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The International Chamber of Commerce recently announced the adoption of a set of “expedited rules.” In a subsequent post, we will examine the extent to which these rule changes are likely to affect the decision by Israeli companies to select ICC arbitration, and we will do so utilizing some empirical data concerning the views of Israeli in-house counsel.
But in this post, we start with the question of whether one of the rule changes indicates that the ICC has, essentially, followed the lead of Israel’s oldest arbitral institute, the Israeli Institute of Commercial Arbitration (http://www.borerut.com/).
Specifically, one of the ICC’s rule changes attempts to solve the same problem that the IICA attempted to solve years ago – namely, whether an arbitral institute should, in connection with relatively small cases, be bound to appoint three arbitrators solely because the arbitration agreement calls for the appointment of three arbitrators.
The ICC has not yet published on its website the full set of the expedited rules (that will probably change soon), but the ICC has announced that those rules will give the institution the discretion to appoint a sole arbitrator in connection with a contractual dispute not greater than $2 million even if the parties had specified in their contract that any dispute would be arbitrated by more than one arbitrator.
Almost immediately after the announcement, some international arbitration practitioners questioned whether the ICC has gone too far – because the rule change overrides contractual stipulations for arbitration before multiple arbitrators. Invoking the principle that arbitration is a creature of contract, some observers have expressed the concern that, in an effort to promote “speed and efficiency,” the ICC has ridden roughshod over the fundamental principle of freedom of contract.
Commenting in Global Arbitration Review, Jose Maria de la Jara and Nicolas Rosero recently wrote:
Some practitioners will no doubt argue that the parties’ consent is not breached because they have chosen to arbitrate the dispute under the ICC [‘s then existing] rules, which now include the regulation regarding the expedited procedure. Thus, the parties have implicitly given consent to resigning their right to a three-person panel.
But . . . implicit consent does not accurately represent the intention of the parties. Companies simply do not sign contracts with a hypothetical low-value dispute in mind that would force them to go to an expedited procedure decided by a sole arbitrator. Hence, caution should be exercised on overriding an explicit and crystal-clear agreement expressed in the arbitration clause with a presumed and hypothetical consent. After all, arbitration is a matter of consent, not coercion.
Time will tell whether other observers will join the chorus criticizing the “implied consent” basis for the rule change.
But regardless of how that specific part of the debate plays out, arbitral institutions worldwide still need to grapple with the issue of the efficiency of multiple arbitrators in relatively small cases.
The Israeli Institute of Commercial Arbitration addressed this issue as far back as 2007, when the IICA adopted its International Rules.
In drafting its International Rules, the IICA recognized that a three-arbitrator case can be expensive and that not every transnational dispute merits the costs inherent in three-arbitrator adjudication. (See http://www.sherby.co.il/cgi-bin/Israels_New_International_Arbitration_Rules.pl) In the Israeli context in particular, there is a perception that a contractual requirement of multiple arbitrators can be abused by a party that has the greater ability to bear the higher costs inherent in such a case. Id.
Therefore, Rules 1.1(a)(iv) and 4.2(b) of the IICA’s International Rules attempt to establish a balance between the general rule of honoring the parties’ pre-dispute agreement to use multiple arbitrators and the cost/burden of a three-arbitrator case. Those rules provide that the parties’ pre-dispute agreement to arbitrate before three arbitrators will be honored by the IICA, subject to one caveat: at least one party must, in its initial pleading with the IICA, make an express request for the appointment of three arbitrators. In other words, if the plaintiff fails to include a “multiple arbitrator statement” with its application to commence the arbitration, the plaintiff will be deemed to have waived any contractual right to request that the case be adjudicated by three arbitrators. Similarly, if the defendant fails to include a multiple arbitrator statement with its statement of defense, the defendant will be deemed to have waived any contractual right to request the appointment of multiple arbitrators.
The above mechanism gives parties to an arbitration agreement the certainty that their pre-dispute selection of three arbitrators will be honored by the IICA, subject simply to their paying sufficient attention to raise the issue at the first opportunity. (Unlike the ICC, the IICA never had to be concerned about the “implied consent” issue – because the very first version of the IICA’s International Rules included the above-described Rules 1.1(a)(iv) and 4.2(b).)
It is likely that other arbitral institutions will consider yet other solutions to the problem of the perceived inefficiency in using three arbitrators for relatively small cases. But what is clear from the International Chamber of Commerce’s recent announcement is that the ICC recognizes the problem.
As Israeli lawyers, we take pride in knowing that an Israeli arbitral institution was at the forefront, years ago, of the efforts to address this issue.
(As indicated, our next post concerning the new ICC rules will address the extent to which these rule changes are likely to affect the decision by Israeli companies to select ICC arbitration.)