2021 AMENDMENTS TO THE ICDR ARBITRATION AND MEDIATION RULES: A RESPONSE TO EVOLVING PRACTICE

The International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (AAA) has released its revised Arbitration and Mediation Rules, which came into force on March 1, 2021 (the 2021 ICDR Rules). The 2021 ICDR Rules will apply to any arbitration or mediation commenced after such date unless agreed otherwise.

The Arbitration Rules were last revised in 2014, and the Mediation Rules in 2008. The changes introduced are therefore a comprehensive update, responding to issues that have arisen in both arbitration and mediation over the past decade. They reflect discussions held by the ICDR management and administrative teams, a specific ICDR Committee of practitioners, and feedback from ICDR’s users. Following the trend of recent changes implemented by other major institutions such as the London Court of International Arbitration and the International Chamber of Commerce, the 2021 ICDR Rules include changes relating to third-party funding, joinder and consolidation, data protection, and  the effects of COVID-19 on the arbitral process.

Key takeaways for parties and practitioners

The key changes to be aware of in the 2021 ICDR Rules for parties and practitioners are as follows:

• The new Arbitration Rules:
  • Permit joinder after the constitution of the tribunal with the consent of the joining party, when the arbitral tribunal considers it appropriate;
  • Allow consolidation when the arbitration involves related parties – as opposed to the more limited “same" parties requirement under the prior rules;
  • Embrace early disposition of issues;
  • Introduce a provision on the disclosure of third-party funding and “undisclosed economic interests;”
  • Acknowledge the use of video, audio, or other electronic means for conducting preliminary matters and final hearings;
  • Require tribunals to discuss cybersecurity, privacy, and data protection with the parties to provide an appropriate level of security and compliance.
• The new Mediation Rules:
  • Emphasize the importance of party involvement and the obligation of the ICDR to assist the parties in finding an agreeable mediator;
  • Set out best mediation practices by comprehensively outlining how a mediation should proceed;
  • Recognize that all or part of a mediation proceeding may be conducted via video, audio, or other electronic means;
  • Reinforce that it is the responsibility of each party to have present at the mediation a representative with authority to execute a settlement agreement;
  • Allows the parties to request from the ICDR or mediator an attestation that a settlement was reached to assist in enforcing settlement agreements according to the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) or other applicable law.

The most significant of these changes are discussed in more detail below.

Joinder and Consolidation

The 2014 version of the Arbitration Rules allowed joinder of an additional party after the tribunal's constitution only if all parties, including the additional party, so agreed. Article 8(1) of the 2021 ICDR Rules now expands the rule permitting the arbitral tribunal, once constituted, to order the joinder of an additional party if it considers it appropriate, provided that such additional party consents to be joined - dropping, therefore, the requirement that the non-joining parties agree.

The standards for permitting consolidation remain unchanged, including the unusual provision for a “consolidation arbitrator”. However, the new rules have enlarged the grounds upon which consolidation can take place:

• Article 9(1)(c) of the 2021 ICDR Rules allows consolidation where the arbitrations involve "related parties” – under the 2014 rules, consolidation was only permitted when the arbitrations involved the “same parties;”
• While Article 9(1) of the 2021 ICDR Rules retains the ability of a party to request a consolidation arbitrator, it further provides that the ICDR administrator may appoint a consolidation arbitrator on its own initiative.

Early disposition of issues

The 2021 ICDR Rules introduce a new Article 23 specifically allowing the arbitral tribunal to order early disposition of issues. A party seeking early disposition of an issue must first request leave to file such an application. The tribunal will allow the application to be filed if it concludes that (i) the application has a reasonable possibility of succeeding; (ii) it will dispose of, or narrow, one or more issues in the case; and (iii) consideration of the application is likely to be more efficient or economical than determining the issue with the merits.

Notably, Article 23(2) ensures both parties' right to be heard on the issue of whether leave to file the application should be granted and, if leave is granted, whether early disposition should be granted. Article 23(3) allows the arbitral tribunal to make an order or award in connection with the application for early disposition. If the decision takes the form of an award, the tribunal has to provide its reasoning.

Third-party funding

To address the concerns voiced about third-party funding as a potential source of conflict of interest, and provide transparency, the 2021 ICDR Rules introduce a new provision dealing with the disclosure of third party funding. Article 14(7)(a) of the 2021 ICDR Rules provides that the tribunal may, upon the application of a party or on its initiative after consulting with the parties, require the parties:

• to disclose whether a non-party (such as a third-party funder or an insurer) has undertaken to pay or contribute to, the cost of a party's participation in the arbitration;
• to identify the person or entity concerned; and
• to describe the nature of the undertaking.

Likewise, Article 14(7)(b) provides that arbitrators may require a party to disclose the existence of a non-party (i.e. not necessarily a third-party funder, but for example a parent company, or ultimate beneficial owner) that has an economic interest in the outcome of the arbitration. If the existence of a non-party is disclosed, the tribunal can require the party to identify the person or entity concerned and to describe the nature of their interest.

Use of technology

As a response to the challenges that the COVID-19 pandemic have posed, Articles 22(2) and 26(2) of the 2021 ICDR Rules clarify that the use of video, audio, and other electronic means to conduct preliminary matters as well as final hearings are allowed. Article 26 expands on this issue, indicating that a portion or all of the hearing may be held by these means if the parties so agree. Even if one party objects, the tribunal may nevertheless make the order if it finds that doing so would be appropriate and due process will not be affected. This is also permitted in expedited procedures. Article 32 also now permits the tribunal to sign an order or award electronically, except where the applicable law mandates a physical signature, the parties disagree, or where the tribunal finds that a physical signature is necessary.

These amendments certainly promote efficiency by avoiding delays under the current COVID-19 pandemic restrictions. In light of the expansion in technology use, Article 22(3) of the 2021 ICDR Rules requires the tribunal to discuss cybersecurity, privacy, and data protection with the parties to provide for appropriate security and compliance levels during the proceedings.

Other relevant modifications to the Arbitration Rules

• Role of the International Administrative Review Council (IARC): the Arbitration rules have already established that when the ICDR administrator is called upon to act, the administrator may ask IARC to take any action. Article 5 of the 2021 ICDR Rules now clarifies that the IARC will determine issues related to (i) arbitrator challenges; (ii) issues regarding the number of arbitrators; (iii) the place of arbitration, and (iv) whether the administrative requirements for filing an arbitration have been complied with. The IARC is constituted by at least three current or former ICDR executives or other individuals with significant arbitration experience that the ICDR may determine. The ICDR has published the procedures to be followed when submitting an issue to the IARC in the Council Overview and Guidelines.
• Power to rule on its jurisdiction: Article 21(1) of the 2021 ICDR Rules solidifies the tribunal’s jurisdiction to determine arbitrability objections without involvement from the courts. This is to counteract any doubt about the effect that recent United States case law and the recently adopted Restatement of the U.S. Law on International Commercial and Investor-State Arbitration have had on this rule. Notably, these developments had cast doubts as to whether a reference to arbitral rules constitutes a clear delegation of the issue of arbitrability to the tribunal.
• Impartiality and independence of arbitrators: while maintaining the general obligation of arbitrators to be independent and impartial and act according to the terms of their Notice of Appointment, Article 14(1) now includes a new obligation for arbitrators to act under the AAA-ICDR's Code of Ethics for Arbitrators in Commercial Disputes.
• Expedited procedures: to promote efficiency and economy, the 2021 ICDR Rules increased the maximum amount in dispute applicable for parties to be able to access the Expedited Arbitration Rules. Whereas previously only disputes involving up to $250,000 could be heard under the Expedited Arbitration Rules, now, disputes involving up to $500,000 can be heard under this framework.
• Confidentiality: the previous version of the Arbitration Rules provided that the ICDR could publish redacted awards, orders, decisions, and rulings unless a party objected. The 2021 ICDR Rules retains the content of this rule, but the provision has been moved from the section of the Rules dealing with the form and effect of the award, to the confidentiality section in Article 40(4).
• Appointment of tribunal secretaries: Article 17 of the 2021 ICDR Rules provides that a tribunal may appoint a tribunal secretary with the parties' consent and under any guidelines that the ICDR may offer. Article 41 extends the exclusion of liability that was previously provided to arbitrators and the administrator to include tribunal secretaries.

Mediation

The 2021 ICDR Rules also introduced certain modifications to the mediation provisions. In light of the ICDR's commitment to mediation, Article 2(3)(g) of the Arbitration Rules now requires a party to state in the Notice of Arbitration whether it is willing to mediate the dispute prior to or concurrent with the arbitration. The older version of the rules merely required the initiating party to state if it had any interest in mediating the dispute.

In addition, new Mediation Rule 9 sets a more comprehensive roadmap on how mediation is to be held, including (i) providing for a preliminary conference; (ii) indicating that mediation can be held through electronic means, (iii) requiring the parties to exchange documents pertinent to the relief being requested; and (iv) requiring the parties to exchange memoranda on the issues subject to discussion between the parties.

Mediation Rule 10 reinforces the parties’ responsibility to have present at the mediation a representative with authority to execute a settlement agreement. Another critical amendment concerning the execution of a settlement agreement is Mediation Rule 14(e), which allows the parties to request from the ICDR or mediator an attestation that a settlement was reached to assist enforcement under the Singapore Convention or any other applicable law. Under Article 4(1) of the Singapore Convention, a party may apply to the competent authority, i.e., national courts, of a State-party to the Convention, to request the relief sought under a settlement agreement so long as there is sufficient evidence that the settlement agreement resulted from mediation. The ICDR’s attestation would serve as evidence in that regard.

Comment

The 2021 ICDR Rules introduce some material changes aiming to promote greater efficiency and economy as the use of technology and the early disposition of issues. Other amendments merely finesse aspects of the arbitration process under 2014 arbitration rules, including consolidation and joinder, the specific role of the IARC, and the independence and impartiality of the arbitral tribunal. Notably, the ICDR has mirrored the current trend among renowned arbitral institutions in codifying practices in international dispute resolution that have emerged during the COVID-19 pandemic – demonstrated through an increased focus on the efficiency and economy of proceedings in the 2021 ICDR Rules.  Lastly, the new rules place an increased emphasis on mediation in arbitration. This is a welcome development as the use of mediation in arbitration proceedings is on the rise. Indeed, a recent Mediation in Arbitration Survey conducted jointly by HSF and the London Chamber of Arbitration and Mediation (LCAM) shows that an increasing number of high-value arbitrations are being resolved via mediation, and there is an impressive success rate of using mediation in arbitration cases.

For more information, please contact Amal Bouchenaki, Partner, Florencia Villaggi, Of Counsel, Lucila Marchini, Associate, or your usual Herbert Smith Freehills contact.