UK: Question And Answers Concerning The New 1998 ICC Rules For International Arbitration

Last Updated: 26 November 1997
Article by Stewart Shackleton, Norton Rose, November 1997

This article was first published by FT Law & Tax in Practical Arbitration Journal. Further information can be found at Click Contact Link on the FT Law and Tax home page.

The new 1998 ICC arbitration rules launched last June have already been the subject of several recent conferences and seminars in Paris and London. The new Rules, which are widely seen as a definite improvement of ICC arbitration, will come into force on 1 January 1998. A number of questions about procedure under the new Rules are commonly asked by practitioners. The Consulting Editors have put some of these questions to Stewart Shackleton of Norton Rose

Starting proceedings and mandatory Reply to counterclaim

Question: While statements of case, defence etc are no longer required, is there a mandatory Reply to any counterclaim?

Answer: It is incorrect to say that statements of case, defence etc are no longer required. On the one hand, the new Rules will still require parties to file a 'Request for Arbitration' (r4) and an 'Answer to the Request' (r5). Apart from the question of counter-claims, the manner and form of any further pleadings will be determined by the parties and the arbitral tribunal. On the other hand, even under the current 1988 Rules, parties are under no obligation to file a full statement of case or defence at the start of proceedings.

While the 1998 Rules have dropped the terms 'statement of the claimant's case' with reference to the contents of the Request for Arbitration and 'defence' in relation to the Answer to be filed by the respondent (known as the defendant under the current Rules), this really represents more a clarification than a change of practice. These terms are actually misnomers. In practice under the Rules now in force, it is sufficient to include a brief description of the circumstances surrounding the parties' dispute. However, the current wording can be confusing for first-time users who sometimes understand that they are required to file complete and detailed pleadings and supporting documents from the start.

The recent changes incorporate more system-neutral language: under the new Rules, the Request will contain a 'brief description of the nature and circumstances giving rise to the dispute' and the Answer, 'comments' on same. This enhances the universal adaptability of Rules across legal cultures. There is no set form or style of pleadings to which the parties must necessarily comply in filing a Request or an Answer. This is because ICC Rules are intended to accommodate a great variety of legal practices.

It should be noted that the new Rules require parties to provide somewhat more information in the initial stages. In addition to the 'statement of case', a Request under the current Rules must contain a description of the parties to the dispute and the relevant agreements, in particular the agreement containing the arbitration clause. Both parties are required to comment on the number of arbitrators and, where applicable, indicate their choice of arbitrator. The new Rules will require the claimant to add a statement of the relief it seeks including, to the extent possible, an indication of the amounts claimed. The respondent will have to include in its Answer comments on the relief sought by the claimant. The new Rules will also require both parties to provide any comments they may have on the applicable law, the language and the place of arbitration.

Under the 1988 Rules, it is 'open to the claimant to file a Reply to the counterclaim within 30 days from the date it receives the counterclaim' (current r 5 (2)). The new wording of this provision, according to which the claimant 'shall file a Reply to any counterclaim within 30 days' (r 5(6)), suggests that the Reply to the counterclaim will be mandatory within the given time period.

However this is unlikely to be the actual effect in practice. The new r 5(6) must be read together with r 18(1) which, like the present r 13(1), requires the arbitral tribunal to draw up Terms of Reference ('TOR') 'on the basis of documents or in the presence of the parties and in the light of their most recent submissions ...' Arbitrators are therefore arguably required to take into account any Reply to a counterclaim filed up to the date of the TOR, especially where the counterclaim itself is filed late.

This is currently the situation with respect to the respondent's counterclaim which, according to a textual reading of the present r 5(l) must be filed together with the Answer. In practice, however, respondents are generally free to enter counterclaims at any moment up to the completion of the TOR for the same reasons as explained above.

List of issues in the TOR

Question: Under the new Rules, arbitrators are not required to include a list of issues in the Terms of Reference if the tribunal considers it 'inappropriate'; under what circumstances might the tribunal consider it so?

Answer: Under the 1988 Rules an ICC arbitration must proceed on the basis of formal TOR which contain, inter alia, a list of the issues to be decided by the arbitrators. The new r 18(l)(d) confers broad discretion on ICC arbitrators to decide whether or not to include such a list. The precise circumstances under which an arbitrator might consider a list of issues to be inappropriate would appear to be almost unlimited.

Obviously where neither party wishes to define the issues in advance, it would be inappropriate for the arbitrator to insist on doing so. Likewise, where both parties clearly want to set out a list of the issues to be determined by the arbitrator, it would normally be wrong for the arbitrator to refuse to include a list of the parties' agreed issues in the TOR.

Where the parties are unable to agree to include a list, or cannot agree on a common definition of the issues, it may in certain circumstances be more cost effective simply to proceed without a list. There are specific situations where it may be inappropriate to list the issues in the interest of flexibility: disputes involving complex relationships between multiple parties or highly technical difficulties where the issues are not all apparent to the parties themselves, let alone the arbitral tribunal, at the time the TOR are drawn up. In other cases, where the parties' contractual relationship is still ongoing or where the nature of the dispute is continually evolving, it may not always be efficient to attempt to define the issues. Still other situations may involve the commencement of an arbitration before the dispute or expected breach has crystallised into its final form or where one party's announced course of conduct is certain to lead to further, but as yet unidentifiable, allegations by the other party of breach of contract which will inevitably give rise to additional issues.

Finally, a high degree of legal complexity where, for example, more than one national law is applicable to the same dispute, or where the applicable law is itself a question in dispute may complicate the precise definition of the issues to be determined.

Powers of the tribunal

Question: What powers will the tribunal have to entertain new claims after Terms of Reference are final?

Answer: Under the current r 16, parties must come up with an agreed rider to the TOR before new claims can be admitted. Otherwise, such claims or counterclaims may be raised during the course of proceedings only to the extent that they remain within the TOR.

To allow greater flexibility, the new r 19 confers discretion on arbitrators to authorise parties to raise issues or claims which fall outside the TOR. In the exercise of their discretion, arbitrators will have due regard to relevant circumstances including the nature of the new claims or counterclaims and the stage of proceedings of the arbitration.

Arbitrators will have to balance competing interests. Parties may legitimately expect that all matters in dispute between them should, within the scope of the terms of their arbitration agreement, be settled in such a way as to put a definite end to sources of further conflict. At the same time, claims raised at a late stage in bad faith should not be allowed to defeat the objectives of speed and cost-effectiveness. Arbitrators must also take care to ensure that parties gain no unfair advantage from raising claims in an untimely manner. ICC arbitrators will also have to exercise discretion within their new duty to 'act fairly and impartially and ensure that each party has a reasonable opportunity to be heard' (r 15.2).

New 'slip rule'

Question: How will the new 'slip rule' work?

Answer: Provision has been made in the new Rules for arbitrators to correct clerical errors in an award (r 29). They may do so on their own initiative within 30 days of the date on which the award is rendered. Parties may also take the initiative in this regard. They will be able to apply to the ICC Secretariat for the correction of such errors or for the interpretation of an award by the arbitrators within 30 days from receipt of the award.

The Secretariat will transmit a party's application to the arbitral tribunal which must first grant the other party an opportunity to comment within a period not to exceed 30 days. The Rules provide that any modification of the award will constitute a part of the award. As such, modifications will be subject to scrutiny by the ICC Court and also notification to the parties who will be deemed to have waived any rights to appeal to the extent they can validly do so. Under art 2(7) of Appendix III to the Rules, the ICC Court has discretion to require the prior payment of an advance on additional fees and expenses before it transmits an application to an arbitral tribunal.

Arrangements for advances

Question: What are the practical consequences of the changes in arrangements for 'advances'?

Answer: Payment of the advance on costs for the fees and expenses of the arbitrators and administrative costs presently occurs in two stages. The ICC estimates the costs of the arbitration and requests each party to pay a share of one half of the estimated advance before it will transmit the file to the arbitral tribunal. Thus each party normally pays one quarter of the costs at this stage. The parties each pay their share of the remainder once the TOR are in place. The current Rules stipulate that the TOR become 'operative' only with respect to claims for which the full advance has been paid.

It often happens that one of the parties, usually the respondent, does not pay its share of the requested advance at either stage, or pays late. Under existing arrangements this affords opportunity for a respondent to delay both the transmission of the file to the arbitral tribunal and the entry into force of the TOR.

The new Rules maintain the two-stage process. However, when proceedings are commenced under the 1998 Rules, the ICC Secretary General will be able to request the claimant alone to pay a 'provisional advance' on costs to cover the period up to the time at which the TOR are drawn up (r 30(l)). In this way, no time will be lost first waiting to see if the respondent will pay its share.

The full amount of the advance will be fixed by the court 'as soon as practicable' (r30(2)). It is shared equally by the parties with the provisional amount already paid by the claimant being considered as partial payment of its share (art 1(2) of Appendix III). Under the new r 18(3), once the TOR are signed by the parties or 'approved by the court, the arbitration shall proceed'.

Where the respondent does not pay its share of the advance on costs, this can, of course, be paid by the claimant. However, the introduction of the provisional advance and the disconnection of the TOR from payment of the full advance will allow the procedure to move ahead independently of the time it takes to determine whether or not the respondent will pay its share of costs.

The question arises under the new rules as to what will happen if the full amount of the advance still is not paid. Pursuant to r 30(4), the Secretary General has discretion in such cases to request the arbitrators to suspend work. Under art 1(3) of Appendix III to the Rules, the tribunal shall, 'in general' and in accordance with art 30(4), proceed only with respect to the claims or counterclaims in regard to which the whole of the advance on costs has been paid.

Stewart R. Shackleton is an avocat and a member of the Paris bar. He is also a solicitor in England, Hong Kong and Ontario. As a member of the Arbitration Committee of the Canadian Council for International Business, he advised on the revision to the ICC Rules. He is a senior associate of the Norton Rose Arbitration Group in London and Paris.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

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