THE MISSING WORDS IN THE ICC MODEL CLAUSE
- Almudena Otero De La Vega
Keywords: model clause, ICC, consent.
Arbitration is a consensual dispute resolution mechanism. One of the most common ways to restore to arbitration is by inserting an arbitration clause in a contract. It is highly advisable to word the clause carefully and follow effective model arbitration clauses of arbitral institutions.
The International Chamber of Commerce (ICC) suggests the following model clause:
“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules”.
The model clause has most certainly not raised red flags among arbitration practitioners. After all, the ICC in one of the most prestigious arbitral institutions and the clause has proven effective on an international scale. However, it is worth considering a detailed and objective analysis of the model clause, since it is perfectible. After studying arbitration, I have concluded that the following four elements are indispensable for every arbitration clause: (1) consent, (2) object, (3) miscellaneous provisions and (4) rules.
Consent relates to the agreement as such to solve the dispute by arbitration, and not any other dispute resolution mechanisms, such as national courts. Object relates to the type of disputes covered by the agreement, usually referred to as the scope of the agreement. It is common for model clauses to employ a broad language. The miscellaneous provisions are all the aspects that the parties can agree upon, such as “the seat shall be” “the language shall be” “the number of arbitrators”, etc. Finally, the rules subject the arbitration agreement to a set of rules.
Some model clauses only make reference to the miscellaneous provisions in order for the parties to fill the blanks, so the indispensable elements of an institutional model clause would be the following: object, consent and rules. By applying these indispensable criteria to the ICC model clause, we obtain the following result:
All disputes arising out of or in connection with the present contract – object
shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce – rules, consent.
by one or more arbitrators appointed in accordance with the said Rules –miscellaneous provisions.
Interestingly, the ICC model clause expresses consent in an indirect way, by reference to the ICC Rules. This has apparently not been a problem for the arbitration community. However, other model clauses do express consent in a direct way. Analyzing, for example, the LCIA model clause, we obtain the following result:
Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination – object.
shall be referred to and finally resolved by arbitration – consent.
under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause – rules.
The number of arbitrators shall be [one/three]. The seat, or legal place, of arbitration shall be [City and/or Country]. The language to be used in the arbitral proceedings shall be [… ]. The governing law of the contract shall be the substantive law of [… ]" - miscellaneous provisions.
A careful examination of model clauses shows that, among others, the following arbitration rules express consent directly: SCC, UNCITRAL, HKIAC, SIAC, WIPO, ICDR, CIETAC, JCAA, KCAB and SCAI. Even though the ICC is not the only institution that indirectly expresses consent in its model clause it is surprising that the model clause of an institution such as the ICC lacks the word “arbitration”. Whereas the phrase “shall be finally settled under the Rules of Arbitration” has worked positively so far and several pro-arbitration jurisdictions would find themselves hard-pressed to argue that the model clause lacks the “express agreement to arbitrate”, it is worth noticing that a large number of institutions make reference to their arbitration rules and additionally expressly crystallize the parties' agreement in their model clause.
It is even more astonishing since consent is arbitration´s cornerstone. It would be expected from one of the leading institutions to make a direct reference to consent in its model clause. Whether this issue could jeopardize the arbitration procedure or any resulting award is debatable. However, this finding should raise awareness that even model clauses should be re-analyzed and the arbitration community should be willing to refine the terms employed, once spotted, and not take for granted that only because the results have been positive, model clauses cannot be improved. As a matter of fact, there have been recent attempts to consider arbitration clauses unenforceable. For example, a Supreme Court judge in Russia deemed that reference to the “Rules of Arbitration of the International Chamber of Commerce” did not evidence the parties’ consent to have their dispute solved by the ICC Court of Arbitration.
Despite the fact that the ICC Arbitration Rules state in Article 1 that the International Court of Arbitration is the body that administers the resolution of disputes by arbitral tribunals and it is well established that no other institution can administer disputes under the ICC Rules, a lack of express reference to the arbitral institution was considered contrary to the principles of certainty and enforceability.
To attend this critical situation, the ICC issued practical advice and suggested parties to make express reference to the ICC Court of Arbitration in their clauses in certain jurisdictions by employing the following language:
“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”
It should be noted that while the suggested approach restates the jurisdiction of the ICC Court of Arbitration, it continues on the path of an indirect consent to restore to arbitration. If the standard ICC clause is raising interpretation debates in some jurisdictions because the reference to the “Rules of Arbitration” alone is not sufficient to evidence consent to have the dispute administered by the ICC International Court of Arbitration, it could be a matter of time before courts or parties seeking annulment of adverse awards interpret the reference to the “Rules of Arbitration” as a lack of consent to have their dispute settled by arbitration in the first place.
The reference to the “Rules of Arbitration of the ICC” has now been proven insufficient in some jurisdictions to the extent that it is prudent to crystallize a direct and explicit reference of the parties´ agreement to have their dispute resolved through arbitration. The suggested ICC model clause would read as follows:
“All disputes arising out of or in connection with the present contract shall be finally settled by arbitration under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules”.
In conclusion, by adding the words “by arbitration” to the ICC model clause, the ICC would shift from an indirect consent to an express consent to restore to arbitration, language that would strengthen the model clause.
Almudena Otero De La Vega is a L.L.M candidate of the Queen Mary University of London. She participated in commercial arbitrations as head of the arbitration department of the C.F.E Federal Electricity Commission, Mexico.
Preferred Method of Citation: Almudena Otero De La Vega, ‘The Missing Words in the ICC Model Clause’ (ICAR, 22 August 2020) <https://www.investmentandcommercialarbitrationreview.com/post/the-missing-words-in-the-icc-model-clause>.
The views and opinions expressed in the article are those of the author(s) solely and do not reflect that of official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice