The Procedural Issues of the Vis Moot: addition of a new claim and consolidation under the ICC Rules

By Giuseppe Franco, Associate

In March this year, Associate Giuseppe Franco travelled to Austria to serve as an arbitrator for the 2024 Willem C. Vis International Commercial Arbitration Moot (“Vis Moot”). This annual competition, in which legal students participate in simulated court proceedings before an arbitral tribunal, serves as practical training, drawing participants from over 300 law schools across the world to study and present on the moot case. In this article, Giuseppe takes a closer look at the facts and procedural issues of this year’s Vis Moot case. 

Introduction

This year’s Vis Moot case concerned a dispute in the automotive industry about the payment of electronic sensors supplied by the Claimant, SensorX plc, to the Respondent, Visionic Ltd (together, the “Parties”). The transactions in the spotlight of the arbitration occurred on the basis of two purchase orders issued under a Framework Agreement (“FA”) entered into by the Parties to regulate the supply of sensors.1

In keeping with tradition, the problem dealt with two separate sets of issues which, for convenience, are referred to by mooties2 and arbitrators as the ‘procedural’ and ‘merits’ issues of the arbitration. This article deals with the procedural issues of this year’s case.

The facts

For almost three years after execution of the FA, the respondent purchased millions of sensors from claimant. In January 2022, the respondent submitted two additional purchase orders, respectively on 4 and 17 January (“First PO” and “Second PO”). The First PO provides the background for the procedural issues, while the Second PO prompts the merits issues.

On 5 January 2022, the claimant suffered a phishing attack due to one of its employees disregarding internal cybersecurity guidelines.3 This allowed the hackers to infiltrate the claimant’s IT system and access all communication between the Parties. On 28 March 2022, the respondent received an email, allegedly from one of the claimant’s employees, requesting to transfer payments to a bank account different from the one agreed upon by the Parties in the FA. In compliance with the request, the respondent transferred the money to the wrong bank account. As it turned out, the email came from the hackers.

Owing to internal issues, the claimant discovered about the missing payment only in August 2022 and requested the respondent to pay shortly thereafter. The respondent refused to pay stating that payment had already been made according to the instruction contained in the spoof email. The standoff prompted the claimant to commence arbitration under the ICC Rules pursuant to the arbitration agreement contained in the Second PO.

With regard to the First PO, the respondent made payment of the first instalment correctly. The second instalment was, however, never paid due to complaints about the allegedly defective quality of the sensors. Again, the claimant’s internal issues prevented discovery of the missing payment until after commencement of the arbitration, when the arbitral tribunal was already formed, and the Terms of Reference (“TOR”) had already been signed. The claimant thus submitted a request to add this new claim to the arbitration. In the alternative, it requested the ICC Secretariat to consider its submission as a Request for Arbitration so that the arbitral tribunal could consolidate the second arbitration with the already pending one.

The procedural issues thus concerned (i) the addition of a new claim and, alternatively, (ii) the consolidation of the two arbitrations.

Addition of the new claim

A question of jurisdiction

The claimant contended that the new claim had to be added to the pending arbitration. For this, the claimant first needed to convince the tribunal that the claim can be added even if it pertains to a different contract, namely the First PO. A way to bypass this hurdle was to submit that the arbitral tribunal had jurisdiction over both claims under the overarching arbitration agreement contained in Article 41 of the FA. The claimant would need, however, to explain why Article 41 was not superseded by the later arbitration agreements contained in the two purchase orders.4 In addition – the claimant argued – the arbitration agreements in the purchase orders were compatible with Article 41 “so that there can be no doubt as to the Parties’ will to submit to arbitration”.5

Therefore, this issue was first a jurisdictional one. The claim that the claimant sought to add to the arbitration arose from a purchase order containing a separate arbitration agreement, clause 7, which appeared to be incompatible with both Article 41 of the FA and the arbitration agreement contained in the Second PO. To mention some discrepancies: 

• Article 41 required the Parties to first negotiate or mediate. Clause 7 and the Second PO did not;
• Article 41 allowed the Parties to agree to a sole arbitrator before providing for a three-member tribunal. Clause 7 only provided for a three-member panel and the Second PO provided for an alternative between one and three. 

However, the claimant had an ace up its sleeve. Article 9 of the ICC Rules allows the parties, under certain conditions, to bring claims arising out of more than one contract in a single arbitration “irrespective of whether such claims are made under one or more than one arbitration agreement”. The first condition, established by Article 6(4)(ii) of the ICC Rules, is to demonstrate that the arbitration agreements “may” be compatible, and that the parties have agreed to have the claims determined together in a single arbitration. Therefore, the debate reverted to compatibility of the agreements and interpretation of the Parties’ structure of the transaction (i.e. a series of purchase orders issued under a framework agreement).

From what I have seen sitting as an arbitrator in Vienna, arbitrators were slightly more convinced by arguments affirming the tribunal’s jurisdiction on the basis of Article 41, rather than arguments trying to reconcile two (or three) ostensibly different arbitration agreements.

A question of procedure

The claimant’s first argument was further challenged by Article 23(4) of the ICC Rules, which does not allow parties, after the signing of the TOR, to make new claims that fall outside the TOR’s limits. This is with the significant exception that the tribunal authorises the parties to do so in consideration of the “nature of such new claims, the stage of the arbitration and other relevant circumstances”. The question thus became a procedural one: whether the new claim should be added considering its nature vis-à-vis the first claim, the stage of the pending arbitration and other circumstances. 

The Vis Moot sessions in Vienna confirmed that, from the respondent’s perspective, it would be very hard to argue that the arbitration reached such a stage that it would be cost- and time-inefficient to add the new claim. Instead, considering that the claimant submitted its request for addition only 10 days after issuance of the TOR, it would be more cost-efficient to have the two claims determined in a single arbitration.

Alternatively, the respondent might have more luck arguing that the factual and legal questions underlying the two claims (i.e. their nature) did not seem to overlap. Indeed, the pending arbitration concerned the question of whether the claimant was entitled to the payment which the respondent made to the wrong bank account. While the second claim was also a claim for debt, it involved the different question of whether non-performance was justified in light of the supply of allegedly defective sensors.

When it came to Article 23(4) of the ICC Rules, the Vis Moot sessions witnessed the rise of a variety of ingenious arguments. From thorough analyses of the costs of the arbitration to the risk of conflicting awards, teams did their best to defend their positions. 

Consolidation 

The second procedural issue was somewhat neglected, probably because most teams chose to plead consolidation as a fall-back argument. Considering that teams normally have 15 minutes to address all procedural issues – and this time must also include the arbitrators’ questions – there was little time left to build on consolidation.

The drafters of the problem made the claimant’s position on consolidation deliberately vague. While on the one hand, the claimant appeared to base its request on Article 41(5) of the FA, on the other hand, its submission mentioned Article 10 of the ICC Rules as the provision setting out the relevant criteria for consolidation.6 In any case, the claimant’s position was that any requirements for consolidation, be they the ones provided by the FA or the ICC Rules, were met.

Article 41(5) of the FA empowers the arbitral tribunal to consolidate multiple arbitrations on the condition that:

• The arbitrations were related “to several contracts concluded under this Framework Agreement”;
• The subject matters were “related by common questions of law or fact”;
• The arbitrations, if conducted separately, “could result in conflicting awards or obligations”.

Conversely, Article 10 of the ICC Rules vests the power to consolidate in the ICC Court and not the tribunal. Moreover, Article 10 provides for slightly different criteria for consolidation.7

A first question is, again, whether Article 41 supersedes the arbitration agreements contained in the purchase orders. These latter agreements do not expressly provide for consolidation but merely refer to the ICC Rules.

Can parties deviate from the institutional rules they have selected?

A more interesting question is whether parties, in exercising their autonomy, can deviate from the chosen arbitral rules to transfer the power to consolidate from the ICC Court to the arbitral tribunal. Given that the act of choosing the rules is also an expression of parties’ autonomy, it may be said that Article 41 contains two conflicting expressions of the Parties’ will. 

In Vienna, teams rarely got heated while discussing this matter. However, a few bold teams relied on a distinction between ‘mandatory’ and ‘optional’ institutional rules. According to this distinction, parties are not allowed to make arrangements contrary to the mandatory rules as this may lead the institution to refuse to administer the arbitration. The question remains, however, as to what rules fall in this category. Sometimes, the answer is provided by the rules themselves where they expressly provide that any different arrangements would be contrary to the rules.8 Occasionally, the answer is provided by case law, such as in Samsung v Qimonda.9 Here, the parties agreed on an arbitration agreement which excluded the ICC Court’s power to scrutinise awards and the institution’s role in confirming arbitrators. The Paris Court of First Instance validated the ICC’s decision to refuse to administer the arbitration as it considered scrutiny and arbitrators’ confirmation to be very central to the ICC arbitration system.

In most cases, however, the lack of criteria defining ‘mandatory’ rules prevents their identification. Article 10 of the ICC Rules is probably one of these cases. 

The risk of having an unenforceable award

In Vienna, arbitrators are always alert to spot any contradictions in the parties’ pleadings. When dealing with consolidation, a possible contradiction would be for the claimant to affirm the tribunal’s jurisdiction, over both claims, on the basis of Article 41 of the FA. Then, in the attempt to cherry-pick the seemingly more convenient criteria provided by the ICC Rules, it would bring the subsidiary consolidation request under Article 10 of the ICC Rules. 

Arbitrators would be quick to realise the risk in following this line of argument. If the arbitral tribunal were to ground its jurisdiction in Article 41, but then disregard Article 41 for the purpose of consolidation, that may amount to a breach of the parties’ arbitration agreement. Ultimately, this would be a ground for setting aside or refusing enforcement of the award.10

Conclusion

The procedural issues addressed by the 2024 Vis Moot competition delved into the interplay between various ICC provisions and the terms of several arbitration agreements. Simple research on arbitration resources may confirm that courts and arbitral tribunals have tested the ICC Rules at length on the issues of new claims and consolidation of proceedings. This has allowed the ICC to evolve and develop meticulous provisions addressing these matters. Today, such provisions are enshrined in Articles 6, 9, 10 and 23 of the 2021 edition of the ICC Rules. To grasp the evolution of the ICC Rules, one may look at Article 6 (effect of the arbitration agreement), whose wording has considerably changed from the 1998 edition to the 2012 edition.11 Also, the 1998 edition did not even contain a provision addressing the scenario of claims arising from multiple contracts or the consolidation of arbitral proceedings, now Articles 9 and 10 respectively. 

To further understand how institutions try to maintain the competitive edge in the dispute resolution market, one may focus on the ICC’s meticulous work in respect to Article 10.12 The 2021 revision of the ICC Rules expanded the scope of Article 10, which now allows for consolidation of arbitrations commenced under two identical arbitration agreements, even if said arbitrations are between different parties and are based on separate contracts (Article 10(b)). This change is particularly relevant for construction projects where it is common to have a series of back-to-back contracts between the various entities performing work (e.g. employer, contractor, subcontractors, suppliers). If, for example, a contractor wants to consolidate the arbitration against the subcontractor into the arbitration against the employer, it would need to make sure that the main construction contract and the subcontract contain identical arbitration agreements. If this is the case, Article 10(b) of the ICC Rules would automatically lead to consolidation.

As seen in Vienna, the 2021 revision also clarified that consolidation is permissible even if the arbitration agreements are not the same. This is now permitted when the pending arbitrations are between the same the parties, the disputes arise in connection with the same relationship, and the ICC Court finds the arbitration agreements to be compatible (Article 10(c)).

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• 1. The problem can be found on the website of the Vis Moot: https://www.vismoot.org/31st_vis_moot/#problem.
• 2. Informal term for a participant in a moot court competition.
• 3. The claimant’s employee clicked on a spoofed URL in an e-mail thereby inadvertently downloading a malware.
• 4. And also, that Article 41 forms the basis of the pending arbitration proceedings.
• 5. Problem, page 7, para 23 (Request for Arbitration).
• 6. Problem, page 47, paragraphs 8 and 9 (Claimant’s request for consolidation); and page 66, paragraph 43(d) (Procedural Order no. 2).
• 7. According to letter c, consolidation may be granted if “the arbitrations are between the same parties, the disputes in the arbitration arise in connection with the same legal relationship, and the Court finds the arbitration agreements to be compatible.”
• 8. See Article 2(4) of Appendix III to the ICC Rules: “The arbitrator’s fees and expenses shall be fixed exclusively by the Court as required by the Rules. Separate fee arrangements between the parties and the arbitrator are contrary to the Rules.”
• 9. Tribunal de Grande Instance (TGI) Paris, 22 January 2010, 10/50604, in Revue de l’arbitrage (2010) 571.
• 10. For example, under Article 34(2)(iv) of the UNCITRAL Model Law which is, for the purpose of the Vis Moot, the lex arbitri of the arbitration.
• 11. The 2012 version of Article 6 has mostly remained untouched after the 2017 and 2021 revisions.
• 12. See here the track changes made by the 2021 revision: https://iccwbo.org/wp-content/uploads/sites/3/2020/12/icc-2021-2017-arbi....