THE TERMS OF REFERENCE UNDER THE ICC RULES OF ARBITRATION

ADVANTAGES IN IMPLEMENTATION

Chau Huy Quang[1]/Lionel Simonet (R&T LCT Lawyers)

Why choose the ICC?

It has become increasingly common for businesses and investors in international transactions to choose commercial arbitration as a neutral mechanism for the settlement of commercial disputes. One of the more popular arbitral institutions is the International Arbitration Centre of the International Chamber of Commerce (ICC). The ICC is headquartered in France and has a presence in Asia, including Hong Kong and Singapore.

There are a number of reasons why foreign investors have chosen the ICC among the other numerous international and local arbitral institutions. Perhaps one key reason unique application of the Terms of Reference (“TOR”), which enables proceedings to be conducted in such a way to ensure efficiency and effectiveness for disputants. This is evidenced by the fact that the TOR has survived numerous revisions to the ICC arbitration rules.

Benefits and aims of TOR

This article aims to explain how parties would benefit from an integration of the TOR into the set of arbitration rules of domestic arbitral institutions.

Under Article 23 of the ICC Rules, the TOR is a key milestone in the arbitral proceedings. Apart from providing basic information on the parties and the arbitrator(s), the TOR’s main particulars are to summarise the parties’ claims and relief sought, and to quantify them. They also tackle the crucial question of the place of arbitration and include a list of the issues to be determined by the arbitral tribunal, if appropriate.

The TOR carries out a threefold purpose[2]: to allow the parties to gather their conclusions and arguments in one single document; to reduce and frame the scope of issues that will be decided by the arbitral tribunal; and to ensure that awards will be enforced promptly and regularly.

Providing a framework to the parties’ claims

When a dispute arises, it is never easy to lay out a common ground. The incorporation of the TOR into the ICC Rules provides the arbitral tribunal with the legitimacy and the power to condense the arguments and crystallise the claims of the parties. The TOR clarifies the positions of the parties and determines the limits of the case. By preventing the parties from submitting new claims after the TOR’s entrance, the TOR acts as a quarantine against additional and unforeseen elements which were not initially considered by the parties to the dispute.

However, the tribunal can authorise new claims depending on the stage of the arbitration and the new circumstances that may arise. In this way, the TOR imposes a strict schedule, but allows the proceedings to retain a certain degree of flexibility.

Time and cost efficiency

One advantage arbitration is its time and cost efficiency. The ICC Rules decree a timeline of two months from the transmission of the file to the arbitral tribunal for agreeing on the TOR. Such a strict timeline is an effective means for the arbitral tribunal to begin the proceedings and render a final award within 6 months, as required by Art. 30 of the ICC Rules.

The ICC has the power to extend the time limit to sign the TOR, but it can also decide to proceed with the arbitration even where one of the parties has not signed the TOR. The main purpose of such power, exercised via the TOR, is to avoid any blockage of the arbitral proceedings by one of the parties.

Good faith of the parties

During the arbitral proceedings, the TOR constitutes an opportunity for the parties to show their good faith and willingness to resolve the dispute. Too often, the parties forget that the purpose of arbitration is to find a solution to the dispute, instead of determining which party is wrong or right. Therefore, it is the parties’ responsibility to act with willingness to reach clarity and comprehensiveness when submitting the TOR.

If one of the parties shows reluctance to reach agreement on the TOR, it is possible that the arbitral tribunal will not look favourably on such party, particularly if the claims are clearly determined and there is no particular reason to challenge them, except for the purpose of jeopardising the arbitration proceedings.

Last chance for mediation

Putting the claims on paper and weighing each other’s interests may constitute the last opportunity for the parties to reach common agreement before settling the matter via arbitration. Indeed, the chance to clearly outline the issues in dispute and delineate them from areas of agreement may assist the parties in finding a compromise before the arbitrator(s) issue a final and binding award.

More than merely a set of procedural regulations, the TOR strives to provide an opportunity for the parties to focus on mutually agreeable and beneficial solutions to end the conflict. This is particularly useful in disputes involving the freezing of assets, monies or infrastructure projects, or in commercial contracts of sale of goods where the cargo is immobilised in a port resulting in daily increase in costs. At such crucial moments of the proceedings, the TOR is an important means of getting the parties to mediate in good faith and to clarify the importance of reaching an expedited and cooperative resolution.

Decision making and source of information for the proceedings

Once the TOR is signed off, it becomes the main reference document for the proceedings. The parties and the arbitral tribunal will refer to them, whenever needed. However, the TOR are also decisive as they provide the place of the arbitration and the power conferred upon the arbitrator(s) to act as amiable compositeur or to decide ex aequo et bono. The place of arbitration is an important financial concern for the parties as it refers to the physical venue of arbitration – that is, where the parties will have to travel to – which can be different from the location of the arbitration centre, or the place or seat of arbitration.

Those choices settled on in the TOR can influence the continuity and the outcome of the arbitration, because the national court system, pursuant to the New York Convention 1958, is vested with the authority to “supervise” international arbitral tribunals operating in their jurisdictions.

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Advantages for investors where TOR is also introduced into domestic arbitration 

It is clear that the TOR represents a high point in ICC arbitration, acting as a cornerstone of the proceedings. The TOR brings clarity, efficiency and stability in the arbitration for the parties, their counsel, the arbitral tribunal and the Court of the ICC. Therefore, it would be in the interest of other arbitration centres to adopt such model in their local arbitration rules. The benefits for the parties and all the actors involved in the arbitration proceedings would be significant.

Upon its increased integration into the regional and global economy, Vietnam is encouraged to promote commercial arbitration as the most important commercial dispute settlement institution.  Although there are 9 arbitration centres operating in Vietnam, however none has yet introduced the concept of TOR. Its introduction would undeniably maximise the advantages for both investors and the centre itself.  More importantly, if properly established based on the “spirit” of the contractual arrangements between the parties to arbitration, the TOR can help to reduce the risk of a local court interfering in the arbitral proceeding and to avoid awards being set aside or suspended.