“Amiable composition” (Arbitration), why would you choose it ?

This article has been selected on the internet because of its interest for the readers of this blog. The original has been published by Altana Avocats – Paris and is available at the following location: https://arbitrationnewsaltana.wordpress.com/2013/12/02/why-choose-amiable-composition/ .

Some parties readily seek recourse to amiable composition, thinking the arbitrator will free himself from the rule of law.  Others, conversely, fear arbitrariness because for them, the concept’s boundaries are blurry and its result is unpredictable.

What is amiable composition and why choose it?

Pursuant to Article 1478 of the French Code of Civil Procedure, “The arbitral tribunal shall decide the dispute in accordance with the law, unless the parties have empowered it to rule as amiable compositeur“.  It would thus be logical to consider it is a standard different than the rule of law, to which the arbitrator will refer to decide the dispute.  However, this provision does not define amiable composition.

Article 187(2) of the Swiss Federal Law on Private International Law provides that “The parties may authorize the arbitral tribunal to decide ex aequo et bono“.  Would amiable composition be the fact for an arbitral tribunal to decide in equity?

Certain arbitration rules operate an even more subtle distinction, providing that the arbitral tribunal decides, if the parties so agree, in amiable composition or “ex aequo et bono“, i.e., “from what is good and just” (see, e.g., Article 21(3) of the ICC Rules or 35(2) of the United Nations Commission for International Trade Law (“UNCITRAL”) Rules.

The issue of the definition of boundaries of amiable composition, equity, or the fact that an arbitral tribunal decides ex aequo et bono remains debated.  However, scholars, case law and practitioners all agree that these concepts refer to some form of equity (different from the Common law concept of Equity).

The Paris Court of Appeal, ruling on an award in which the arbitral tribunal had decided in amiable composition, summarized the consequences of such a choice in the following way:

The amiable composition clause is a conventional renounciation to the effects and benefit of the rule of law, the parties losing the prerogative to request its strict application and, as a corollary, the arbitrators being empowered to modify or moderate the consequences of the contractual provisions, provided that equity or the well understood common interest of the parties requires it” (Paris Court of Appeal, 28 November 1996, Rev. arb. 1997, p. 381, note E. Loquin ; Paris Court of Appeal, 4 November 1997, Rev. arb. 1998, p. 704, obs. Y. Derains).

Consequently, the arbitrator amiable compositeur must first search the dispute’s solution in law.  Then, if he is convinced that the solution is unjust or inequitable in the matter at hand, he may set aside or correct the consequences of the strict application of the rule of law.

However, is it not risky for a party to entrust what is just or equitable to the sensibility of one or three arbitrators?

Elements permit to regulate this subjectivity:

  • Parties may choose their arbitrators; it is up to them to choose people they trust, for their reputation or their knowledge of a designated sector;
  • The arbitrator has the obligation to motivate his award (Article 1482 of the French Code of Civil Procedure), failing which in domestic arbitration, the award may be annulled  (Article 1483 of the French Code of Civil Procedure);
  • Parties may, in their submissions, explain to the arbitrator not only the reason why their claims should succeed from a legal standpoint, but also that such a solution is just and equitable…

The subjective character of amiable composition may prove to be an advantage in cases in which the technicality and economical reality are predominant compared to legal issues.  In fact, certain arbitral institutions in identified sectors, gathering professionals very well versed in specific sectors, do not hesitate to provide in their arbitration rules that the arbitral tribunal will decide in amiable composition unless the parties agree otherwise (see, e.g., Article 24 of the Arbitration and Mediation Rules of the Fédération Nationale des Travaux Publics (“FNTP”), according to which the arbitral tribunal “decides as amiable compositeur unless the parties request it to respect the rule of law“).

In consequence, parties should analyse the pros and cons of having the arbitral tribunal decide as per the law or in amiable composition at the time of the drafting of the arbitration clause, taking into account the contractual elements of the industry and the applicable arbitration rules.

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Talking about contract management, what are the latest evolutions and how can AfiTaC support?

In this post, we are talking with Jan Bouckaert about the evolution in contract management and the role AfiTaC can play in this.

What is evolving for contract management in the broad sense?

Jan: Some of the latest evolutions in contract management are as follows:

  • People are talking about new technologies establishing contractual relationships based on artificial intelligence. Often, proper reading of the contracts made by humans would already be a good start, wouldn’t it ?
  • Business relations are ever more international with inherent risks: fiscal exposure, disputes, integrity issues etc.
  • Even Small and Medium sized Enterprises are obliged to develop their contract management.
  • Negotiations are tough, even though win-win solutions should remain the objective.
  • Companies reduce their internal resources, reducing fixed costs but bringing overload, lack of expertise etc.

Out of curiosity, what does AfiTaC stands for?

Jan: AfiTaC is the abbreviation of “Advice for international Tenders and Contracts”. We are passionate about contracts. An important part of what we do is promoting Contract Management to a broader public than Lawyers and Contract Managers/Administrators. Our blog and exchanges on LinkedIn reflect this. For specialists, we challenge the status-quo based on real-live situations and arguments; for people building up their knowledge, we provide valuable learning bricks.

What can AfiTaC do to accompany the change?

Jan: Apart from our blog available in 4 languages (English, French, Portuguese and Dutch), which is quite unique, we also propose customized/adapted services. AfiTaC offers complementary support to leverage your teams at a far more attractive cost than external legal services and covering a broader scope – from contractual to commercial subjects, covering topics ranging from contract wording, to insurance, financial & tax issues etc. We do this based on 20+ years of experience.

Concretely speaking, how would we work with AfiTaC?

Jan: We will set-up a collaborative platform (cloud-based storage on servers in France, protecting your data) enabling flexible interaction: you can upload your questions and retrieve the answers. This will allow better tracking and sharing than a traditional e-mail solution. However, if you prefer a more traditional way, we can adapt. Of course, confidentiality, loyalty and professionalism are our guiding principles.

Can you tell us a bit more about the services you provide?

Jan: We will give you some examples of how we can create value for you:

Contract Hotline:

Based on a monthly fee, your team can contact us for commercial and contractual issues and receive a reply within 24 hours. The monthly fee will be adjusted, after prior agreement, based on the actual usage of the hotline in the preceding month: no bad surprises for you, visibility upfront and you only pay as per the value we create for you.

Negotiation Coaching:

In B2B relationships, surprisingly, the possibility to create or destroy value during negotiations is still largely underestimated. Often, the commercial staff receives the company’s wish list (must have’s, golden rules etc) but is lacking the arguments to defend their case and, even more, the skills to negotiate. Our coaching can make your team stronger and more effective in finding win-win solutions with your business partners.

Risk Management:

We can audit your contracts, provide a structured approached for risk management, set-up a contract risk scoring system and organize or participate in your risk boards.

Training:

Together, we can establish your team’s needs and build an appropriate training: commercial awareness, contract standards, negotiation practice, international business, contract management etc.

Integrity:

We can set-up a positive environment for this important, but often scary, subject so that your teams can make sure they remain proud of the healthy business environment in which you operate. This contains three steps: (i) establishing an adapted integrity policy and statement, (ii) providing training based on real-life examples and (iii) facilitate an alert mechanism to be used if the team fears that certain practices put their proudness at risk. This will be adapted to SME’s: compact and straightforward, not so sophisticated as in large companies who have dedicated resources for this.

Mediation and Arbitration:

While our goal is to avoid disputes to escalate by anticipation (with all the above services), we also support dispute resolution in a fast, cost effective and balanced way.

Can we test these services to see if they are useful for us?

Jan: Yes, you can. Our principle is to facilitate, as much as possible, the access to our services. You can step in as low as you want and hopefully expand when you see the value we create together.

Construction Contract Splitting, to split or not to split ?

This article is selected on the internet by AfiTaC because of its interest for the readers of this blog. In future posts, we will dig in deeper on taxation issues.

It has become common practice in many jurisdictions for parties to split construction contracts with an international element. The split structure is intended to provide a reduced tax exposure for the contractor and a resulting pricing benefit for the employer.

The archetypal contract split will see a single, turnkey contract split into onshore (or in-country) and offshore (or out-of-county) agreements. The contractor entity is usually different in each agreement. The various parties will then enter into a single umbrella agreement, which might also be called a bridging agreement, linkage agreement, coordination agreement or similar. This agreement will regulate the relationship between the onshore and offshore agreements. The primary purpose of the umbrella agreement is to ensure that the split structure offers the same contractual protection to the employer as a single, turnkey contract.

There is a commonly held view that the splitting of a construction contract can be concluded quickly and easily. It rarely turns out this way in practice. This is partly because the mechanics of the split will be driven by local law tax advice. It is also because the effect of the split on scope, pricing, liability and interface can be difficult for the parties to establish.

Historically, practitioners have not received a great deal of assistance from the courts in terms of how a tax split should be structured and drafted. For this reason, the recent decision in Petroleum Company of Trinidad and Tobago Ltd v Samsung Engineering Trinidad Co Ltd is very interesting reading. The decision in the case was ostensibly startling: in a claim for delay liquidated damages, Samsung would have the benefit of a lower cap in the onshore agreement. The overall liquidated damages in the linkage agreement would be ignored.

Parties might usually expect a higher aggregate cap in a linkage agreement to override any lower liability cap set out in the onshore and offshore agreements. The rationale is that any delay is typically attributable to the consolidated scope, rather than to the individual onshore or offshore elements. These elements are somewhat artificial, existing only to give effect to the tax split. That being the case, the case also validated a number of the protections that well-advised parties would typically include in a split contract structure.

Petronin v Samsung

The circumstances of the case concern a fairly typical dispute over competing entitlements to additional time and liquidated damages. Petroleum Company of Trinidad and Tobago Ltd (“Petronin”) engaged Samsung for the procurement, construction and commissioning of a CCR Platformer Complex and substation in Trinidad.

The contract was split between an onshore agreement and an offshore agreement. A different Samsung entity entered into each agreement. The parties, including both Samsung entities, entered into a linkage agreement to regulate the relationship between the onshore and offshore agreements. The intention of the parties (which was not in dispute) was solely to achieve tax efficiency and the purpose of the linkage agreement was to ensure that there would be no derogation from the turnkey principle.

Samsung failed to achieve the required mechanical completion date and brought an arbitration for an extension of time, damages and sums. The claim was brought under the onshore agreement. Petronin counterclaimed for delay liquidated damages. An issue arose regarding whether the liquidated damages would be subject to a cap in the onshore agreement (sized at 10% of the onshore agreement price) or a cap in the linkage agreement (sized at 10% of the aggregate of the onshore agreement price and the offshore agreement price). The difference between the respective positions was a liability of almost US$2.3 million.

Which cap applied?

The arbitral tribunal held that the cap set out in the onshore agreement applied and found in favour of Samsung. Petronin challenged the finding in the English High Court. The Court agreed that the lower cap was correct and rejected Petronin’s argument to the contrary. The key reasons for the decision were as follows.

  • Samsung brought the arbitration proceedings under the onshore agreement.The claimant was the onshore entity.
  • Petronin’s counterclaim was stated to be brought against the onshore entity.Petronin did not indicate that the counterclaim was brought pursuant to either the offshore agreement or the linkage agreement.
  • The terms of reference of the arbitration were drafted by reference to the onshore agreement.
  • Petronin’s counterclaim referred to ‘a cap at 10% of the Contract Price’.The ‘Contract Price’ was a defined term describing the price in the onshore agreement.The overall price for both the onshore and offshore elements was defined in the linkage agreement as the ‘Total Agreement Amount’.
  • As a matter of construction, if the tribunal were to import the linkage agreement cap into the onshore agreement, the effect would be to render the lower cap completely ineffectual.

What went wrong for Petronin?

The judgment must have been a bitter pill to swallow for Petronin, given that the sole reason for the split was apparently to achieve tax efficiency. Presumably, Petronin did not anticipate bearing any additional risk as a consequence of the split.

According to the judgment, the linkage agreement contained a number of the protections we would expect to see to protect the employer from assuming any residual risk. These include:

  • an interface obligation to integrate the onshore and offshore scopes;
  • provision to make sure one contractor could not obtain time or cost relief due to default by the other contractor; and
  • wording to confirm the precedence of the linkage agreement for the purposes of interpreting any inconsistency.

However, these protections were redundant because the claim and counterclaim were pursued (initially at least) in relation to the onshore agreement only.

Petronin attempted, belatedly, to invoke the entirety of the contractual framework. Their reply to defence to counterclaim emphasised the interrelationship of the agreements, arguing that the required mechanical completion date was identical in each of the onshore and offshore agreements. The implication was that any delay to mechanical completion would be a function of delay in respect of both scopes. However, the tribunal, and subsequently the Court, rejected this narrative as being inconsistent with the mechanism by which the claim and counterclaim had been brought (namely by reference to the onshore agreement).

Implications for tax splits

The most evident lessons of the judgment are:

  • a linkage agreement should contain robust protection against any adjustment of the risk profile of the construction contract which may arise as a consequence of the split;
  • any claim or counterclaim should be made pursuant to the entirety of the contract framework; and
  • the dispute provisions in the constituent agreements should enable the joinder of related disputes.

This last point is important to enable a respondent to ensure that any claim brought in relation to a single agreement can be determined by reference to the overall contract structure.

To split or not to split?

There is also a broader moral which parties should consider given the outcome of this case. Parties, and particularly employers, should spend time to determine whether a tax split will actually offer a discernible, worthwhile benefit. Typically, this would be a significant cost-saving. Often, international contractors will propose a split simply on the basis of accepted practice in other jurisdictions. However, it is not always advisable or even necessary. Certain jurisdictions offer tax exemptions which obviate the need for a tax split. In other cases, any financial saving may be minimal when considering the additional time and cost implications of negotiating and agreeing the split contracts (which, it is as well to remember, includes splitting scope and pricing schedules as well as legal terms).

In addition, the case provides a useful reminder to parties (particularly employers) of the additional burdens of a tax split. If the parties are well-advised, this should not amount to additional risk exposure. However, it will necessitate a greater degree of oversight to ensure that the contract is administered as a consolidated whole.

The original article can be found at the following location: https://www.lexology.com/library/detail.aspx?g=9c30584e-206e-4af1-bbb1-3de518eb56b2 

AfiTaC.com is the blog on commercial and contractual subjects for the Project Businesses (Construction, Infrastructure, Oil & Gas, Power & Renewable, Water Supply & Sanitation, etc). Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution. You can subscribe to our newsletter by writing to “newsletter@afitac.com”. You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. So, don’t hesitate to exchange with us by commenting here below, liking our publication on LinkedIn and writing to us “advice@afitac.com”. 

New ICC Rules of arbitration effective since 1 March 2017

This article is selected on the internet by AfiTaC because of its interest for the readers of this blog (source: www.wolftheiss.com) :

Arbitration is becoming more efficient and transparent and less expensive thanks to recent revisions to the ICC Rules of Arbitration. The ICC Court has introduced rules for expedited arbitration procedures for small claims.

SCOPE OF APPLICATION

The ICC Court introduced revisions, into force since 1 March 2017. While the general provisions will apply to all arbitration proceedings commenced on or after this day, the rules for expedited procedures will automatically only apply to claims with a value of up to USD 2,000,000 arising out of arbitration agreements concluded on or after 1 March 2017.
The expedited rules can also apply to disputes worth more than USD 2,000,000 or arbitration agreements concluded before 1 March 2017 if the parties choose to opt in. Alternatively, it is also possible to opt out of the new rules. If the parties wish to do so, a suitable ICC model clause is available.

KEY FEATURES OF EXPEDITED PROCEDURE

In brief, the expedited procedure amendments bring about the following changes:

  • The dispute will be referred to a sole arbitrator, even if the arbitration agreement provides for a three-member tribunal. Before, the parties’ agreement on the number of arbitrators and the procedure governing their appointment has prevailed over the ICC Rules (which provide for a sole arbitrator as a general default rule subject to particular circumstances of the case which allow the ICC Court to decide otherwise). Either the ICC Court or the parties will appoint the sole arbitrator (within a time limit set by the ICC), depending on the particular arbitration agreement.
  • The Terms of Reference, which have always been a traditional feature of ICC proceedings, are no longer required.
  • After the tribunal has been constituted, the parties will not be able to make new claims unless expressly authorized by the tribunal.
  • Within 15 days after the transmission of the file to the tribunal, the case management conference must be held. The tribunal will be required to render its award within 6 months of the case management conference, unless this deadline is extended by the ICC Court.
  • The tribunal may exclude the production of documents. It may also limit the number, length and scope of submissions, witness statements and expert reports, and decide the dispute solely on the basis of documents. Alternatively, it will have the authority to hold hearings not only in person, but also via telephone or video conference.
  • In order to increase cost efficiency, the arbitrators’ fee range will be reduced by 20 percent.

FURTHER AMENDMENTS

As for proceedings that do not fall under the expedited procedure rules, the most important modifications are these:

  • The time limit for issuing the Terms of Reference will be reduced to 30 days (instead of 3 months);
  • Reasons for the decisions by the ICC Court concerning the appointment, confirmation, replacement or challenge of arbitrators will no longer be confidential, but can be communicated upon the request of any party;
  • A request for arbitration will require a filing fee of USD 5,000 (instead of USD 3,000); and
  • There is a revised fee scale for the ICC administrative expenses, effective as of 1 January 2017.

OUTLOOK

With regard to the expedited procedure, nothing will change in respect to arbitration agreements that have been concluded before 1 March 2017 unless otherwise agreed to by the parties. However, starting from that date, it will be essential to carefully consider whether or not to opt out of the new expedited procedure rules. Undoubtedly, the revision of the ICC Rules will increase the efficiency and transparency of ICC arbitrations while simultaneously lowering their overall cost and duration.

ICC MODEL CLAUSE, RECOMMENDED PROVISIONS

Parties wishing to resort to arbitration under the ICC Rules are recommended to agree to the following standard ICC arbitration 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.”
It is also recommended to include the following provisions:
“The place of arbitration shall be [city, country].”
“The language of the proceedings shall be [language].”
If the parties wish to opt out of the emergency arbitrator provisions, they should include as follows:
“The Emergency Arbitrator Provisions shall not apply.”

If the parties wish to opt out of expedited procedure provisions (which would be applicable to a case where the amount in dispute is up to USD 2,000,000), they should include as follows:
“The Expedited Procedure Provisions shall not apply.”
If the parties wish to apply the expedited procedure provisions in any case (i.e. irrespective of the amount in dispute), they should include as follows:
“The parties agree, pursuant to Article 30(2)(b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply irrespective of the amount in dispute.”
If the parties wish to determine their own threshold amount for the application of the expedited procedure provisions, they should include as follows:
“The parties agree, pursuant to Article 30(2)(b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply, provided the amount in dispute does not exceed US$ [specify amount] at the time of the communication referred to in Article 1(3) of the Expedited Procedure Rules.”

The original article can be found at this location: 

https://www.wolftheiss.com/fileadmin/content/6_news/clientAlerts/2017/2017_Q1/17_02_24_WolfTheiss_CA_New_ICC_Rules.pdf

ICC Rules of Arbitration

This article is selected on the internet by AfiTaC because of its interest for the readers of this blog (source: out-law.com) :

The ICC Rules of Arbitration are the most widely-used institutional arbitral rules in the world, especially in relation to international construction and energy disputes. A new version of the Rules came into force on 1 January 2012. The 2012 Rules apply to all ICC arbitrations that commenced on or after that date, unless the parties have agreed that the previous version of the Rules will apply. [Note from AfiTaC: since the publication of the original article, a new version of ICC Rules of Arbitration has become available in 2017: ICC-2017-Arbitration-and-2014-Mediation-Rules-english-version.pdf]

The previous version of the Rules was published in 1998. To a large extent the new Rules simply codify the solutions and approaches that the ICC Secretariat has followed since the last revision of the Rules.

Most of the changes are aimed at increasing the efficiency of the arbitration process.

The 2012 Rules explicitly require both the arbitrators and the parties to “make every effort to conduct the arbitration in an expeditious and cost-effective manner”.

The changes will force participants to define more aspects of their claims and outline the merits of the dispute earlier on in the process.

The Rules also contain new penalties for behaving in a way that undermines the process’s efficiency. The new Rules permit the tribunal, when making allocating costs, to take into account “the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner”.

Entirely new provisions relate to the emergency arbitrators, case management, and multi-party arbitrations.

Main changes introduced by the 2012 Rules

Emergency arbitrator: the emergency arbitrator provisions are probably the most innovative provisions in the 2012 Rules. A party which needs urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal may apply for such measures in accordance with Article 29 and the provisions in Appendix V.

The party applying for the emergency arbitrator must file its Request for Arbitration no later than 10 days after the Secretariat receives the application. If it does not, the President will terminate the emergency arbitrator proceedings unless the emergency arbitrator determines that a longer period of time is necessary. This is quite a tight timescale.

The emergency arbitrator’s decision will take the form of an order. The order will not be binding on the arbitral tribunal and it is unclear whether or not an emergency arbitrator’s order would be enforceable under the New York Convention, which refers to “awards”. Interim orders and measures are enforceable under national laws in some jurisdictions but not in others.

The emergency arbitrator provisions contained in Article 29 and Appendix V of the 2012 Rules will not apply if the parties’ arbitration agreement was concluded before 1 January 2012. In addition the emergency arbitrator provisions will not apply if the parties have elected to opt out of those provisions or have agreed to follow another pre-arbitral procedure that provides for the granting of conservatory and interim measures.

Case Management: the Rules require the tribunal to convene a case management conference to define procedural matters at the start of the arbitration. Further case management conferences may take place if necessary to ensure that the arbitration is efficiently conducted. The arbitral tribunal is encouraged to take a proactive role in order to determine an efficient conduct of the procedure by using the management techniques set out in Appendix IV and in the ICC publication “Techniques for Controlling Time and Costs in International Arbitration”.

Arbitrators have to inform the parties and the Secretariat of the date they expect to submit their draft award. According to the previous version of the Rules the arbitrators were supposed to communicate an “approximate” date (to the Secretariat only). Furthermore, the ICC Court is required to take the efficiency of the arbitrators and the timeliness of submission of the draft award into account when setting the arbitrators’ fees.

Constitution of the Arbitral Tribunal: the powers of the ICC Court have been expanded in order to allow the Court to appoint a suitable arbitrator in the event that a national Committee fails to make the appointment within the deadline fixed by the Court or the president of the National Committee certifies that a direct appointment is “necessary and appropriate”. The Court can also appoint arbitrators in proceedings involving States or State entities.

Independence and impartiality of arbitrators: whereas under the 1998 Rules arbitrators had to be independent of the parties involved in the arbitration, they must now be impartial as well as independent. Accordingly they must disclose any circumstances that could give rise to reasonable doubts as to their impartiality as well as anything that might call into question their independence. In addition, prospective arbitrators must sign a statement of acceptance, indicating their availability. Such a declaration is aimed at reducing the procedural delays due to the over-commitment of arbitrators.

Challenges to jurisdiction: while the old version of the ICC Rules allowed parties to raise jurisdictional challenges to the Court on the validity of the arbitration agreement, under the new Rules such challenges will be addressed by the arbitral tribunal unless the ICC Secretary General refers the issue to the Court. Article 6 of the ICC Rules has been revised to speed up the procedure.

Multiple Parties and Multiple Contracts: the 2012 Rules include entirely new provisions on multiple parties and contracts. According to Article 7, a party may request that an additional party be joined to the arbitration by submitting a Request for Joinder to the ICC Secretariat. Article 9 confirms that claims arising out of or in connection with more than one contract may be made in a single arbitration, irrespective or whether such claims are made under more than one arbitration agreement under the Rules.

Finally, the 2012 Rules expand the powers of the ICC Court of Arbitration to consolidate arbitral proceedings under Article 10.

Technology: The new Rules explicitly allow the arbitral tribunal and the Secretariat to communicate with the parties by e-mail, as they already had in fact been doing for some time, while the previous version of the Rules referred to obsolete methods of communication, such as telex and telegram. References to these obsolete methods of communication have been deleted. Tribunals are encouraged to consider the use of video conferencing at hearings where attendance in person is not essential.

 

The original article can be found at this location: https://www.out-law.com/en/topics/dispute-resolution-and-litigation/arbitration-and-international-arbitration/2012-icc-rules-of-arbitration/