The new rule, however, does not address the process and procedure for summary dismissal, leaving that to the tribunal’s discretion. Adoption of this rule brings LCIA practice in line with other leading arbitral institutions, many of which have some version of a summary dismissal rule.
Other tools include an explicit recognition of a tribunal’s power to make early dismissal determinations and any procedural orders to expedite proceedings, such as limiting the length and number of submissions, including witness testimony, and managing the timetable for the arbitration. Additionally, tribunals are now required to contact parties within 21 days of written notification of the arbitral tribunal’s formation and issue awards no later than three months after the parties’ final submissions.
Notably, the new LCIA Rules broaden the LCIA Court and tribunals’ authority to accept a composite Request of Arbitration “against one or more Respondents and under one or more Arbitration Agreements.” Although this permits multiple arbitrations to be started at one time, the arbitrations proceed separately unless the LCIA Court or the arbitral tribunal determines otherwise. An updated rule permits tribunals to order consolidation of disputes with compatible arbitration agreements that arise out of the same transaction or series of related transactions.
The 2020 LCIA revisions also codify previous guidance on tribunal secretaries, namely, prohibiting tribunals from delegating their fundamental decision-making functions to the tribunal secretaries and requiring parties’ approval for all tasks the tribunal wishes to delegate to the secretary.
In light of COVID-19 challenges, LCIA expressly allows virtual hearings and requires parties and tribunals to use e-mails or other forms of electronic communication for any written communication regarding the arbitration.
Similar to the LCIA, the ICC expanded its joinder and consolidation provisions for disputes involving multiple parties and/or multiple contracts. The ICC added a provision that for the first time allows a tribunal to permit joinder of new parties after all the arbitrators have been selected and after the Terms of Reference have been agreed. The tribunal must take into account all relevant circumstances in deciding whether to permit joinder, including whether it has prima facie jurisdiction over the additional party, the timing of the Request for Joinder, possible conflicts of interest, and the impact of joinder on the arbitral procedure. But under this new rule, the tribunal can order joinder of a new party over an existing party’s objection if the newly joined party accepts the constitution of the arbitral tribunal and agrees to the Terms of Reference, where applicable. The goal of these new rules is to make the ICC a more suitable forum for complex, high-value, multi-party and multi-contract arbitrations. These changes come at the risk of party autonomy to select their own arbitrators, as another 2021 rule increases the ICC’s existing authority to reject arbitrators nominated by parties, if that is deemed necessary “in exceptional circumstances” to “avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.”
The 2021 ICC Rules also takes steps to increase transparency and avoid conflicts of interest in its proceedings by affirmatively requiring parties to disclose the identity of any non-party that has entered into “an arrangement for the funding of claims or defenses and under which it has an economic interest in the outcome of the arbitration.”
Another new rule grants the arbitral tribunal authority to protect against conflicts of interest arising if a party changes counsel, including by excluding new counsel from participating in the arbitration if that would create a conflict of interest for one of the arbitrators.
As with the LCIA, the 2021 ICC Rules of Arbitration will allow virtual hearings after the tribunal has consulted with the parties. Moreover, parties are no longer required to send pleadings and written communications by hard copy.
Commentary: The ICC first added provisions for joinder of parties and consolidation of claims to its rules in 2012. Other institutional providers, including the LCIA, have since added substantially similar rules. Today, many international arbitration rules permit some form of joinder of third parties and consolidation of claims arising under different contracts provided the contracts have compatible arbitration provisions.
The recent ICC and LCIA amendments regarding joinder and consolidation reflect that their rules continue to prove inadequate to address disputes involving multiple parties who are involved in different aspects of a single dispute involving multiple contracts. This is a problem, as increasingly international disputes, including specifically infrastructure projects, involve multiple parties and multiple contracts. Even relatively simple transactions, where one party engages two or more other parties under separate contracts, or a party to the main contract employs a subcontractor, may lead to problems with joinder of parties and consolidation of claims.
The problem starts with contract drafting. International arbitral institutions suggest sample arbitration clauses for parties to include in their contracts. But these standard clauses are generally intended to resolve bilateral disputes between two parties arising under a single contract. As such, the standard clauses recommended by arbitral institutions are often counterproductive for disputes involving multiple parties and multiple contracts. Generic clauses in complicated transactions can result in the forced removal of a party’s arbitrator, or prevent joinder of parties or consolidation of claims that are necessary to efficiently resolve a dispute.
The revisions to the ICC and LCIA Rules are intended to give the arbitral institutions and arbitrators more authority to join parties and claims arising under different contracts. But given the frequent use of standard form (bilateral) arbitration clauses and the due process rights that arise from the contract-based nature of commercial arbitration, the new institutional rules are still likely to fail to provide the required flexibility to join parties and consolidate claims arising under different contracts. And greater reliance on rules that override party autonomy to choose their arbitrators is not the right answer.
To avoid unexpected consequences, such as losing the right to pick the arbitrator of one’s choice, or risk being subjected to inconsistent arbitral results, transactions involving multiple parties and/or multiple contracts require arbitration clauses that are designed to fit the transaction.