"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.

Monday, August 15, 2011

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

This  is the sixth and last installment in the series of posts on the analysis of the new features in the UNCITRAL Arbitration Rules, 2010. The UNCITRAL Arbitration Rules became effective from 15 August 2010. This series was intended to be complete on the First Anniversary of the Rules. It has been exactly a year since the New Rules have been adopted. The last post was intended to coincide with the first anniversary of the New Rules. Previous posts of this series can be accessed from here, here, here, here and here.

Power of the Arbitral Tribunal to Rule on its Jurisdiction:
The provisions in the 2010 Rules on the power of the arbitral tribunal to rule on its jurisdiction is based virtually on Article 16 of the Model Law, except for some changes, mostly minor in nature. The only change that could be considered as substantial is that the Model Law provided that in case the arbitral tribunal decided that it had jurisdiction on a preliminary issue as to jurisdiction, a party could appeal to the court on the preliminary issue. This provision is absent in the 2010 Rules. The purpose of the deletion might be because the Model Law was aimed at providing a model of arbitration law and would ideally contain provisions pertaining to the role of courts in the arbitral process. The purpose of the Arbitration Rules, on the other hand, is primarily to govern the procedure pertaining to the conduct of the arbitral proceedings.

The New Rules provides that in case a party challenges the jurisdiction of the tribunal in a court, the tribunal nevertheless had the power to continue with the arbitral proceedings and make an award.

The minor but notable changes made in the 2010 Rules vis-a-vis the Model Law are as follows:
  1. The term “null and void” in Article 16(1) of the Model Law has been modified as “null”
  2. The term “ipse jure” in the above provision has been changed to “automatically”.
  3. Article 16(1) provides that a plea that the tribunal lacks jurisdiction shall be raised in the statement of defence and not thereafter. However, it does not deal with a plea of lack of jurisdiction as regards counterclaim or set off. The 2010 Rules provides that a plea of lack of jurisdiction in respect of counterclaim or set off should be made in the reply to the counterclaim or set off and not thereafter.
Time Limit for Communication of Pleadings:
Article 23 of the Old Rules and Article 25 of the New Rules provide that the time limit for communication of the pleadings should not exceed forty five days unless the tribunal, for justifiable reasons, extends the time limits. The time limit of forty five days in complicated arbitrations may not be always possible. While the purpose of this provision is to expedite the arbitral process, practically these provisions presents a huge difficulty to the parties. Therefore, the arbitral tribunal should have the discretion right at the outset to give parties more time for the submission of pleadings.

Interim Measures:
Unlike the Old Rules, the New Rules elaborately deals with interim measures. The Model Law was amended extensively in 2006 as regards provisions pertaining to interim measures that could be granted by the tribunal. These provisions were inserted in a new Chapter IVA of the Model Law. At the time of revising the Arbitration Rules, the Secretariat to the UNCITRAL suggested that the provisions in Chapter IVA could be adopted in the New Rules. Consequently, several provisions in Chapter IVA were incorporated with changes mutatis mutandis.

The Model Law gives the option to the parties to agree that the tribunal would not have the power to grant interim measures [Article 17(1)]. This option of the parties has not been replicated in the New Rules [Article 26(1)].

According to Article 26(2) of the New Rules, an interim measure is any temporary measure ordered by the tribunal prior to issuance of the final award which is in the nature of, but is not limited to, the following measures:
a) Maintenance or restoration of the status quo pending the final decision on the dispute
b) Taking an action, or refraining from taking an action, that would prevent
  • Current or imminent harm
  • Prejudice to the arbitral process
c) Providing a means of preserving assets out of which a subsequent award may be satisfied
d) Preserving evidence relevant to the resolution of the dispute.

In this regard, it may be noted that Article 17(2) of the Model Law was exhaustive in providing for the kinds of interim measure that an arbitral tribunal could order. The Working Group considered Article 17(2) and concluded that the relevant provision in the New Rules should not be exhaustive in enumerating the interim measures [Para 92-93 A/CN.9/669 - Report of Working Group II (Arbitration and Conciliation) on the work of its fiftieth session (New York, 9-13 February 2009)]. The analogous provision in the New Rules must be drafted so that even measures not contemplated therein may be ordered by the arbitral tribunal. To that effect, Article 26(2) makes it clear that the tribunal had the power to order measures that were not limited to those provided therein.

Further, the party asking for interim measures of the nature specified in (a) to (c) above has to satisfy the arbitral tribunal that:
  1. The harm that the interim measures would prevent is not adequately reparable by an award of damages
  2. The harm that would be caused to the applicant substantially outweighs the harm likely to result to the party against whom such measure is sought to be directed.
  3. There is a reasonable possibility that the applicant will succeed on the merits of the claim.
As regards interim measure specified in (d) above, the above requirements would apply only to the extent the arbitral tribunal considers its appropriate.

The tribunal possesses the power to modify, suspend or terminate the interim measure it ordered either on the application of a party or in exceptional circumstances suo moto.

The tribunal has the power to order a party applying for interim measure to promptly disclose any material change in the circumstances on the basis of which interim measure was sought or was ordered by the tribunal.

The tribunal has also got the power to order the party that applied for interim measures to pay costs and damages in case the tribunal feels subsequent to granting interim measure that interim measures should not have been granted in the circumstances then prevailing. Such order could be made by the tribunal at any time during the arbitral proceedings.

Examination of Witnesses:
According to Article 28(4), witnesses could be examined even by means of telecommunication that does not require the physical presence of the witnesses. Thus, the 2010 Rules has recognised witness examination through video conferencing etc.

Experts Appointed by the Tribunal:
Under the Old Rules, the arbitral tribunal could appoint experts on specific issues without consulting the parties. However, under the New Rules, Article 29(1) makes it clear that the tribunal should consult the parties before appointing experts. Further, the New Rules makes it clear that the expert must be independent.

A delegation of the Working Group wanted to make a proposal pertaining to the challenge of arbitrators. The proposal was that experts appointed by the tribunal could be challenged by the parties for the same reasons and in the same way as an arbitrator could be challenged. Another proposal was made that the experts should, along the lines of the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules), declare their qualifications and a statement of independence and impartiality before they accept their appointment. Relevant portion of Article 6(2) of the IBA Rules on the Taking of Evidence in International Arbitration provides:
"The Tribunal-Appointed Expert shall, before accepting appointment, submit to the Arbitral Tribunal and to the Parties a description of his or her qualifications and a statement of his or her independence from the Parties, their legal advisors and the Arbitral Tribunal. Within the time ordered by the Arbitral Tribunal, the Parties shall inform the Arbitral Tribunal whether they have any objections as to the Tribunal-Appointed Expert’s qualifications and independence. The Arbitral Tribunal shall decide promptly whether to accept any such objection.”
Further the proposal provided that the parties would have the right to challenge the independence of the expert (A/CN.9/WG.II/WP.159/Add.1 - Settlement of commercial disputes: Transparency in treaty-based investor-State arbitration - Compilation of comments by Governments). This was accepted. The New Rules also provide, based on the IBA Rules, that after the appointment of the expert, a party can challenge the independence of the expert but only for reasons that the party came to know after appointment of the expert.

Waiver of Right to Object:
The provisions pertaining to waiver of the right to object to any non-compliance has been substantially re-worded in the New Rules. The purpose of rewording the provision is to align the provision with the corresponding provision in the Model Law on the waiver of right to object (Para 66-67, A/CN.9/641 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session). The first significant change is that under the Old Rules, the provision pertaining to waiver of right to object to any non-compliance with the arbitration agreement was absent. This has been incorporated in the New Rules.

Another significant divergence, even from the corresponding Model Law provision is that the tribunal would have the power to conclude that there was no waiver of the right to object if the party could show that its failure to object was justified. During the discussions in the Working Group, it was observed that the provision did not exclude legitimate grounds for a party to not object to the non-compliance of a provision (A/CN.9/684 - Report of Working Group II (Arbitration and Conciliation) on the work of its fifty-first session). Views were expressed that in such a case, the party having legitimate grounds for not objecting to the non-compliance should have a reverse burden of proving the same. Thus, in case a party did not object to a non-compliance, the arbitral tribunal would treat the same as a waiver, unless the said party can prove that there were legitimate grounds for not objecting to the non-compliance. After discussions, the Working Group decided to adopt the above proposal.

Arbitral Award:
Publication of the Arbitral Award: The Old Rules simply provided that an arbitral award can be made public only with the consent of both parties. The Secretariat to the UNCITRAL proposed that the Working Group should consider a situation where a party is under the legal duty to disclose the award (A/CN.9/WGII/WP.143/Add.1 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). The Secretariat advised that two options be considered as regards the issue of making the award public. The first option is to retain the provision in the Old Rules that an award could be made public only with the consent of both parties. The second option is to provide that apart from making the award public with the consent of the parties, a party could make the award public for protecting or pursuing a legal right or in relation to legal proceedings before a court or other competent authority (Para 31, A/CN.9/WG.II/WP.145/Add.1 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). The Working Group considered the two options suggested by the Secretariat. However, during discussions three kinds of proposals were made on the issue. The first was to retain the provision in the Old Rules on the issue. The second proposal, which received wide support, was to opt for the second option which the Secretariat proposed. The third proposal, which received the least support, was to delete the provision altogether and add a provision in the next sub-clause stating that the arbitral tribunal shall not disclose the award to any third party and leave the issue of disclosure of the award to national laws (Paras 95-99, Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session). Ultimately, the second proposal was adopted (Para 27, A/CN.9/WG.II/WP.151/Add.1 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules).

Filing or Registration of Arbitral Award: The Old Rules contained a provision to the effect that in case the arbitration law of the country in which the award is made requires the award to be filed or registered by the arbitral tribunal, the tribunal had the obligation to comply with the requirement as per the law, including any requirement of doing the same within a specified time. This provision was considered by the Working Group as unnecessary for the reason that it casts an onerous obligation on the arbitral tribunal when in many cases the tribunal might be unfamiliar with the national laws.In the end, the Working Group decided to delete the provision ((Para 101-105, A/CN.9/641 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session).

Applicable Law:
The Old Rules provided that in case the parties did not designate the substantive law of the contract, the tribunal had the power to decide the substantive law of contract based on the conflict of laws rules which the tribunal considers apposite. The New Rules makes no reference to conflict of laws rules. The Working Group had two options in respect of the situation where the parties do not designate the substantive law of contract. One was to retain the corresponding provision in the Old Law. The second option was to allow the tribunal to directly designate the substantive law of contract. This was done for the reason that the tribunal must be given an opportunity to decide directly on the substantive law of contract, especially in view of the fact that there were several non-national instruments such as the United Nations Convention on Contracts for the International Sale of Goods, the UNIDROIT Principles of International Commercial Contracts, the INCOTERMS, the Uniform Customs and Practices for Documentary Credit, or lex mercatoria which could be decided directly by the tribunal without reference to any conflict of laws rules (Paras 106 -112, A/CN.9/641 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session).

The 1976 Rules laid down two conditions for the tribunal to decide a dispute ex aequo et bono or as an amiable compositeur. They are:
  1. The parties have expressly granted such power to the arbitral tribunal, and
  2. The procedural law of arbitration permits the tribunal to decide a dispute ex aequo et bono or as an amiable compositeur.
The Secretariat of the UNCITRAL proposed, citing the then existing provisions of the ICC Rules (“The Arbitral Tribunal shall assume the powers of an amiable compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers.”), Article 22.4 of the LCIA Rules (“The Arbitral Tribunal shall only apply to the merits of the dispute principles deriving from “ex aequo et bono”, “amiable composition” or “honourable engagement” where the parties have so agreed expressly in writing.”) and Article 28.3 of the AAA Rules (“The tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have expressly authorized it to do so"), to delete the second condition (A/CN.9/WG.II/WP.143/Add.1-Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). The 2010 Rules does not make any reference to the second condition.

Terminal of Arbitral Proceedings:
As regards termination of arbitral proceedings, the Old Rules provided that before making of the final award if the tribunal considered it unnecessary or impossible to proceed with the arbitration, the tribunal shall have the power to terminate the arbitration proceedings after informing the parties of its intention to do so unless the parties raise justifiable grounds against termination of the proceedings. In the new Rules the justifiable grounds exception has been deleted.

Correction of Arbitral Awards:
The Working Group considered whether a time limit should be fixed for the tribunal to correct minor errors in the award. Wide support was given for such a proposal but there was divergence regarding the time specified. Ultimately, it was decided that the tribunal should correct such minor errors within forty five days (Para 106-107, A/CN.9/684- A/CN.9/684 - Report of Working Group II (Arbitration and Conciliation) on the work of its fifty-first session). Thus, under the New Rules, the tribunal is under an obligation to decide any requests for correction of computational, clerical or typographical errors, or other errors or omissions of a similar nature within forty five days from the request if the tribunal considers such request justified. The term “omissions” was added in the New Rules to include situations such as omission by the arbitrator to put his signature or the date in the award (Para 127, A/CN.9/614 Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session).

Costs:
The provisions pertaining to costs are some of the most important provisions of the UNCITRAL Arbitration Rules. UNCITRAL Arbitration Rules has been considered by many as ensuring cost effective arbitration as compared to institutional arbitration or other rules. The Working Group considered that failure to provide for exhaustive provisions on costs might lead to reluctance in choosing the Rules by parties.

The Tribunal has been given the power to decide on the costs in the final award or even in a separate decision. In relation to interpretation, correction or completion of award, the tribunal may charge reasonable costs but shall not charge additional fees.

The Secretariat of the UNCITRAL recommended that the term “reasonable” ought to be inserted in the different kinds of costs enumerated in the definition of “costs” (Para 36 A/CN.9/WGII/WP.143/Add.1 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). Accordingly, the New Rules requires that costs should be reasonable. Further, the New Rules provides for an additional requirement as regards the travel and other costs of witnesses: it states that only reasonable travel and other costs will be allowed and such costs have to be approved by the arbitral tribunal. With regard to legal costs, the New Rules states that such costs must be in relation to arbitration and the tribunal must consider such costs reasonable. Thus, the New Rules ensures that there is a greater transparency towards costs incurred by the parties in respect of the arbitration proceedings.

The tribunal is not entitled to charge any fee for proceedings pertaining to interpretation, correction or completion of any award although it is entitled to charge costs for the same.

Article 41 of the New Rules retains the corresponding provision in the Old Rules that the fee charged by the arbitral tribunal shall be reasonable. The Old Rules provided that where an appointing authority states that it will apply a particular method of computation of fees the arbitral tribunal need not treat the same as sacrosanct. The tribunal has the power to take the same into account to the extent it considers it appropriate. The New Rules provides that promptly after the tribunal is constituted, it shall inform the parties of the manner in which it proposes to compute the fee. The parties have the right to approach the appointing authority within fifteen to request for review of the tribunal’s proposal. Within forty five days, the appointing authority has the power to see if the tribunal’s proposal is inconsistent with its method of computation of fee. If the tribunal’s proposal is inconsistent with the appointing authority’s method, the appointing authority can make necessary adjustments to the proposal. Such adjustments would be binding on the arbitral tribunal. In case no appointing authority has been designated or if the appointing authority fails to act within the said forty five days, a party shall have the right to approach the Secretary-General of the Permanent Court of Arbitration.

To safeguard the interest of the party seeking review of fee, the New Rules provides that such action shall not:
  1. affect the determination in the award
  2. delay the recognition and enforcement of the award.
Conclusion:
In our first post in the series, we had mentioned that the UNCITRAL Rules were popular not only in commercial arbitration circles but also in Investment arbitration. Recognising this, when UNCITRAL considered revision of the 1976 Rules, it was agreed that the generic approach of the Rules should be maintained in the New Rules. At the time of the Revision, there were several proposals to include provisions that relate to investor-state arbitration such as confidentiality, amicus curiae briefs etc. The UNCITRAL was, however, apprehensive in including specific provisions for investor state arbitration, considering generic nature of the Rules. Consequently, the New Rules do not contain specific provisions addressing issues pertaining to investment arbitration.The Milan Club of Arbitrators, a Non-govermental Organisation, proposed that the Rules should contain optional clauses dealing with Investment Arbitration. There were several proposals such as these to address specific Investment Arbitration concerns.However, in view of the urgent need to revise the Arbitration Rules and the complex issues involved in Investment Arbitration, the UNCITRAL felt that such issues should not be brought within the ambit of the Arbitration Rules. Therefore, the UNCITRAL concluded:
  • Issues pertaining to Investment Arbitration were significantly different from those in commercial arbitration.
  • Any work on Investment Arbitration should not delay completion of the revision of the Arbitration Rules.
  • It is not desirable to have specific provisions on Investment Arbitration in the New Rules.
  • After the completion of the revision of the Arbitration Rules, the Working Group would seek guidance from the UNCITRAL as to whether to consider specific issues pertaining to Investment Arbitration.
(Para 54-69, A/CN.9/646 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-eighth session).

Subsequent to the revision, the UNCITRAL felt that transparency in Investment Arbitration was an important issue. There was a consensus in the Working Group that transparency in Investment Arbitration was an important issue that needed attention. Hence, the Working Group decided to work on a legal standard on transparency in Investor-State arbitration. The Working Group was of the opinion that the legal standards on increased transparency in Investor-State arbitration would add credibility to the process. Currently, the Working Group has already come up with a draft Standards. It remains to be seen how this legal standards would be adopted in Investment Treaty Agreements alongwith the New Rules.

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