If you wanted to divide a room in 2017, you simply ask about expedited arbitration. GAR Live Frankfurt last year proved no exception. For once, though, the panel in question included some in-housers, who were forthright in their views.
Session two of GAR Live Frankfurt - “Emergency and expedited arbitrations – the pros and cons” – featured Mariagiovanna Scarpa, of Generali, Elmar Schweers, of RWE, Sven Lange, of Allen & Overy, and Elliot Polebaum, an independent arbitrator.
They were moderated by Tanja Pfitzner, founder of Pfitzner Legal. Their starting point was the ICC’s new expedited arbitration procedure.
Questions they discuss include:
On expedited arbitration
- What questions remain regarding the ICC’s version?
- How might they ramify at enforcement?
- Will experienced arbitrators want these cases?
- What effect might such procedures have on settlement?
- What response is required from the lawyers who draft contracts?, and
- Does expedited arbitration meet a genuine user need?
On emergency arbitrators
- Is it proving popular yet?
- Is it preferable to going to a state court?
These questions generated fierce discussion between panel and audience, in particular about whether users would like the proposal. The event took place on the 29th June 2017 at the Jumeirah Hotel, Frankfurt. The following is an edited transcript of the discussion.
Tanja Pfitzner: The second part of this morning deals with emergency and expedited arbitrations – the pros and cons. Let me introduce my colleagues on the panel.
Tanja Pfitzner introduced the speakers.
So, we have a panel of practitioners from the in-house perspective, the arbitrator perspective and the counsel perspective. What we would like to do is to talk about expedited arbitrations because we now have the new ICC Rules. We’ll start with Elliot Polebaum, who will give an introduction to these rules. I’m sure a lot of you have experience in this field and a view on the new rules that we would like to hear and share. The second part of the session will deal with the emergency arbitrations and Dr. Sven Lange will give an overview about that.
Elliot Polebaum: Thank you very much. I’m going to start by setting forth some of the key elements of the new ICC Expedited Arbitration Rules & Procedures so that we have common ground for the purposes of discussion. In that regard, let me put up a slide that appeared in an article that Jennifer Kirby did a couple of years ago, and she graciously agreed that we could use today.
What you see are three aspirational goals for all arbitrations: that they should be good, they should be fast and they should be cheap. By “good”, what we mean is that the parties have a full and fair opportunity to present their case, and that the arbitrators have a full and fair opportunity to understand it and come to the right outcome. As you can see from the diagram, there’s a certain tension, felt perhaps a bit more acutely, in the expedited arbitration context. So, if you want to have good and fast arbitration, it’s likely to be expensive. If you want to have good and cheap arbitration, it’s likely to be slow. If you want fast and cheap arbitration, the slide uses the word "crappy”. And finally, if you want to have good, fast and cheap arbitration – at least in Jennifer’s estimation – “keep dreaming”.
In the discussion we’re also going to compare and contrast the ICC Rules with the rules of other institutions. In this regard, WilmerHale prepared a handy chart comparing what the different institutions do across the various issues implicated in expedited arbitration. Let me also mention that there’s a very good article by Michael Bühler and Pierre Heitzmann on the new ICC Expedited Arbitration Rules that appeared in Kluwer recently, and which explores some of the advantages and pitfalls that flow from them.
The new rules adopt an expedited arbitration procedure for claims that do not exceed US$2 million, which will apply to all arbitrations where the arbitration clause is signed after 1 March 2017. What the rules have adopted – and what differs from prior ICC practice – is that you now have an opt-out procedure. These rules apply automatically unless the parties expressly opt out of the new rules. The parties also have the possibility to opt into the Expedited Arbitration Rules if their claims exceed the US$2 million threshold.
Now, what are the consequences of the application of the new rules? First, the cases are going to be heard by a sole arbitrator, even if the parties have expressly agreed in their arbitration clause that the case will be heard by three arbitrators. That raises questions about party autonomy and the expectations of the parties. The rules provide for the expedited appointment of an arbitrator and, for those who sit as arbitrators, one noteworthy element is that the fees payable to arbitrators who sit in these cases are reduced by 20% from the normal pay scale the ICC applies. That raises questions about the attractiveness of these cases to more experienced arbitrators. That will also be a good subject for discussion.
For the purposes of an expedited procedure, the new rules do away with the traditional terms of reference. Parties go straight to a case management conference that sets the procedure for the rest of the case. No new claims may be introduced after the tribunal is constituted unless the sole arbitrator agrees, applying the traditional criteria that tribunals have applied when new claims are sought to be introduced after the terms of reference have been settled.
The tribunal also has very broad discretion to define the procedure. That’s not different from tribunals in typical ICC cases but, in the expedited context, it can have a particular bite. So, the rules and procedures allow the sole arbitrator to curtail dramatically – and even do away with – document disclosure requests. The sole arbitrator may sharply limit written submissions and written evidence. The sole arbitrator may decide, in consultation with the parties, that there will not be an oral hearing (under the standard rules a party has a right to an oral hearing). So, at a certain point one has to wonder whether, if a sole arbitrator decides to allow no document disclosure, very limited written submissions, very limited written evidence and no oral hearing, whether one approaches the line where due process considerations come into play.
Then, the sole arbitrator is enjoined to produce a reasoned award within six months of the date of the case management conference. Practically speaking, that means the draft award has to get to the ICC at 5-5.5 months, so they can go through their award scrutiny process. ICC representatives, who have been doing road shows on the new rules, have indicated that they’d be able to act very, very quickly; indeed, perhaps, with a sole member of the court constituting the scrutinising entity for purposes of the ICC. That raises a number of issues that we’ll get into.
There’s also discretion on the part of the ICC to have the expedited rules – which would normally apply to a case worth less than US$2 million – not apply. That can be done on application of a party. For example, if there’s a low amount in dispute but the case presents certain complexities or issues of declaratory relief in a contract that are significant, or where the parties have an ongoing relationship, the ICC Court, upon application of the parties, reserves the right to not apply the Expedited Arbitration Rules. Noteworthy is the fact that the ICC can also decide to abandon altogether the applicability of the expedited rules during the course of the case if it becomes apparent to them, or a party making application, that the expedited rules are not well adapted to the particular case. The ICC can put a stop to it and change the rules of the game.
So, we have a number of important issues to discuss. We’re going to focus primarily on the arbitration stage. We’ll talk about the sole arbitrator requirement: what that does to party autonomy/party expectations; whether this is a good idea or a bad idea; the streamlined procedures I’ve referenced already; and whether there are serious due process considerations that arise in certain contexts. Again, what are the advantages and what are the disadvantages? We’ll talk about the applicability of the expedited procedures in cases where the quantified amount is less than US$2 million, but where there are, perhaps, other reasons why the expedited procedures should not apply; and the potential multiplication of disputes that can be brought to the ICC court or to the sole arbitrator as a result of these different factors.
We’ll talk a bit about the post-arbitration stage, and the enforcement and annulment considerations that might pertain as a result of the way this is structured. Then, we’ll circle back and try to draw out lessons that may have come from the discussion to see how that affects people who are drafting arbitration clauses. Should parties, perhaps, opt out based on some of the relative advantages and disadvantages that we’ll discuss today?
Tanja Pfitzner: Thank you very much. Elliot, when we look at these rules, there’s a lot of uncertainty there. We have this threshold of US$2 million, but there are cases (and we all know these cases) that can be very complicated, but are below this threshold. Then there is the power of the ICC Court to decide that these rules do not apply, and even change the applicability of the new rules in the course of proceedings. What is your idea of where that leads?
Elliot Polebaum: It raises a host of issues. There are many cases where the quantified amount is not particularly high, or there may be no quantified amount at all; where the relief being sought is declaratory in nature; where the contract is complex; or where the parties have an ongoing, long-term contractual relationship. So, it’s hardly a simple case that will necessarily be well-adapted to the expedited procedures, and the truncated possibilities for document disclosure, witness evidence, written submissions and an oral hearing. In the rollout of these new rules, the ICC has indicated that they plan to be flexible, judicious and consider all the facts and circumstances. Until shown otherwise, we can have some confidence that that will be the case.
There will be many cases, though, that fall below the US$2 million cut-off, but a party may nonetheless consider that it’s vitally important that the full, standard ICC procedure be applicable. If the other party doesn’t oppose it, that makes it easy but, if the other party does oppose it, then the ICC court will have to decide. And, presumably, they’ll inform themselves about the level of complexity of the case, the true stakes and, hopefully, make a wise decision.
Tanja Pfitzner: Do you believe that this court will also have repercussions at the enforcement stage?
Elliot Polebaum: The view is that parties, having entered into their arbitration clause after 1 March 2017 and adopted the ICC Rules, if they haven’t opted out, then they are in and they are on notice that they are in. So the presumption will be that the parties agreed that these expedited procedures would apply. So, if the ICC Court makes a determination that the expedited procedures should not apply because of complexity reasons, I would be surprised if that gave any room for a challenge, either by way of annulment or at the enforcement stage. I think we’ll come to the more difficult questions on enforcement when we talk about the truncated procedures.
Tanja Pfitzner: Sven?
Sven Lange: I could see a problem in the opposite case where the ICC Court does not decide to apply the regular procedure, although it would be appropriate, when it turns out that the case just cannot be dealt with in six months with limited submissions and limited hearings. And, when it’s really clear that it’s not possible to do it and the Court nonetheless doesn’t change the procedure, that might cause enforcement and due process problems.
Mariagiovanna Scarpa: Unaddressed in the ICC Rules is what happens then when the Court decides to go back to a regular proceeding. What about, for example, the terms of reference? What about the timetable? What about the arbitral tribunal? This might imply delays and cost increases that are two features the ICC is trying to avoid. I think that this should be addressed in a more detailed way. What happens if we go back to a regular proceeding?
Elmar Schweers: I agree that this is all uncertain in these early stages. Time will tell in what cases, classes or categories the ICC Court may decide to go either way – to opt in or opt out – against the autonomy of the parties. It might be interesting to have more insight into the decision-making process in the ICC Court. Of course, it sounds good to say that they are flexible and judicious, but time and experience will tell. We need to monitor that carefully.
Elliot Polebaum: The secretary general came to Washington a month or two ago and did a presentation on the new ICC Rules. He emphasised that the rules are intended to be flexible. They’ll take a reasoned approach and consider all the circumstances when questions arise about whether the expedited procedures should be used or abandoned. We don’t have any experience with this yet.
Tanja Pfitzner: I have one follow-up question with respect to party autonomy. If you want to make sure, as a party, that the expedited rules will not apply, would it be a way to inflate the claim? We all know how that can be done, but this is certainly not in the interest of the proceedings or the parties. Do you have a view on that, Sven?
Sven Lange: Of course, a party could use creative accounting to inflate a claim from US$1 million to US$3 million, and it’s difficult to prove that. The note to the parties that the ICC issued with the new rules says that, in case a tribunal believes that a party inflated the claim to avoid expedited procedure, the tribunal should take that into account at the cost stage as a sanction. I think that whenever there’s the sense of misconduct, all the institutions can think of is to go to the cost stage and solve it there. I don’t think it will be that effective because it’s very hard to show that a party inflated the claim for that purpose. There is certainly a risk that this could happen.
Tanja Pfitzner: There is this new feature – the mandatory “one arbitrator” rule – even if the parties have agreed on a three-arbitrator tribunal. From the perspective of the parties, Mariagiovanna, what do you think about this rule, which overrules what the parties wanted?
Mariagiovanna Scarpa: I think that this is dangerous because companies – when they decide to go for arbitration, rather than jurisdiction – rely on the possibility of choosing one of the arbitrators. This is a guarantee that your theses are heard in the arbitral tribunal, so an important feature when choosing to go for arbitration. So, having the Court disregard the agreement, it’s something that might bring the companies to opt out.
Tanja Pfitzner: Elmar, do you think that as well?
Elmar Schweers: I completely agree. In general, the preference we have for arbitration compared to litigation is that as a party you can influence the procedural setup, like nominating your arbitrator. Not that he or she’s advocating on your side, but at least they’re making sure that your arguments are heard and that everything will be considered properly in the deliberations. We already have the terms of reference limited; submissions are limited; and oral hearings not necessarily taking place. There is no arbitrator on your side to make sure that there is somebody competent in the tribunal who will understand and convey everything that you have submitted. Therefore, I agree that there is a certain degree of scepticism. Companies may have a tendency, at least in these early stages, to opt out.
Elliot Polebaum: In that regard, can I note that there is a bit of ambiguity in Appendix 6, article 2, paragraphs i and ii. Paragraph ii provides that the parties “may” nominate the sole arbitrator within a fixed time limit and then goes on to say: “in the absence of such a nomination, the sole arbitrator shall be appointed by the Court.” Again, that suggests that it will be a sole arbitrator. But then in the prior paragraph to article 2, it says that the Court may, “notwithstanding any contrary provision of the arbitration agreement”, appoint a sole arbitrator. So, they seem to leave a little wiggle room where it says the court “may” appoint a sole arbitrator when the arbitration clause provides for three; a little bit of discretion, perhaps, not to do that. That certainly adds to the uncertainty Mariagiovanna mentioned a moment ago since, if the Court is reserving the possibility to allow a three-arbitrator tribunal to do an expedited arbitration, where does that come out in individual cases? I’ve always understood this to mean that a sole arbitrator will be appointed but, as I read the language, I’m not 100% certain that that’s the case.
Elmar Schweers: Added to that, one may well wonder why there should be an expedited procedure with three arbitrators, or how it would practically work. We all know situations where three arbitrators are unable to agree a hearing date and they say: “Well, we can either do it in half a year, or the next time we’re all available is in 1.5 years.” What expedites this procedure most is the sole arbitrator; not having one would make it very difficult to meet the six-month time limit.
Tanja Pfitzner: Having spoken so much about the sole arbitrator, it is decisive what the person of this arbitrator is. You want a very experienced arbitrator for this particular kind of proceedings, especially when they’re new. With a sole arbitrator, you don’t have co-arbitrators with whom you can discuss the case, and they cannot add to your thoughts. As a sole arbitrator, you have to identify every pitfall yourself. Then, you have all these different procedural steps, and there is this issue that the arbitrator is not paid as in regular proceedings. We have this 20% reduction in the fees. Elliot, is this an interesting task for a highly experienced arbitrator?
Elliot Polebaum: That will vary from arbitrator to arbitrator. There are the 20-40 usual suspects, who may be disinclined to accept these appointments, but there’s a cohort of other experienced people who would step up to the plate. One point of comparison that’s noteworthy is that the ICC did not reduce the administrative fee by 20%. They reduced the fee payable to the arbitrators by 20% and the rationale, as it was explained, was that the ICC still has to process the case, do the same amount of work, award scrutiny, and so on. But then you have this poor arbitrator, who’s under pressure to get the case done in six months with a financial disincentive to some extent; and the wrong incentive to streamline the procedure in a way that’s not fully desirable in a particular case. So, I query whether the 20% reduction – which I understand to be a way to make the expedited procedure not just fast but cheap – is ultimately a good solution, and whether it will create the wrong incentives for some arbitrators. The good ones will do what’s needed in a case without that in mind, but one can imagine that others may be influenced in the wrong direction as a result of the new pay scale.
Tanja Pfitzner: We would be interested in your views. Would it also be interesting to say: “We might not have the most experienced arbitrators, but there are a lot of other people who are good and new in arbitration, who would likely welcome the opportunity to act as arbitrator and would have more time?” It could well be that more resources would be made available.
Oliver Krammerer: I’m working for the respondent in an arbitration arising out of a large scale infrastructure project. Our senior management and internal audit is not really so much concerned about how long it takes, but they’re extremely concerned about cost.
Elizabeth Hincapie: Our experience is that we don’t want the expedited procedure. We’re always opting out because of the decision on documents. We don’t know if this is of any advantage because we don’t always document all the processes we have with our providers; so that’s a fear that we have. You were saying that there’s 20% less for the arbitrators acting in these expedited proceedings, but then you also were explaining that, upon discretion, you can abandon the expedited proceedings. Will this also affect the expense of the arbitrator? Because my colleagues are very concerned about cutting costs.
Sven Lange: It would mean that all the standard rules apply; it goes back to the normal cost schedule. It might even mean that, when you have a three-arbitrator tribunal instead of a sole arbitrator, this will also increase the costs. You are at the discretion of the ICC where you end up cost-wise.
Thomas Pfeiffer: I’m under the impression that the most significant issue, when it comes to the parties, is the fear of being cut off with something they wish to submit to the tribunal. The rules for expedited procedures allow the sole arbitrator to limit the length and number of submissions. One problem is that, when you ask parties in advance, they love to have everything done very fast; however, during the proceedings, parties don’t like to be cut off with anything. Of course, the rules allow for broad discretion and a lot of flexibility but, from today’s perspective, they are a kind of black box. You don’t know: Will I be cut off with something that I would like to present to the tribunal? What I consider essential is that a best practice needs to be developed: under which circumstances is it appropriate to limit the number of submissions; length of submissions; number of witnesses; length of a hearing; and whether a hearing has to take place at all.
Mariagiovanna Scarpa: I’d like to add a different view. When the rules were issued, I thought users would probably not accept them. I totally shared your view, Elliot. But then I attended an ICC meeting and met several users. I understood that what we haven’t yet done so far is to make a definition of disputes. When we talk about disputes, all of us have our own view. When I talk about disputes, I have complex project matters in my mind. I think: “How can one arbitrator deal with those matters?” In fact, there are lots of disputes which do not have the same complexity; pure product-related disputes, for example, where the matter is just a question of payment: there is no delay analysis, no quantum analysis; it’s just payment or non-payment. What we forget about in evaluating an expedited proceeding – there was just a look at the amount, and everyone thought that would be a perfect solution because you make up your mind as to whether you like it or not. But, from my perspective, one should have taken the opportunity also to describe the type of disputes, and to make sure the solution fits all the disputes you might have in mind.
Tanja Pfitzner: Do you think the discretion of the ICC Court could help there? It’s not in the rules now, but it’s not automatic that the Court would say: “If it’s below US$2 million, does it always has to be an expedited proceeding?”
Mariagiovanna Scarpa: I’m not sure the discretion of the Court would increase the user’s acceptance. There should be something in the rules that allows the parties to decide in advance whether a potential dispute might fall under the expedited proceedings or not, because you know your own portfolio.
Elliot Polebaum: I think the ICC Expedited Rules and Procedures are a valuable addition to what the ICC offers, and that part of the discussion here is just to point out what the pitfalls are so that people can decide whether or not they want to opt out in a particular case. Along the lines of what you just suggested, the ICC also indicated that parties may tailor their opt-out – or opt-in – in a particular way so that they can provide for the application of the expedited rules in a certain class of cases. So, there’s still a good degree of autonomy on the part of the parties if they know their portfolio and can determine whether expedited proceedings make sense in a particular case. There is a problem with parties who don’t follow the ins and outs of arbitration carefully, and just throw in an arbitration clause. You know, the corporate lawyers; they haven’t necessarily thought through the issues and then find two years later: “Oh my goodness, what have we got?”
Sven Lange: It definitely makes sense to distinguish between cases and also the role of the arbitrator with regards to procedural questions. Everybody agrees that, in general, the chairman sets the procedural order and agrees more or less with his co-arbitrators. But, at the end of the day, he is running it. Therefore, for us, it’s important that the material aspects of the case are dealt with appropriately in the deliberations. I like the idea of having a diversified, or cascaded, approach with regards to the plethora of disputes that can arise from a large contract. So, it makes sense to elaborate more on those items and develop some kind of practice in it. I agree it’s a too-short jump (as we say in German) to say that a 20% discount for the sole arbitrator would disincentivise them from taking the job.
Elliot Polebaum: The other beneficial effect of reducing fees is to diversify the base of people who sit on ICC cases; to have a broader group of arbitrators who take on these matters.
Christina Täuber: I’m from the international department of Strabag, a construction company in Austria. Internally, we have a huge discussion about the new ICC Rules, and if we should apply them or not. In particular in international construction cases you have many contracts where you always have DAB proceedings. In these cases, it wouldn’t make sense for us to have expedited proceedings as well because we have decisions from the DAB which then might go to arbitration. Apart from such contracts, we also have discussions about distribution and IT contracts where it would make sense to use expedited proceedings. But we are still in discussion about how we should draft an opt-out clause, or if we should draft a clause where – as you also said – there might be a loophole for three arbitrators in the expedited proceedings.
One argument – which doesn’t work for me – is that there are new arbitrators who are willing to take on new cases. From my experience as a user, I don’t want an inexperienced arbitrator testing my case because I want the best result for my company. I think that argument is vague. It works as a marketing argument – for arbitrators new to the field, I assume – but, for me as a user, it doesn’t convince me.
Elmar Schweers: Wouldn’t that be an opt-in consideration in your department? I can scarcely imagine a large construction dispute in Strabag’s field, for instance, that fell below the US$2 million threshold?
Christina Täuber: There are some and, as you said, it’s sometimes about the complexity of the case. So, if you have fit out works, which are maybe not that high amount wise, but they’re still complex because there was a defect before such works, so it goes on and on. It really depends on the complexity of the project itself.
Elmar Schweers: We had an ICC event a month ago where Alexis Mourre, President of the Court, said it’s definitely expected to be dealt with by experienced arbitrators because first, it’s an untested procedure and, second, you need experience to say: “I will not do this procedural step; I will only do this procedural step.” So, they want experienced arbitrators but, as we said, with the costs and also the time they need on a short order, it might be difficult to get them.
Huáscar Ezcurra: When I explain the new ICC Rules to clients, their reaction is totally clear. They don’t like uncertainty and, when you draft an arbitration clause, you don’t know the amount in dispute. Their solution is: “Let’s go to a different arbitration institution.”
Cecilia Carrara: I’m a member of the ICC Court and of the Drafting Committee of the Taskforce on Emergency Arbitrators. I would like answer some of the points that have been raised. I think the view one should take is that the new rules on expedited proceedings are intended to be an additional tool for the parties; the Court is not going to force the parties into something they don’t want. Appendix 6 is clear in saying that, at any time of the proceedings, the Court, upon motion of one of the parties and in consultation with the parties, may decide to opt for a regular proceeding. So, the fact that there is a discretion of the Court does not mean that the Court will use it to crush the autonomy of the parties. That is not the case. The intention of the Court is to have more cases, not to have unsatisfied parties.
That is the starting point and the way one should approach these rules. What does it take to go back from expedited proceedings to regular proceedings? I think the issue of the terms of reference is not so important. In most cases the arbitrators ask the parties each to draft a portion of the terms of reference and incorporate it. In many cases it’s just a waste of time. Many arbitrators are not willing to draft the list of issues themselves – which was one of the subjects of the revised rules in 2012. This is because some arbitrators fear that indicating a list of issues at the time of the Terms of Reference could narrow excessively the scope of the dispute and expose them to criticism. We never know what will happen afterwards and are we limiting the discussion too much? So, I don’t think it’s a big sacrifice to do away with the terms of reference.
Not having a hearing and limiting the document production is an indication to the parties and arbitrators that it is possible without automatically giving rise to due process paranoia. In cases where there is one defaulting party, the case is simple and the value low, cases that could be dealt with in a much easier, shorter, cost-effective way are not being addressed like that. So, the idea was: why don’t we introduce a new set of rules that indicate, as a benchmark, that it is possible to deal with some proceedings in a quicker way. Then, of course, there is the discretion; cases will have to be evaluated on a case-to-case basis. So, it’s not as negative and uncertain as is being depicted. Time will tell; but the court has no interest in imposing solutions that are not welcome by the parties.
Tanja Pfitzner: There’s such a huge array of ideas that we could talk for a couple of hours more, but I would like now to introduce emergency arbitration to the discussion. Sven, could you please?
Sven Lange: Emergency arbitration is a mechanism provided for in almost all revised arbitration rules, for example ICC, LCIA, HKIAC, VIAC, Swiss Rules and ICDR, which was first to introduce it. Emergency arbitration allows interim protective measures that cannot wait until the tribunal is constituted. What happens is that the institution appoints one emergency arbitrator who decides on an urgent request for interim relief. Under most rules, the application for emergency arbitration can be made even before a request for arbitration is filed. It’s only under some rules that it has to be concurrent: you first have to have the request and, concurrently with it, the application. Even where you can do it before the request for arbitration is filed, the rules usually say you have to file the request relatively soon afterwards. In the case of the ICC, you have 10 days to file a request for arbitration after you filed the application for emergency arbitration, otherwise emergency arbitration proceedings are discontinued.
The Emergency Arbitration Rules now in force do not foresee ex parte decisions, with one exception, the Swiss Rules, where it is allowed. As regards available relief, emergency arbitrators have wide discretion to order the appropriate interim relief and, once the tribunal is appointed, it may amend or revoke the order that an emergency arbitrator has rendered – which may have repercussions at the enforcement stage. Importantly, the application for interim measures before a state court remains possible, so all the rules explicitly say that this is not meant to take away from the parties the right to go to a state court.
On this slide I’ve summarised some of the main features of various rules. I’ll not go through it in detail – just a brief remark about applicability. The rules generally provide for emergency arbitration on an opt-out basis and some rules do that on the basis of a cut-off date. So, the ICC says that, for arbitration agreements concluded after 1 January 2012, it is opt-out; and for arbitration agreements before that date, it is opt-in. Other rules don’t. For the SCC, it doesn’t matter when the arbitration agreement was concluded, only when the arbitration commenced. If at that time emergency arbitration is available, it can be used.
Then, regarding time limits, they are challenging for everyone involved. For example, the time limit for the institution to appoint the emergency arbitrator is between one and three days, although it may be extended in particular circumstances. The time limit for a challenge is between one and three days, which also seems very difficult. Of course, it starts running only from knowledge of the relevant circumstances, so that mitigates the urgency a bit. The time limit for decisions generally is about two weeks – most rules say 14-15 days. An exception is the SCC, which requires a decision within five days, so you can imagine not a lot of procedures and submissions are possible. The institutions reserve the right to extend the time limit in more complex cases.
Finally, a word about the form of the decision. Generally, the rules allow the emergency arbitrator to issue an order or an award. The exception here is the ICC, which explicitly says the emergency arbitrator is only allowed to issue an order, and that may have repercussions for the enforcement stage. Now, a few remarks on costs. They are quite considerable in emergency arbitration and, based on the current conversion rates, the ICC is the most expensive at US$40,000, including arbitrator’s fee and administrative costs. The SCC is the cheapest at €20,000.
Finally, a few remarks on the actual use of these rules in practice. This slide shows the number of cases initiated in the last year for which there are statistics. The SCC had the most with 13, which made up 7% of their overall case load; and the ICC has 10, or about 1% of their total case load. So, it’s not used that often. Thank you.
Tanja Pfitzner: I would like to take this up with those of you who have experience with emergency arbitration. That would be Ms Carrara. Do you prefer it to the state system or not?
Cecilia Carrara: In the limited experience I had so far, there was some uncertainty and some level of dissatisfaction of the parties because of the lack of experience with the new rules. But I think we should give the practice of emergency arbitration more time to develop and, later on, we will be in a position to better evaluate whether it serves or not an actual interest in the parties.
Elmar Schweers: The key issue is that some practice needs to be established. State courts or ordinary courts have broader experience in providing legal guidance on urgent cases and, therefore, preliminary relief. If it’s a quick order before a tribunal that’s being settled, I think, from our perspective, it’s a preferable way forward. So, currently, we are opting out.
Mariagiovanna Scarpa: I’m not opting out because, under the ICC Rules, they’re not prevented from going to ordinary courts. It’s not so bad to have the possibility of going for emergency arbitration, even if there are other issues arising from the order or award. Then, you say, it costs US$40,000 but it is not enforceable in the end. (laughter)
Tanja Pfitzner: I understand that it’s not enforceable in Italy?
Mariagiovanna Scarpa: In Italy, arbitrators are prevented from granting provisional measures; we need to go to court. So, emergency arbitration doesn’t apply.
Elmar Schweers: So, you don’t need to opt out.
Mariagiovanna Scarpa: No. I have done so when I had a seat in Italy, because I didn’t want to have grey areas of interpretation with the counterparties.
Elliot Polebaum: In the US context there’s a nuance. Where parties have not opted out and, under the rules, retain the freedom to go to the state courts, the reality is that most federal judges are then told by the defending party that there’s an emergency arbitrator opportunity in the rules. Most [judges] will then say: “Go try that first and then come and see me if you need to.” Or: “Show me why this is so urgent you can’t even do that and you need to come here immediately.” Technically, under the rules, you may have the right to go to state court, but whether it will be something that’s useful will vary.
Mariagiovanna Scarpa: There are already 60 cases under the ICC Rules, so the parties have demonstrated that they consider emergency arbitrator proceedings worthwhile trying in many cases. Of course, there is also the issue of enforceability, not just in jurisdictions like Italy but more broadly. One interesting element is that, in many cases where the parties have applied for emergency arbitrator proceedings in front of the ICC, they have also applied in parallel for urgency measures in front of state courts. Then, in many cases, matters may lead to settlement depending on what is the purpose and object matter of the request. Considering that, in the ICC system, it is not exactly cheap to have 60 cases in a limited period of time, it’s an indicator that there is a market demand for this kind of tool.
Tanja Pfitzner: I would like to return to the expedited proceedings and talk about our expectations with respect to the willingness of parties to settle the cases. Elliot, is there a higher probability of the willingness of the parties to settle under the new rules?
Elliot Polebaum: Whether there’s a settlement prospect is going to vary from case to case. Maybe the expedited nature of the proceedings will concentrate the parties’ minds and lead them to think: “OK, maybe we should try to resolve this more quickly.” I think we have to wait to see how this works in practice.
Sven Lange: I see it going either way. You might have a situation where the parties feel very uncertain and don’t think they have enough opportunity to make their case so think: “We’d better end this.” They might also think: “Well, it’s not that expensive, so let’s just do it.” It can go either way.
Elmar Schweers: My experience over the lifetime of an arbitration is that the main settlement season comes after the oral hearing because the uncertainty has reached the highest degree. People don’t have any bullets left, so it’s worth reconsidering the evaluations – and the pressure is high. With regards to expedited proceedings, I don’t have any settlement experience but there is still uncertainty; in the early stages it’s very quick and you have to develop the thought that you might need to have a settlement solution at some point in time. I don’t have a gut feeling whether that is fostering settlement ambitions or not, really.
Mariagiovanna Scarpa: I don’t have a clear idea on this. You’re studying the case but at the same time it can go a certain way. It’s neutral, I think, with regard to settlements.
Tanja Pfitzner: So, when we think about these different procedures, what are the lessons for the contract drafting stage?
Elmar Schweers: We have positively considered whether we want to go for more expedited proceedings or apply the emergency proceedings. As they’re new and very fresh, we are, in general, very sceptical. The point is, when you are drafting the contract, the negotiations usually focus on material and commercial items, not the dispute resolution settlement. In at least 80% of cases, it’s a boilerplate issue for management who let the legal department deal with it. As long as it’s standard, they’re happy because they haven’t obviously done anything wrong; they played to the rules. That’s the point.
What is helpful for in-house counsel and or external advisors is that you have an information session once a week for all departments involved, so that you can collect questions and reply to them in one go. To structure the internal discussion so you can really focus on the proceedings is very helpful actually. With regards to drafting and negotiating the contract, I think that is purely a legal competence.
Mariagiovanna Scarpa: We are sensitising internal departments to these topics and holding seminars because we would like to point out that this is a clause that needs to be negotiated and not – as in the past – just put into the contract. What we are also trying to sensitise is the involvement by M&A external counsel litigators. Also, we are trying to identify types of agreements where we can settle for this kind of agreement; we opt out anyway. For example, if we have contracts and a long relationship with the counterparties – like annual renewal of contacts and also small cases that might imply ramifications in the future – we decide to opt out from the expedited arbitration. We always opt out.
Huáscar Ezcurra: The main problem is that there’s insufficient availability of arbitrators – experienced arbitrators – and, because of that, the costs and lengths of proceedings are increasing. So, it is a market problem. My view is that we are trying to solve a market problem with new regulation. It will not happen that, because you create expedited proceedings, a sole arbitrator will suddenly appear and solve our problems, especially if their fees are going to be reduced by 20%. That goes against market rules. We are talking here about scarcity of resources – arbitrators with availability and experience – so it is a market problem and needs a market solution.
I was thinking about two barriers to the entry of new arbitrators to this market. In Peruvian law, there is a rule which allows you to appoint arbitrators from all over the world. There is no limitation. It can be a domestic arbitration and you can appoint a Peruvian arbitrator, but you also can appoint an arbitrator from Italy, Germany, Asia or wherever. So, the offer of arbitrators is the world.
The second rule that could be reviewed is the confidentiality of arbitration. There are good people all over the world with very good experience, but we just don’t know about them. The problem is that it is a reduced market, even though we’re talking about the world. When we come to conferences in Europe or the US, we always talk to the same people. If it were possible to have more information about who is sitting as an arbitrator everywhere – how many cases, how long, how fast, how they approach hearings, etc –we could start to solve the market problem with a market solution.
Tanja Pfitzner: I would now like to turn to other institutions. Elliot, do you think that there are more workable solutions under other rules?
Elliot Polebaum: The different institutions all have different thresholds. They have different opt-out/opt-in provisions, urgency requirements and so on. I’m not sure one can say one institution’s set of expedited rules is better than others. The bottom line for parties considering arbitration clauses is to pick the institution that is best suited for the relationship in question, and not have that driven by the Expedited Arbitration Rules. Do what you would normally do, but take the Expedited Arbitration Rules into account, and decide whether you want to tailor them, opt out or just stay in. I would not make the Expedited Arbitration Rules the driver of the clause or institution selected.
Tanja Pfitzner: Now – this is directed to the whole panel – do you think that these new rules are a response to user need, or is it a trend of a theoretical nature which does not come from company need?
Mariagiovanna Scarpa: I think we need to see how they work; how the rules will be applied; whether the court will be flexible; and try to understand if we really will get something at less cost in less time. I’m not so sure that this will be the result.
Elmar Schweers: Well, they’re in place and we need to see how they develop. This is not going to be the final version; they will be adapted to a certain extent. It’s a good starting point and shows that the organisations are willing to develop and listen to trends, at least. Unfortunately, as in all legal issues, it takes a bit more time before acceptability in the market kicks in.
Elliot Polebaum: As I said earlier, the ICC Rules are a useful addition, although people need to be cognisant of the pitfalls and how to handle them. I think the ICC and some of the other institutions are responding to the market clamour that arbitration takes too long and is too expensive. I appreciate those concerns, but I’ve always thought that the better reasons to decide to arbitrate are a neutral forum: a non-appealable result, and an award that is broadly enforceable and transportable across jurisdictions. We shouldn’t get too hung up on whether it’s fast and cheap. If it ends up being fast, great. If it ends up being cheap, great. But the other reasons I gave are the better reasons to arbitrate.
Sven Lange: Since we already talked a lot about expedited arbitration, I’ll address that question specifically with regard to emergency arbitration. The numbers show that there is a certain need, but not a lot. The slide I showed earlier showed the number of cases within a given year. It is now 60 at the ICC, but in 2015 it was 10. So, there’s not a lot happening, but it is a start. For emergency arbitration what would be necessary is that the legislators get active and ensure that it really is enforceable. That has happened, for example, in Singapore. That would really make a sizable impact and bring the advantages of arbitration – confidentiality and neutrality – to this interim-measures phase where you don’t yet have a tribunal. I think that’s the development we should see for this to become really useful.
GAR Live Frankfurt 2017 took place on the 29th June at the Jumeirah Hotel, Frankfurt. It was sponsored by Cleary Gottlieb Steen & Hamilton, Allen & Overy, Accuracy, Baker Botts and Geotext Translations.
The next GAR Live Frankfurt will take place on 12th June 2018. Registration is now open and is complimentary for in-house counsel and government representatives.