"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, July 29, 2011

UNCITRAL Arbitration Rules 2010 & 1976: A Comparison- Part II

This is the second part of a series of posts on the UNCITRAL Arbitration Rules, 2010. The previous post in the series was an introduction to the 2010. This post would cover improvements in the New Rules relating to the model arbitration clause and electronic transmission of the notice invoking arbitration.

Model Arbitration Clause:
Arbitration rules of several prominent institutions provide for model arbitration clauses for adoption in contracts. It is advantageous for parties to use the model clause of a specific institution in their contracts if the intent is to refer disputes to arbitrations under the aegis of that institution. Rarely would courts strike down such arbitration clauses because of their wide use (See, KumkumSen, Taking resolution of disputes seriously, Business Standard, March 14, 2011).

The New Arbitration Rules contains such a model clause. The Model Clause reads:
"Model arbitration clause for contracts:
Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.

Note — Parties should consider adding:
(a) The appointing authority shall be ... (name of institution or person);
(b) The number of arbitrators shall be ... (one or three);
(c) The place of arbitration shall be ... (town and country);
(d) The language to be used in the arbitral proceedings shall be ...”

Possible waiver statement
Note — If the parties wish to exclude recourse against the arbitral award that may be available under the applicable law, they may consider adding a provision to that effect as suggested below, considering, however, that the effectiveness and conditions of such an exclusion depend on the applicable law.


"Waiver: The parties hereby waive their right to any form of recourse against an award to any court or other competent authority, insofar as such waiver can validly be made under the applicable law."
As is well-known, the UNCITRAL Arbitration Rules provides the framework for ad hoc arbitration. Consequently, there is no default authority to enable the constitution of the arbitral tribunal in case the mechanism devised by the parties failed. In case of such failure, the default appointing authority under the Old Rules was the Secretary-General of Permanent Court of Arbitration situated at the Hague. In many instances, parties to the agreement agreed on the UNCITRAL Arbitration Rules even without designating the appointing authority. When their appointment procedure failed, the parties had to resort to the default procedure contained in the Rules: to approach the Secretary General of the Permanent Court of Arbitration. If the parties had contemplated designating an appointing authority, they could have chosen a constituting authority convenient (and probably more inexpensive) to them. With the inclusion of the Model Clause which provides for designation of appointing authorities, such problems are at least mitigated, if not completely eliminated.

Further, the "Note" in the model clause on the "possible waiver statement" is to make the parties aware that the effectiveness of such a provision ultimately depends on the applicable law.

Applicable Rules
When there was only one version of UNCITRAL Rules, it was not problematic when there was no reference to the year of adoption of the Rules in arbitration agreements. However after the New Rules were published, it became problematic when the parties did not mention the version of the Rules that they wished to adopt in their contract. According to Paulsson & Petrochilos, most of the Investment Treaties simply referred to the arbitration rules of the UNCTRAL without any reference to the version of the Rules applicable(p. 14-15, Jan Paulsson & Georgios Petrochilos, Revision of the UNCITRAL Arbitration Rules).For instance, the Investment Treaty between Greece and South Africa simply mentions that the investor may refer the dispute to “an ad hoc tribunal to be established under the arbitration rules of the United Nations Commission on International Trade Law…” without any reference to the version of the Rules. It is only in some rules that there is either an express mention of the applicable Rules or a test to determine the applicable version of the UNCITRAL Rules. For instance, the Investment Treaty between Australia and India expressly provides that “the Arbitration Rules of the United Nations Commission on International Trade Law, 1976” would govern. The Investment Treaty between Hong Kong (SAR) and Italy provides that the UNCITRAL Rules in force at the time of submission of the dispute would apply to the arbitration.

Article 1(2) addresses this problem. It reads:
The parties to an arbitration agreement concluded after 15 August 2010 shall be presumed to have referred to the Rules in effect on the date of commencement of the arbitration, unless the parties have agreed to apply a particular version of the Rules. That presumption does not apply where the arbitration agreement has been concluded by accepting after 15 August 2010 an offer made before that date.”
Consequently:
  • If the arbitration agreement is concluded after 15 August 2010, the Rules in force on the date of commencement of arbitration would govern the arbitration.
  • However, even if the arbitration agreement is concluded after 15 August 2010, the parties might agree to apply a particular version of the Rules (i.e., the 1976 Rules)
  • Where the arbitration agreement is concluded before 15 August 2010 without mentioning the applicable Rules, the 1976 Rules would apply.
  • Where the offer to arbitrate is made prior to 15 August 2010 but without mentioning the version of the Rules and the acceptance is subsequent to the effective date of the new Rules, the 1976 Rules would apply.
Electronic Transmission of Notices
When the 1976 Rules were adopted, there were no means of electronically transmitting notices/ claims etc. Hence the Old Rules did not contain provisions for validly transmitting notices etc through facsimile or email. The 2010 Rules lays down the framework of transmitting notices through electronic means.The requirement under Article 2(1) is that the notice could be transmitted by any means whatsoever provided such means of communication “provides or allows for a record of its transmission”. In this context, an aspect pertaining to the influence of instruments other than the previous version of the Arbitration Rules needs to be noted. The UNCITRAL Rules has been updated keeping in mind the terminologies and the phrases used in the Model Law. Similarly, UNCITRAL has ensured harmony among it various texts/ instruments. As regards, electronic transmission, the Working Group of the UNCITRAL was of the view that the term "electronic communication" should be used in the Rules as the same was used by UNCITRAL in the United Nations Convention on the Use of Electronic Communications in International Contracts. Another instance of this is harmonious usage is regarding the nature of the electronic communication. Paulsson & Petrochilos had opined that the means of communication should be such that it must provide a “durable record of dispatch and receipt” (p. 23, supra). The Working Group was, however, of the opinion that such terminologies were not used in UNCITRAL’s instruments and “preference was expressed for the revised draft to be prepared being consistent with terminology used in the existing instruments”. [p. 11, Report of the Working Group on Arbitration and Conciliation on the work of its forty-sixth session A/CN.9/619 (New York, 5-9 February 2007)]
More on the Rules in another post.

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