ICDR Update May Help Arbitration Parties Avoid Litigation

April 15, 2021Articles Law360

Like several other international arbitration institutions, the International Centre for Dispute Resolution has recently adopted amendments to its International Dispute Resolution Procedures, known as the 2021 ICDR Rules. This year's amendments mark the most recent amendments to the rules since they were last revised in 2014.

The rules became effective March 1 and are applicable to arbitrations commenced on or after that date. The amendments focus on promoting efficiency and economy by facilitating the consideration of issues that might warrant early disposition and encouraging the use of mediation.

They also expand the availability and use of expedited procedures by increasing the threshold amount for the default application of such procedures from $250,000 to $500,000. The rules address arbitrators' ethical obligations, third-party funding disclosures, and challenges created by the COVID-19 pandemic by regulating the use of video, audio, and other electronic means of communication and related security concerns.

Among other notable amendments, new language was added to the ICDR Rule on Arbitral Jurisdiction, Article 21 of the 2021 ICDR Rules,[1] which specifically reinforces the tribunal's authority to rule on its own jurisdiction without the involvement of the courts. Article 21(1) now provides as follows:

The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to arbitrability, to the existence, scope, or validity of the arbitration agreement(s), or with respect to whether all of the claims, counterclaims, and setoffs made in the arbitration may be determined in a single arbitration, without any need to refer such matters first to a court.

According to Gary Born in "International Commercial Arbitration," the topic of whether the tribunal or a court should decide jurisdictional questions related to arbitration is "[a]n issue of central importance to the international arbitration process"[2] and has been the subject of long-standing debate among international scholars and practitioners. Jurisdictional allocation issues may arise, for example, with respect to "disputes over the existence, validity, legality and scope of the parties' arbitration agreement."[3]

Born states, "[t]he competence-competence [or Kompetenz-Kompetenz] doctrine provides, in general terms, that international arbitral tribunals have the power to consider and decide disputes concerning their own jurisdiction."[4]

According to the Restatement of the U.S. Law of International Commercial and Investor-State Arbitration, "[a]lthough U.S. law recognizes the principle of competence-competence, it does not view the jurisdiction of arbitrators to determine their own authority as exclusive."[5]

According to the ICDR commentary, the language of Article 21(1), "without any need to refer such matters first to a court," was added to clarify and further strengthen the concept that the arbitral tribunal has the authority to rule on its own jurisdiction without the court's involvement if there is "clear and unmistakable evidence" of an intention to delegate questions of arbitrability to the tribunal, such as the incorporation of arbitral rules, including the 2021 ICDR Rules, into an arbitration agreement.[6] 

The commentary further notes the "potential controversy" created by the recently adopted Restatement. The final draft of the Restatement was approved in 2019, and the official text is planned to be published in late 2021. As adopted, the Restatement takes the position that the incorporation of arbitral rules in an agreement does not necessarily constitute a clear delegation of authority to the arbitral tribunal to rule on its own jurisdiction.

John Fellas, who was a part of the members consultative group for the Restatement, explained in a recent article that the reporters of the Restatement diverged from the rule adopted by the majority of U.S. courts because they did not believe that the ICDR's prior rules were sufficiently clear with respect to the authority of an arbitrator to determine questions of arbitrability.[7]

As Fellas observed:

The Restatement holds that while arbitral rules could, in theory, be drafted to provide the "clear and unmistakable" evidence needed under current law to entrust certain gateway issues primarily to the arbitrators, as currently drafted, they do not; they simply confirm an arbitral tribunal's authority to consider jurisdictional issues when they arise, but do not prevent courts from addressing such issues.

By revising its article on arbitral jurisdiction, the ICDR aims "to counteract any doubt about the effect on this rule" of the Restatement's adopted position, which the commentary notes is "contrary to the weight of case law." 

As to the case law, although the U.S. Supreme Court has addressed the issue of who decides arbitrability, it has yet to directly address the question of whether the incorporation of arbitral rules is sufficient to evidence the intention of the parties to delegate questions of arbitrability to the tribunal. 

In First Options of Chicago Inc. v. Kaplan, the Supreme Court stated the general rule that "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clear and unmistakabl[e]' evidence that they did so."[8] 

This raises the question: What constitutes clear and unmistakable evidence of the intent to arbitrate arbitrability? Certainly, an express delegation clause is clear and unmistakable expression of the parties' intention to delegate questions of arbitrability to the arbitral tribunal[9] and will be upheld even if the arguments in favor of arbitrability appear "wholly groundless."[10]

But what about the inclusion of a set of arbitral rules that gives the arbitrator the authority to decide issues of arbitrability?

The Supreme Court has declined to address the issue directly,[11] but the court has observed that the American Arbitration Association rules "provide that arbitrators have the power to resolve arbitrability questions"[12] and has relied on the incorporation of arbitral rules to resolve other questions concerning the parties' intentions in an arbitration agreement.[13]

At the same time, virtually every circuit court of appeals to address the issue has determined that inclusion of arbitral rules constitutes clear and unmistakable evidence of the parties' intent to delegate questions of arbitrability to the arbitral tribunal.

In fact, in a recent decision, the U.S. Court of Appeals for the Sixth Circuit observed "that every one of our sister Circuits to address the question — eleven out of twelve by our count — has found that the incorporation of the AAA Rules (or similarly worded arbitral rules) provides 'clear and unmistakable' evidence that the parties agreed to arbitrate 'arbitrability.'"[14]

The amendments to the ICDR Rules come at a time when a clear majority view is emerging in the case law, including cases decided in recent months.[15] Although there is broad consensus among the circuit and lower courts on this issue, some courts have carved out certain exceptions to the rule.[16]

The ICDR's recent amendment further highlights its intent to fully empower arbitral tribunals to determine their own jurisdiction without court involvement when the parties have incorporated the 2021 ICDR Rules into their agreement.

Article 21 embraces the principle of competence-competence, which has long governed the issue of a tribunal's jurisdiction to determine the arbitrability of a dispute in countries throughout the world, including England and France.[17]

In the U.S., the Federal Arbitration Act,[18] does not clearly address the issues relating to the tribunal's jurisdiction and thereby leaves the question open to interpretation based on jurisprudence.

As a result, parties to arbitration agreements should pay particular attention to the inclusion of a clear delegation clause in order to minimize the potential for litigation relating to such threshold arbitrability decisions.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 
[1] Article 21 of the 2021 ICDR Rules replaces former Article 19 of the 2014 ICDR Rules.

[2] Gary B. Born, International Commercial Arbitration 1139 (3d ed. 2020).

[3] Id. at 1140.

[4] Id. at 1141.

[5] Restatement at §2.8, Reporters' Notes.

[6] Ann Ryan Robertson, The 2021 ICDR International Dispute Resolution Procedures, https://go.adr.org/rs/294-SFS-516/images/AAA343_International_Dispute_Resolution_Procedures.pdf (last visited April 12, 2021).

[7] John Fellas, Restatement: International Commercial and Investor-State Arbitration, N.Y.L.J, Feb. 19, 2020, available at https://www.law.com/newyorklawjournal/2020/02/19/restatement-international-commercial-and-investor-state-arbitration/; see also Restatement at §2.8, Reporters' Notes ("The language of the AAA/ICDR Rule closely tracks that of the corresponding UNCITRAL Rule, and nothing in the language of either set of rules indicates that the authority of the arbitrators to determine their competence is exclusive of the courts' authority to do so.").

[8] First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944 (1995) (citation omitted).

[9] In Rent-A-Ctr., W., Inc. v Jackson , 561 U.S. 63, 66, 68-71 (2010), the Supreme Court held that a delegation provision providing that "[t]he Arbitrator, and not any federal, state or local court of agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable," was an enforceable expression of intent to delegate authority to determine arbitrability to the arbitrator absent a specific challenge to the delegation clause itself.

[10] Henry Schein, Inc. v. Archer & White Sales, Inc. , 139 S. Ct. 524, 529-530 (2019); Swiger v. Rosette , 989 F.3d 501, 505 (6th Cir. 2021).

[11] See Henry Schein, 139 S. Ct. at 531.

[12] Id. at 528.

[13] Blanton v.Domino's Pizza Franchising, LLC , 962 F.3d 842, 845 (6th Cir. 2020), citing Preston v. Ferrer , 552 U.S. 346, 361–63 (2008) (inclusion of AAA rules was evidence that parties did not intend to refer disputes in first instance to California Labor Commissioner); C & L Enters., Inc. v. Citizen Band Potawatomi Indian Tribe of Okla. , 532 U.S. 411, 418–20 (2001) (inclusion of AAA rules was evidence that Tribe waived its sovereign immunity).

[14] Blanton v. Domino's Pizza Franchising LLC, 962 F.3d 842, 846 (6th Cir. 2020); see, e.g., Contec Corp. v. Remote Solution, Co., Ltd. , 398 F. 3d 205, 209 (2d Cir. 2005) ("We have held that when, as here, parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator."); Oracle America, Inc. v Myriad Group A.G. , 724 F.3d 1069, 1074-1075 (9th Cir. 2013) (inclusion of UNCITRAL arbitration rules was clear and unmistakable evidence that parties agreed that arbitrator would decide arbitrability).

[15] Bossé v. New York Life Ins. Co. , ____ F.3d___, 2021 WL 1185125, at *6 (1st Cir. Mar. 30, 2021) ("This court is clear that incorporation of the AAA arbitration rules constitutes clear and unmistakable evidence of the parties' intent to delegate arbitrability issues to the arbitrator."); In re Checking Account Overdraft Litigation , ___ Fed. Appx. __, 2021 WL 1292305, *(11th Cir. Apr. 7, 2021) ("We have repeatedly ruled that reference or incorporation of AAA Rules with language providing that 'the arbitrator shall have the power to rule on his or her own jurisdiction . . .' demonstrates a clear and unmistakable intent that the arbitrator should decide all questions of arbitrability.").

[16] See, e.g., Chesapeake Appalachia, LLC v. Scout Petroleum, LLC , 809 F.3d 746, 762-763 (3d Cir. 2016) (holding that arbitration agreement did not clearly and unmistakably delegate the question of class arbitrability to arbitration despite inclusion of arbitral rules where the agreement itself is silent as to the issue of class arbitration); NASDAQ OMX Grp., Inc. v. UBS Securities, LLC , 770 F.3d 1010, 1031-1032 (2d Cir. 2014) (holding that inclusion of arbitral rules in broad arbitration clause did not constitute clear and unmistakable evidence where arbitration clause was subject to a qualifying provision or carve-out calling for judicial determination of certain issues).

[17] France Code Civ. P., Art. 1448, 1465; UK Arbitration Act (1996), § 30(1).

[18] 9 U.S.C. §§1-307.

Reprinted with permission from Law360(c) 2021 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.