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New ICC expedited rules: big change for small claims?
The International Chamber of Commerce's new Rules of Arbitration 2017 will come into force on 1 March 2017. They include new expedited procedure rules for claims valued at less than $2 million. This represents the ICC's latest effort to increase the efficiency and cost-effectiveness of dispute resolution under the ICC Rules. The new rules are expected to affect around one-third of all disputes filed with the ICC.
The International Chamber of Commerce's (ICC) new Rules of Arbitration 2017 will come into force on 1 March 2017. They include new expedited procedure rules (EPR) for claims valued at less than $2 million. This represents the ICC's latest effort to increase the efficiency and cost-effectiveness of dispute resolution under the ICC Rules. The EPR are expected to affect around one-third of all disputes filed with the ICC.
As part of the general drive towards improved efficiency and lower costs in arbitration proceedings, the arbitration community has shown a growing appetite for expedited procedures for smaller claims (see Briefing "International arbitration: reducing costs and promoting efficiency ( www.practicallaw.com/6-578-8270) "). The perception is that standard arbitration proceedings are not cost-beneficial for low-value disputes.
In a 2015 survey on improvements and innovations in arbitration produced by the School of International Arbitration at Queen Mary University London, 92% of respondents favoured the inclusion of simplified procedures in institutional rules for claims under a certain value (www.arbitration.qmul.ac.uk/docs/164761.pdf).
Several arbitral institutions have already implemented expedited procedures for small claims, including the Singapore International Arbitration Centre, the International Centre for Dispute Resolution, the Hong Kong International Arbitration Centre, and the China International Economic and Trade Arbitration Commission. Although these expedited procedures share common features, such as the appointment of a sole arbitrator, the absence of a hearing, and expedited time limits for the issuance of awards, they vary greatly as to the monetary threshold at which they apply and whether they apply by default or at the option of the parties.
The issue of the cost-effectiveness of ICC procedure for low-value claims has been on the ICC's agenda for some time, but the ICC had previously refrained from adopting a formal expedited procedure for these claims. In 2003, an ICC task force published guidelines for arbitrating small claims under the ICC Rules, which contained non-binding guidance on how to conduct low-value arbitrations more cost-effectively. During the 2012 revision of the ICC Rules, the possibility of tailoring them to low-value disputes was once again considered but the only amendment was the introduction of Article 22(1), which requires the arbitral tribunal and the parties to have regard to the complexity and the value of the dispute in their efforts to conduct the arbitration in an expeditious and cost-effective manner.
The ICC's decision to adopt a formal expedited procedure for small claims is a response to the significant number of low-value disputes before the ICC. Although the ICC is frequently perceived as an institution for high-value disputes (the average value of an ICC arbitration was $84 million in 2015), 32% of cases filed with the ICC in 2015 had an amount in dispute below $2 million. This proportion has remained broadly constant since 2009.
The new rules
The 2017 ICC Rules include a new Article 30 (Article 30), which incorporates the EPR set out in a new Appendix VI (Appendix VI). Article 30 also defines the triggers for the application of the EPR (see box "Key features of the expedited procedure rules").
Under Article 30, the EPR apply automatically to disputes worth $2 million or less or apply by agreement of the parties. The mandatory application of the EPR, regardless of any terms to the contrary in the arbitration agreement, is likely to be one of their more controversial elements given the apparent contradiction with the principle of party autonomy.
The EPR will not apply where:
The arbitration agreement was concluded before 1 March 2017 (Article 30(3)).
The parties have agreed to opt out of the EPR. There is potential tension between this provision and Article 30(1), which explicitly provides that by agreeing to the ICC Rules, parties agree that the EPR will take precedence over any contrary terms of the arbitration agreement. An agreement between parties to opt out of the EPR will therefore need to be made explicit, and will not be inferred, for example, from an arbitration agreement that simply includes terms that deviate from the EPR (Article 30(3)).
The ICC International Court of Arbitration (ICC Court), on the request of a party before the arbitral tribunal's constitution or on its own motion at any time, determines that it would be inappropriate in the circumstances of a particular case to apply the EPR (Article 30(3)).
Article 1(4) of Appendix VI also empowers the ICC Court to decide at any time during the proceedings (on its own motion or by application of a party) to disapply the EPR, provided that it first consults with the arbitral tribunal and the parties. In practice, however, the ICC Court will no doubt consult with the arbitral tribunal and the parties before deciding to disapply the EPR, whether doing so under Article 30(3) or Appendix VI.
Constitution of the arbitral tribunal
Regardless of any agreement of the parties to the contrary, the ICC Court will appoint a sole arbitrator except where it considers it appropriate to appoint three arbitrators. The parties may jointly nominate the sole arbitrator. It remains to be seen how the ICC Court will exercise this power to appoint a sole arbitrator against the parties' agreement. In practice, this may lead parties to opt out of the EPR altogether in order to guarantee their ability to appoint three arbitrators in the event of a dispute worth less than $2 million.
Conduct of the proceedings
The EPR differ from the standard ICC procedure in the following key ways:
They dispense with terms of reference, which are a hallmark of ICC arbitration.
Parties are restricted from making new claims after the constitution of the tribunal, rather than after the terms of reference are signed, unless the tribunal expressly authorises them to do so.
The tribunal may, after consulting the parties, decide the dispute solely on the basis of the documents submitted by the parties, with no hearing and no examination of witnesses or experts.
The tribunal has a general discretion to adopt the procedural measures that it considers appropriate. In particular, it may, after consulting with the parties, decide not to allow requests for document production or to limit the number, length and scope of written submissions and evidence. Article 3(4) of Appendix IV leaves some doubt about whether the tribunal is required to consult with the parties in respect of any procedural measures but, in practice, it is expected that any tribunal will do so before adopting any particular measure.
Timing of the award
The EPR require the tribunal to render its final award within six months of the case management conference.
At first sight, this does not differ greatly from the standard ICC Rules, which in principle provide for a six-month time limit from the signing of the terms of reference. However, the time limit is intended to be stricter under the EPR: the ICC Court is not empowered to fix a different time limit based on the procedural timetable and may only grant an extension request pursuant to a reasoned request from the tribunal or if it decides it is necessary to do so (Article 31(2), ICC Rules 2017). It remains to be seen how this will play out in practice.
The scales of administrative expenses and arbitrators' fees have also been amended for disputes subject to the EPR. The result is a slight increase in administrative expenses combined with a 20% reduction in the arbitrator's fees, which will also be less if a sole arbitrator is appointed instead of three.
What to expect
The relatively high monetary threshold for the applicability of the EPR, and their mandatory nature, means that the EPR will apply to a significant number of future disputes under the ICC Rules. This number may rise if, as the ICC hopes, the streamlined and more cost-effective procedure under the EPR attracts parties that may not have previously considered using the ICC Rules for low-value disputes.
Few of the new features of the EPR are unprecedented and most could already be implemented under the existing ICC Rules at the initiative of the parties or the tribunal. However, the automatic application of the EPR to disputes worth $2 million or less (unless the parties explicitly opt out) is a potentially powerful trigger that takes the ICC Rules beyond the expedited rules adopted by other arbitral institutions.
In addition, the ICC Court's power to appoint a sole arbitrator, even where the arbitration agreement provides otherwise, is seen by some as a significant departure from the consensual basis of arbitration. It could also affect the enforceability of a final award under Article V(1)(d) of the New York Convention, which provides that the recognition and enforcement of an arbitral award may be refused if the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties. It remains to be seen whether this risk is real or whether national courts will be convinced by the ICC's view that, by submitting to the ICC Rules, parties consent to the ICC Court's powers, including those set out in the EPR.
The extent to which the EPR will otherwise affect the conduct of proceedings in practice will largely depend on how the tribunal (in most cases a sole arbitrator) exercises its discretionary powers under the EPR. There is no doubt that, in principle, the discretion granted to the tribunal under the EPR is a broad one: it is bound only by a recurrent obligation to consult with the parties. However, the usual concerns about fairness and potential challenges to any final award are expected to restrain any tribunal from departing too significantly from the ordinary procedure.
The EPR have the potential to be a powerful and practical tool for improving the cost-effectiveness of arbitrating low-value disputes. In practice, much will depend on the willingness of individual tribunals to exercise their discretion to craft innovative ways to expedite proceedings.
Julianne Hughes-Jennett is a partner, and Alison Berthet is an associate, at Hogan Lovells.
Key features of the expedited procedure rules
The expedited procedure rules contained in the International Chamber of Commerce's (ICC) new Rules of Arbitration 2017 have the following key features:
They are effective from 1 March 2017.
They automatically apply to disputes worth $2 million or less.
By default, the ICC International Court of Arbitration will appoint a sole arbitrator.
There are no terms of reference.
The final award is due within six months of the case management conference.
The tribunal may dispense with a hearing and document production.
There is a new fee scale.