Arbitration, whether compulsory or voluntary, is commonplace these days as a less expensive and more efficient resolution to litigation than trial. Litigators in Pennsylvania are familiar with the Court of Common Pleas Compulsory Arbitration Program for cases with an amount in controversy of $50,000 or less. For cases with a larger amount in controversy, parties will often agree to arbitrate with a company offering a private arbitrator, such as AAA, JAMS and ADR Options.
In cases involving international disputes, the arbitration venues commonly found in contract include, the London Court of International Arbitration (LCIA), Hong Kong International Arbitration Centre (HKIAC), Swiss Chamber’s Arbitration Institution (SCAI), Singapore International Arbitration Centre (SIAC), German Institution of Arbitration (DIS), Stockholm Chamber of Commerce (SCC), Vienna International Arbitration Center (VIAC), International Centre for Settlement of Investment Disputes (ICSID), and the International Court of Arbitration for the International Chamber of Commerce (ICC).
The number of international arbitrations has been increasing due largely to the growing number of courts in foreign countries recognizing and enforcing foreign arbitral awards. An ICC arbitral award, for instance, can now be enforced in China, where its courts refused to recognize and enforce foreign arbitral awards against its citizens on many occasions. It is becoming increasingly likely for practitioners to face a dispute over a contract providing for arbitration before one of these international forums. This is true even with smaller cases involving an amount in controversy under $50,000.
For example, in 2015, one-third of the 801 cases filed with the ICC were of a value less than $2 million. In 2016, this trend continued as the number of cases arising from the finance and insurance sector grew to match the number of cases relating to the construction and engineering sector, which has historically led to the highest percentage of ICC cases. In 2016, two-fifths of the disputes involved sums below $5 million. In 2016, the ICC also saw a record increase of 20 percent in its caseload, whereas in the years between 2012-2015, there was a 1 to 3 percent steady increase.
On March 1, 2017, in response to the growing demand in the market for international arbitration, particularly in smaller cases, the ICC implemented a revised set of arbitration rules (2017 ICC Rules). The 2017 ICC Rules address the ICC’s reputation and potential of being overly expensive and bureaucratic–issues becoming increasingly problematic in a market with a high demand for quick, cost-efficient resolution of relatively small claims. This article examines ICC arbitration under the 2017 ICC Rules.
The Expedited Procedure Under the 2017 ICC Rules
The most significant change reflected in the 2017 ICC Rules is the introduction of the Expedited Procedure. The Expedited Procedure mandates that a sole arbitrator shall render an arbitral award within six months after a limited establishment of the facts and optionally without a hearing. Many other leading arbitration tribunals also provide for expedited procedures, including SCAI, SIAC and HKIAC, while some institutions have yet to respond to the market (e.g., LCIA).
As stated in Article 30 and Appendix VI of the 2017 ICC Rules, the Expedited Procedure automatically applies to ICC arbitrations with an amount in controversy equal to or less than $2 million, unless explicitly excluded by the arbitration agreement, provided that the arbitration agreement was executed after March 1, 2017. Where the amount in controversy exceeds $2 million, the parties can agree to opt-in to the Expedited Procedure. If the parties do not want to apply the expedited procedure where its application is automatic, they can opt out. Where the parties’ agreement predates the implementation of the 2017 ICC Rules, the parties can agree to opt-in to the expedited procedure.
The key features of the expedited procedure are:
- There shall be a sole arbitrator, even where the parties’ agreement provides for a three-arbitrator tribunal, except in exceptional circumstances;
- The tribunal may limit the number, length and scope of written submissions, expert reports, and witness evidence;
- The default procedure is that the tribunal may decide the dispute solely based on documents submitted by the parties and without a hearing or examination of experts or witnesses. Alternatively, the tribunal can hold hearings via telephone or video conference; and
- The tribunal must render its final award within six months of the case management conference, which must take place within 15 days after the date on which the file is transmitted to the tribunal.
These features reduce the cost and time of ICC arbitration. Before the 2017 ICC Rules, the time it took to obtain an award had been a source of frustration. By way of comparison, the median duration of an arbitration conducted by a sole arbitrator in the LCIA, which does not have an expedited procedure, is 15 months.
The Logistics of ICC Arbitration
ICC arbitration can be used for the settlement of international, cross-border disputes no matter how small the amount in dispute. In matters proceeding under the expedited procedure, a sole arbitrator will be appointed by the ICC court. The appointment of a sole arbitrator is intended to reduce the costs and to accelerate the proceedings. In matters not proceeding under the ICC expedited procedure, disputes are resolved by either one or three arbitrators, depending on the parties’ agreement. Where the parties have agreed that the dispute shall be resolved by three arbitrators, each party shall nominate one arbitrator for confirmation. The third arbitrator, who will act as president of the arbitral tribunal, is appointed by the ICC court. The parties’ nominations shall be made in the request and answer.
In 2016, 1,411 arbitrators were appointed or confirmed. These arbitrators were drawn from 76 nationalities. The most frequent nationalities of arbitrators appointed or confirmed were UK, United States, Switzerland, France, Germany and Brazil, in that order.
The place of arbitration is fixed by the ICC court unless agreed to by the parties. In 2016, ICC arbitrations were held in 106 cities in 60 countries across the world. Where lawyers are drafting agreements that provide for ICC arbitration or any international arbitrations, this is an important point to consider.
Commencement of ICC Arbitration
A party can commence ICC arbitration by submitting a request for arbitration to the secretariat. This can be done by mail, courier, hand delivery, e-mail or facsimile and can be delivered to ICC’s New York office (SICANA Inc.) at 140 East 45th St., New York, NY 10017. The secretariat also maintains headquarters in Paris, France, and offices in Hong Kong, China.
ICC does not require requests for arbitration to be in any particular form, but the required information for submission is similar to that found in a typical arbitration demand form before AAA. The date on which the request for arbitration is received by the secretariat of the ICC court is the date of commencement of the arbitration. After acknowledging receipt of a request, the secretariat will notify the respondent party or parties. It will also inform the claimant(s) that it has done so and indicate the date of receipt of the request. Although the request is filed in New York (or Paris or Hong Kong), the arbitration will proceed in the location provided by the parties’ agreement.
Within thirty days from receiving the request for arbitration from the secretariat, the respondent must submit an answer and assert any counterclaims. The claimant shall submit a reply to any counterclaim within 30 days from receipt of the counterclaims communicated by the secretariat. Requests for an extension of time to respond may be made to the secretariat.
Costs of ICC Arbitration
The fee schedule for ICC arbitration under the expedited procedure is lower than for a nonexpedited case. Under the expedited procedure, the cost of arbitration, including administrative expenses and arbitrator’s fees, is 20 percent lower compared to the regular procedure. For the party commencing the ICC arbitration process, a nonrefundable $5,000 filing fee is required. This payment is, however, credited to the claimant’s portion of the advance on costs, which is to be paid equally by the claimant and respondent and is fixed upon or soon after an answer is filed. The claimant may also be responsible for a provisional advance, which is set after the request for arbitration, and is also credited toward the claimant’s portion.
The amount of administrative expenses is based on the amount in controversy. For example, if the amount in controversy is between $200,001 and $500,000, the amount of administrative expenses is $8,485.00, plus 2.25 percent of the amount in question over the $200,000 threshold. Similarly, the amount of the arbitrator’s fees depends on the amount in controversy. In setting the arbitrator’s fees, the court also considers the diligence and efficiency of the arbitrator, the time spent, the rapidity of the proceedings, the complexity of the dispute and the timeliness of the submission of the draft award.
Under the 2017 ICC Rules, if an arbitrator has acted expeditiously, the ICC court may increase the arbitrator’s fees. The ICC court may reduce the fees or arbitrators who submit their draft awards late, by 5 percent to 10 percent for draft awards up to 7 months late, by 10 percent to 20 percent for draft awards up to 10 months late, and by 20 percent or more for draft awards over 10 months late.
The ICC website offers a “cost calculator” that helps forecast the likely costs of ICC arbitrations: https://iccwbo.org/dispute-resolution-services/arbitration/costs-and-payments/cost-calculator/
In 2016, 966 new cases were filed with the ICC, representing 3,099 parties from 137 countries and territories with cases from North America more than doubling and with the United States being the most frequent country of parties filing cases. By implementing the 2017 ICC Rules, the ICC has responded to the demand of today’s international market. Practitioners must too respond by understanding ICC arbitration no matter where they practice, as the chances of it arising are greater than ever.
Edward T. Kang is the managing member of Kang, Haggerty & Fetbroyt. He devotes the majority of his practice to business litigation and other litigation involving business entities.