Terms of reference: Theory and practice

By Beijing Arbitration Commission/Beijing International Arbitration Center (BAC/BIAC)
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TOR

The Terms of Reference (TOR) is a documentary framework initially formulated by the International Court of Arbitration of the International Chamber of Commerce (ICC Court). The TOR was at least explicitly enshrined in the 1927 ICC Rules of Arbitration, and remains in practice today. The original intention of the TOR was to fulfil the demands of countries such as France, which only recognize arbitration agreements reached after the actual occurrence of a dispute.

Under the ICC rules, the drafting of the TOR used to lie with the institution, and has now become a task for arbitral tribunals. The content of the TOR includes the address and contact information of the parties and their representatives, a summary of claims and the relief sought, a list of issues to be determined, the contact information of arbitrators, the place of arbitration, and applicable procedural rules.

Pros and cons of TOR

Defining claims and issues at an early stage of arbitral proceedings. Defining claims and counterclaims through TOR promotes the efficient conduct of procedural matters. The TOR reduces procedural repetition by clarifying claims and enabling the respondent to prepare a more focused defence. The TOR also allows parties to clarify procedural issues by raising concerns and resolving challenges in a timely manner. Unsurprisingly, TOR could become a defence of one party when the other party challenges an award on grounds beyond the scope of the arbitration agreement, as an arbitral award can be cross-referenced with the issues identified in a signed TOR.

However, a signed TOR may also prevent tribunals from accepting new claims, and limit the capacity of parties to freely consent to the other way of conducting the arbitration. This is especially problematic in cases concerning multi-layered legal relationships, where it is particularly challenging for the parties and the tribunal to accurately capture the essence of disputes and thus clarify claims and issues.

Joint drafting and consent. Drafting the TOR is the result of joint efforts by both parties and the tribunal. This does not only fulfil the requirement of ex post arbitration agreements in some jurisdictions, but also encourages the tribunal to be fully prepared at an earlier stage of proceedings. In addition, it could be argued that such joint efforts may encourage amicable dispute resolution, or even facilitate early settlement. The TOR also serves as a reference for the drafting of awards.

Nonetheless, joint drafting can pose problems once the process of writing, transferring and signing the TOR becomes a cause for delay. Additionally, there is a risk of the TOR eroding parties’ rights to raise jurisdictional and procedural objections later in the proceedings.

Practice of TOR in China

The practice of the TOR in the ICC Court illustrates its strengths and weaknesses. These strengths have been incorporated into the practice of arbitration in China. The 2015 Rules of the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC), for example, includes the TOR as an optional procedural order. This has worked well in certain cases as a guarantee of efficiency.

Optional: Arbitral tribunal determines the application of the TOR based on individual cases. The TOR is a required proceeding under the ICC rules. Even if parties cannot sign the TOR, the TOR still needs to be submitted to the ICC Court for approval. In contrast, the author understands that the 2019 BAC/BIAC rules designate the TOR as a tribunal’s order, which is not a procedural prerequisite.

The tribunal can therefore comprehensively consider the applicability of the TOR in each case by assessing complexity, the feasibility of defining claims and/or counterclaims at an early stage, parties’ acceptance or non-acceptance of the TOR, and the impact of the TOR on the conduct of proceedings.

Simplified: Content of the TOR is relatively simple and has less format requirements than the ICC Court. According to BAC/BIAC rules, the tribunal is free to develop its own format, rather than follow the ICC Court’s model terms when the TOR is applied. In BAC/BIAC cases, the tribunal has referred to the Scott schedule to subdivide the summary of claims and outline of issues into “claimant’s claims”, “respondent’s arguments”, “facts and sources of evidence”, “legal basis”, “contractual basis” and so on. Having done so, the TOR saves parties’ time and energy from repeating the content of arbitral notices and other exchanged documents.

Efficient: The TOR practice in China is much more flexible in timing and manner. The BAC/BIAC rules allow introduction of the TOR at any stage of proceedings. Tribunals are able to engage the TOR before hearings, between hearings, or after hearings, whenever they decide it is necessary. Generally, the TOR can be flexibly incorporated at any stage of arbitration.

Moreover, both the drafting and service processes are simplified. In certain cases at the BAC/BIAC, the tribunal first filled out claims and counterclaims in the TOR, according to the parties’ application for arbitration, and then sent the pre-filled-in TOR to both parties for supplementary arguments, evidence and legal basis.

Parties were required to submit the TOR before the next hearing, where parties verified and confirmed the contents of the completed TOR. As both parties already clearly expressed their positions in the TOR, they were able to make more focused arguments and give more targeted answers to questions raised by the tribunal. As such, parties expressed and exchanged their views more fully and precisely, achieving more positive hearing outcomes.

Conclusion

The TOR has been put into the practice of international arbitration for nearly 100 years. Its benefits and detriments merit further study in Chinese arbitration circles. Maximizing the value of the TOR requires a comprehensive understanding of how the TOR affects arbitral proceedings. Current practice should be further streamlined in its format, content and drafting processes to better serve as a cost-effective method of dispute resolution.

An Di is a case manager at Beijing Arbitration Commission/Beijing International Arbitration Center (BAC/BIAC). BAC/BIAC case manager Fu Xiangyu also contributed to the article.