Construction arbitration a winner under new ICC rules
The ICC arbitration Rules of 2017 (the ICC Rules) have now been in force for over a year. In a previous article, we examined the potential impact of the ICC Rules in construction arbitrations and concluded that the improvements made by the ICC contributed to it remaining a competitive arbitral institution before which construction disputes may be resolved.
This article intends to address the implementation of one of the most significant amendments made to the ICC Rules in 2017, as well as the examination of further efforts made by the institution in addressing some of the most common user demands in international arbitration, such as increased efficiency and transparency and the reduction of costs.
As discussed below, the amendments made by the ICC in 2017 have proven to be highly beneficial for parties arbitrating disputes before the ICC, particularly in construction arbitration, as the new trends of transparency in ICC arbitration provide parties with a better understanding of the court’s approach to procedural issues arising in cases involving multiple contracts and/or multiple parties, which is often the case in construction arbitrations.
Furthermore, this article highlights additional efforts made by the institution after the approval of the ICC Rules which have been aimed towards increased efficiency, particularly the developments made in relation to the immediate dismissal of manifestly unmeritorious claims and defences.
Implementation of the ICC Rules since their entry into force
One of the major amendments introduced by the ICC Rules was the inclusion of Expedited Procedure Provisions (EPP) for the fast-track resolution of disputes, most notably in cases with claims of less than US 2 million. It has been over a year since the EPP entered into force. However, considering that the EPP applies only to arbitrations arising out of arbitration agreements concluded after the date on which the EPP entered into force (ie, 1 March 2017), unless parties expressly opt into them, it is still too soon to reasonably expect a high volume of arbitrations to be conducted under these provisions.
There may well be a reason for this delayed application of the EPP. Indeed, as a general rule, when parties agree to ICC arbitration, they are deemed to submit ipso facto to the rules in effect on the date of commencement of the arbitration. However, the application of the EPP departs from this general rule. It would seem that this exception is justified by the fact that such an important amendment to the ICC Rules merited that users become familiar with these modifications before deciding whether to refer their disputes to ICC arbitration or whether to opt out of the application of the EPP (see Jose Ricardo Feris The 2017 ICC rules of Arbitration and the New ICC Expedited Procedure Provisions: A view from inside the institution (ICC Dispute Resolution Bulletin 2017m issue 1)).
The preliminary statistics on EPP have only recently been released by the ICC (available at https://iccwbo.org/media-wall/news-speeches/icc-announces-2017-figures-confirming-global-reach-leading-position-complex-high-value-disputes/ ). The ICC Court has so far registered 50 requests to opt in for the application of the EPP. Three of these cases were concluded within the six-month time limit from the date of the case management conference established under the ICC Rules. There is no information on the industries involved in such cases. However, it is unlikely that the EPP provisions will frequently be used in construction arbitrations. Although prompt resolution of disputes is often required in construction arbitration to secure the cash flow of the contractor, the EPP would not at first glance seem appropriate, for the following reasons. First, because the expedited procedure is intended for low value disputes, which are not procedurally, factually, or legally very complex, and construction cases do not often fall within this criteria. Second, because within the framework of a construction dispute, although prompt resolution of disputes is of the essence, the goal of resolving disputes in an efficient manner can be achieved through other forms of dispute resolution such as dispute boards.
That said, expedited procedures within the framework of a construction arbitration should not be completely disregarded. Institutions specialized in this industry, such as the Institution of Civil Engineers, for example, have established specific rules for disputes of modest value (ie claims between £50k and £250k) which can be resolved by an expedited procedure (visit https://www.ice.org.uk/ICEDevelopmentWebPortal/media/Documents/Disciplines%20and%20Resources/09-2-ICE-Arbitration-procedure-2012-04-30.pdf)
Putting aside the EPP, there is one amendment made by the ICC in 2017 that has proved to be highly beneficial in construction arbitration; the communication of the reasoning behind some of the court’s decisions. The amendment of art 11(4) of the ICC Rules opened the door for the communication to parties of the reasons behind the court's decisions related to the constitution of the arbitral tribunal. Further, the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration of 30 October 2017 (the Note) opened the door for the communication of the court's reasons for other types of decisions, such as prima facie and consolidation decisions. These two types of decisions are relevant in the context of construction arbitration.
Before the existence of this practice, it was impossible for parties to know or understand the reasoning of the court for deciding that a case should proceed on a prima facie basis or that two ongoing cases should be consolidated. As frequently occurs with construction arbitrations, cases are often based on several contracts and involve multiple parties. Having a better understanding of the ICC Court’s reasoning behind its decisions in this regard provides parties with greater clarity as to the criteria used by the court in multi-contract and/or multi-party arbitrations. This is important not only for arguing a case in such situations, but also for when practitioners engage in drafting multiple contracts involving multiple parties and wish to incorporate this option of having the potential claims heard in a single arbitration.
Expeditious determination of manifestly unmeritorious claims or defences
Another improvement made by the ICC to address concerns related to efficiency was made in October 2017, through the amendment of the above referenced Note. The Note provides specific guidance to parties and arbitral tribunals on the immediate dismissal of manifestly unmeritorious claims and defences.
This guidance follows similar initiatives taken by other arbitral institutions aimed at increasing efficiency in arbitration proceedings and constitutes the latest response by arbitral institutions to concerns by users regarding the costs and efficiency of proceedings.
It would seem that arbitral institutions have come to the consensus that summary procedures are another means of ensuring that disputes are resolved in an expeditious manner. The ICC is not the first institution to deal with early dismissal of unmeritorious claims. The SIAC Rules of 2016 include a provision dealing with early dismissal of claims and defences (art 29).
In similar terms, the SCC Rules of 2017 contain a Summary Procedure for these types of claims (art 39). Other institutions have refrained from incorporating summary procedures or specifically dealing with this question. For instance, Article 14.4(ii) of the LCIA Rules of 2014 imposes upon the arbitral tribunal:
“…a duty to adopt procedures suitable to the circumstances of the arbitration, avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution of the parties’ dispute.”
Rather than amending its Rules or remaining silent in this respect, the ICC has opted to publish the Note, and addressing this question within it, given that it arises from the broad power of the arbitral tribunal to conduct the arbitration in an expeditious and cost-effective manner (art 22 of the ICC Rules).
In summary, the Note provides that:
- any application for an Expeditious Determination of Manifestly Unmeritorious Claims or Defences (the Application) shall be filed “as promptly as possible after the filing of the relevant claims or defences”;
- the arbitral tribunal has full discretion to decide whether or not to allow an Application to proceed taking into consideration the stage of the proceedings and the need to ensure time and cost efficiency;
- if the arbitral tribunal allows the Application, it shall promptly adopt procedural measures to deal with the Application after consultation with the parties;
- the respondent party shall have an opportunity to comment on the Application;
- the arbitral tribunal shall establish a straight forward procedure to deal with the Application, which includes (i) exceptionally allowing further evidence, and (ii) considering whether any hearing can be conducted by videoconference, telephone or similar means of communication;
- arbitral tribunals shall decide on the Application as promptly as possible and state the reasons for their decision as concisely as possible, in the form of an order or an award; and
- if the arbitral tribunal’s decision is taken in the form of an award, the court would in principle scrutinise any award within one week of receipt by the Secretariat.
By expressly confirming the power of arbitral tribunals to deal with such claims summarily in arbitrations conducted under the ICC Rules, the ICC Court has provided greater certainty for parties with respect to the available options for efficiently dealing with frivolous claims.
Likewise, by providing more detailed guidance on the applicable procedure with respect to frivolous claims, the ICC has given a clear message to arbitral tribunals that they can (and should) consider conducting summary procedures where suitable. Finally, having a clear understanding of the arbitral tribunal’s power to summarily dismiss unmeritorious claims may contribute to the avoidance of challenges to any awards made on a summary basis, as this would avoid disagreements on whether or not it is within the arbitral tribunal’s jurisdiction under the ICC Rules to apply a summary procedure to the determination of certain claims or defences.
It would seem that, although well received by the arbitration community, it ultimately remains too early to assess the implementation of the EPP. However, other amendments made by the ICC in the ICC Rules have been put into practice and seem to have brought immediate benefits to practitioners and users of construction arbitration.
The implementation of the communication of the reasons behind the court’s decisions on jurisdictional and consolidation issues, and the developments made by the Note, on the dismissal of manifestly unmeritorious claims and defences, are improvements that should be well received by the industry as these initiatives and the way in which the ICC Court has put them into practice is palpable evidence of the effective actions taken by the institution in order to make arbitration more efficient and cost effective.