"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.

Saturday, August 13, 2011

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

This post is the fifth part in the series of posts on the analysis of the new features in the UNCITRAL Arbitration Rules, 2010.  Previous posts of this series can be accessed from here, here, here and here.

Challenge and Replacement of Arbitrator:
The provisions pertaining of challenge of an arbitrator are virtually similar to the Old Rules. However, there is one addition in the New Rules. Where a challenge of an arbitrator is made by a party and the challenge is notified to the tribunal and to other parties, fifteen days time has been given under the New Rules for:
  1. the parties to agree to the challenge, or
  2. the challenged arbitrator to withdraw
If neither of these happens, the challenging party is free to pursue the challenge and seek a decision from the tribunal on the challenge within thirty days from the date of the notice of challenge [Article 13(4)].

The provisions pertaining to replacement of arbitrator have been streamlined. The procedure for appointment of the substitute arbitrator would be the same as that for appointment of an arbitrator. However, on application by a party, if the appointing authority is of the opinion that it ought to deprive a party of its right to appoint a substitute arbitrator, it may do so. In that case, the appointing authority might, after giving opportunity of being heard to the parties and after obtaining the views of the arbitrators, either appoint a substitute arbitrator or if the need for replacement occurs after the hearings are over, authorize the existing tribunal to continue with the arbitral proceedings without appointing another arbitrator.

Repetition of hearings on replacement of an arbitrator:
The previous position as regards repetition of hearings was that the hearings would have to commence afresh if the presiding arbitrator had to be replaced (Article 14). But in case of replacement of other arbitrators, it was up to the discretion of the arbitral tribunal to decide to commence fresh proceedings or to continue with the proceedings. During the deliberations of the Working Group, it was suggested that the new provisions pertaining to repetition of hearings due to replacement of arbitrators be based on Article 14 of the Swiss Rules of International Arbitration, which provided:
If an arbitrator is replaced, the proceedings shall as a rule resume at the stage where the arbitrator who was replaced ceased to perform his functions, unless the arbitral tribunal decides otherwise.”

The Swiss Rules of International Arbitration, also known in the industry as the Swiss Rules, is based on the UNCITRAL Arbitration Rules, 1976, with certain modifications. Prior to the introduction of Swiss Rules, different Chambers of Commerce and Industry in Switzerland had their own arbitration rules. In 2004, these Chambers of Commerce and Industry, with a view to promote institutional arbitration in Switzerland, joined together and uniformly adopted the Swiss Rules of International Arbitration, thereby replacing their own arbitration rules (See, Introduction to the Swiss Rules of International Arbitration).

The suggestion to use the Swiss Rules was accepted and the relevant provision in the new Rules is based on the said provision of the Swiss Rules. Thus, under the new Rules, the distinction between the presiding arbitrator and the other arbitrators has been abolished. The procedure under the New Rules is that the proceedings would continue from the stage when the replaced arbitrator ceased to perform his functions, unless the arbitral tribunal decides otherwise.

Immunity to Arbitrators and Others:
Considerable discussions took place on the scope of immunity to arbitrators and their appointees. During the initial stages of the revision of the UNCITRAL Rules, it was proposed to either limit or exclude the liability of the arbitrators through specific provisions (Para 136, Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session A/CN.9/614). Apart from the arbitrators, the UNCITRAL felt that such immunity should be granted to even the appointing authority under the Rules (Para 39-40, Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules A/CN.9/WGII/WP.143/Add.1).

On the scope of the immunity, the UNCITRAL contemplated two approaches. The first was to have an unequivocal waiver by the parties similar to the ICC Rules or the Vienna Rules. Article 34 of the ICC Rules of Arbitration provides:
Neither the arbitrators, nor the Court and its members, nor the ICC and its employees, nor the ICC National Committees shall be liable to any person for any act or omission in connection with the arbitration.”
Article 8 of the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber in Vienna (Vienna Rules) states:
Liability of the arbitrators, the Secretary General, the Board and its members and the Austrian Federal Economic Chamber and its employees for any act or omission in relation to arbitration proceedings, insofar as such liability may be admissible by law, shall be excluded.”
The other approach, consistent with the Introductory Note to the IBA Rules of Ethics for International Arbitrators (1987), the London Court of International Arbitration Rules and the American Arbitration Association Rules was to grant a similar immunity but to exclude intentional wrongdoing. The UNCITRAL felt that the current practice in several countries of introduction of stricter standards of liability for acts and omissions of judges should be taken into consideration in deciding on the scope of arbitrator immunity (See the “manifest bad faith” standard proposed by Paulsson & Petrochilos (p. 53, Jan Paulsson & Georgios Petrochilos, Revision of the UNCITRAL Arbitration Rules). It was also felt that the interests of the parties should not be compromised by adopting an overly protective arbitral immunity clause. At the same time, arbitrators would also have to be protected against claims of negligence or fault by parties against arbitrators. The UNCITRAL held:
It was generally agreed that any provision that might be introduced in the Rules to exonerate arbitrators from liability should be aimed at reinforcing the independence of arbitrators and their ability to concentrate with a free spirit on the merits and procedures of the case. However, such a provision should not result or appear to result in total impunity for the consequences of any personal wrongdoing on the part of arbitrators or otherwise interfering with public policy.”
(Para 39, A/CN.9/646 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-eighth session)

In the end, the UNCITRAL decided to take the more common approach of granting limited immunity to the arbitrators. (Para 39-40, Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules A/CN.9/WGII/WP.143/Add.1).

Thus, as per Article 16 of the 2010 Rules, parties are deemed to have waived of all claims against the arbitrator, the appointing authority or any person appointed by the arbitral tribunal, to the extent permitted by the applicable law. The only exception to this waiver rule is intentional wrongdoing.

Tribunal to Act Fairly and Efficiently:
One of the most fundamental provisions under the Old Rules was the directive to the tribunal to act fairly and give the parties full opportunity to present its case. The Working Group considered whether that the term “full” had to be dropped from the said provision. (Para 76-77, Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session A/CN.9/614) Secondly, it was also suggested that the phrase “at any stage of the proceedings” implied that the tribunal should grant an opportunity to a party to present its case at every stage, even if such request by that party was inappropriate. The phrase “at any stage of proceedings” was not used in the Model Law (See Article 18). Finally, it was decided to use the term “reasonable” instead of “full” and the phrase “at an appropriate stage of proceedings” instead of “at any stage of the proceedings”. Further, the Rules obligate the tribunal to avoid unnecessary delay and expenses and provide for a fair and efficient arbitral process [Article 17(1)].

Preliminary Hearing:
A preliminary hearing is also called preparatory meeting or preparatory consultations. It is standard procedure to have a preliminary hearing in which several fundamental aspects pertaining to arbitration such as language of arbitration, the governing law of arbitration, the governing law of contract, the procedure for arbitration, time-limits for submissions of pleadings, fee of arbitrators etc are decided. The New Rules provides for such a hearing to be conducted by the tribunal to decide the provisional timetable of the arbitration, after hearing the views of the parties. This provisional timetable is not meant to be sacrosanct and the tribunal may, after hearing the parties, extend or shorten time periods specified in the provisional timetable.

Joinder of Third parties:
Right from the beginning of the revision of the Rules, the Working Group, inspired by Article 22.1(h) of the LCIA Arbitration Rules, felt that the New Rules should contain a provision on joinder of third parties (para 6, A/CN.9/WG.II/WP.145/Add.1 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). Article 22.1(h) of the LCIA Rules provides:
Unless the parties at any time agree otherwise in writing, the Arbitral Tribunal shall have the power, on the application of any party or of its own motion, but in either case only after giving the parties a reasonable opportunity to state their views:
...
(h) to allow, only upon the application of a party, one or more third persons to be joined in the arbitration as a party provided any such third person and the applicant party have consented thereto in writing, and thereafter to make a single final award, or separate awards, in respect of all parties so implicated in the arbitration
.”
But the main focus of discussions during the revision was the issue of consent of the party who is to be joined as a party. The Working Group was of the opinion that the consent of the party proposed to be joined as a party (hereinafter, “Proposed Party”) must necessarily be taken in view of the fact that arbitration is based on consent of the parties (Para 121-126 A/CN.9/619 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-sixth session). Hence, the Working Group noted that the Proposed Party must necessarily be a party to the arbitration agreement. The Working Group also noted that there need not be any express consent from the Proposed Party independent of the arbitration agreement. By the mere fact of acceding to the UNCITRAL Arbitration Rules, the party is deemed to have consented to the joinder provisions as well (Para 128-135 A/CN.9/665 - Report of Working Group II (Arbitration and Conciliation) on the work of its forty-ninth session). Apprehensions were raised that absence of express consent from the Proposed Party might pose problems at the stage of enforcement of the arbitral award. Hence, the Working Group decided to incorporate a safety valve for the Proposed Party- before the tribunal decides on the joinder, the Proposed Party (and even the parties to the proceedings) could submit to the tribunal that the joinder would prejudice it (Para 134 A/CN.9/665 - Report of Working Group II (Arbitration and Conciliation) on the work of its forty-ninth session).

Thus, as per Article 17(5) of the New Rules, three conditions must be satisfied for the tribunal to join one or more third parties to the arbitration proceedings:  
  1. there must be a request from one of the parties. Here, the Rules is not clear whether the request may be made by a person who is not a party to the arbitration proceedings could apply to the tribunal for being joined as a party to the proceedings. In view of the fact that the Proposed Party had already consented to the joinder by acceding to the Rules, there is nothing that suggests that it might be the party proposing the joinder. But arbitrations are essentially private affairs and that party might not even know of the existence of the arbitration, or the means to communicate to the arbitral tribunal,
  2. the person proposed to be joined as a party is a party to the arbitration agreement, and 
  3. (iii) after giving an opportunity of being heard to all parties (including the person proposed to be joined as a party) the tribunal is of the opinion that the joinder would not prejudice any party.
Seat of Arbitration:
There is a difference between the seat of arbitration and the location of the arbitration proceedings. Seat or the Juridical Seat of Arbitration refers to the jurisdiction to which the arbitration is intrinsically connected. An arbitration cannot be delocalised, that is, it cannot be one which is unconnected to a legal jurisdiction. It has to belong to a jurisdiction, which is either agreed to by the parties or in the absence of such agreement, determined by the arbitral tribunal. However, the arbitral tribunal, may assemble for hearing in one or more locations during the course of arbitration for the sake of convenience. The latter affords certain amount of flexibility to the arbitral process. These two independent aspects have often been confused with each other. Hence, the Working Group initially felt that this distinction must be clearly spelt out in the revised Rules (Para 75-76, A/CN.9/WGII/WP.143 - Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules). Also see, p. 80-81, Jan Paulsson & Georgios Petrochilos, Revision of the UNCITRAL Arbitration Rules. Subsequently, however, the Working Group expressed doubts as to whether the revised Rules should contain terminology inconsistent with that of the Model Law (Para 89, Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session A/CN.9/614). Another concern raised against clarification of the difference between seat and location of arbitration proceedings was that it might have “unintended consequences to existing contractual drafting practices”. (Para 141, Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session A/CN.9/614).

Under the 1976 Rules, there was a requirement that the award be made in the place of arbitration [Article 16(4)]. This requirement has been done away with in the New Rules. Article 18(1) creates a legal fiction whereby the arbitral award is deemed to have been made in the place of arbitration.

Pleadings:
Under the 2010 Rules, the statement of claim should also contain particulars of legal grounds or arguments supporting the claim. This requirement was not there under the Old Rules. During the deliberations of the Working Group, it was initially suggested that the statement of claim should be accompanied by legal principles supporting the claim. However, it was felt that the term “legal principles” was too vague. Therefore, the Working Group decided to add the requirement of furnishing the legal grounds in the statement of claim.

The Notice of Arbitration could be treated as the Statement of Claim provided it complied with the requirements specified in Article 20(2). The requirements in Article 20(2) were that the Statement of Claim had to include the following:
  1. The names and contact details of the parties;
  2. A statement of the facts supporting the claim;
  3. The points at issue;
  4. The relief or remedy sought;
  5. The legal grounds or arguments supporting the claim.
Under the 1976 Rules, it was not obligatory on the part of the Claimant to annex the essential documents which they rely upon in its pleadings, the rationale being that the Claimant would be interested in concluding the dispute resolution as early as possible and would therefore annex such documents to its pleadings. Article 20(4) of the 2010 Rules provide that the pleadings should be accompanied by the documents relied upon by the respective party.

The Secretariat of the UNCITRAL requested the Working Group in July 2006 to consider if there should be an obligation on the parties to annex all documents alongwith their respective pleadings (Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules A/CN.9/WGII/WP.143/Add.1). The Secretariat referred to the rules of World Intellectual Property Organisation and of the London Court of International Arbitration. Article 41(c) of the Rules of the World Intellectual Property Organisation provides:
The Statement of Claim shall, to as large an extent as possible, be accompanied by the documentary evidence upon which the Claimant relies, together with a schedule of such documents. Where the documentary evidence is especially voluminous, the Claimant may add a reference to further documents it is prepared to submit.”
Article 15.6 of the LCIA Rules states:
All Statements referred to in this Article shall be accompanied by copies (or, if they are especially voluminous, lists) of all essential documents on which the party concerned relies and which have not previously been submitted by any party, and (where appropriate) by any relevant samples and exhibits.”
The Working Group did not want a stringent provision for the following reason:
Concern was expressed that the use of the word “shall” suggested that the claimant would be obliged to communicate a comprehensive statement of claimant and would be precluded from providing subsequent materials. To address that concern, it was suggested that the word “shall” be replaced by “should” in order to establish a standard for the contents of the statement of claim without imposing rigid consequences for departures from that standard.”
(Para 121-126 A/CN.9/619 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-sixth session).

Ultimately it was agreed that the Rules should provide that the pleadings “should, as far as possible, be accompanies by all documents and other evidence”. It may be noted that this provision is not quite stringent. Practically, it may so happen that a party might find some relevant document after submission of its pleading. In such cases, Article 20(4) does not prevent a party from producing such additional documents.

In the Old Rules, Article 19(3) imposed a condition that a counter-claim or a claim for set-off should be based on the same contract. See, [Para 191, Polis Fondi Immobiliari Di Banche Popolare Sgr.P.A v. International Fund For Agricultural Development, an arbitration conducted under the aegis of the Permanent Court of Arbitration. Also see, Alson Dundes Renteln, Encountering Counterclaims 15 Denv. J. Int’l L. & Pol’y 379, 389-390 (1986-1987)]. The Secretariat to the UNCITRAL, citing Article 21(5) of the Swiss Rules of International Arbitration, suggested that the tribunal should have the power, especially in investment disputes, to consider counter-claims and claims for set-off even beyond the contract in respect of which the dispute has been referred to the tribunal (Settlement of commercial disputes: Revision of the UNCITRAL Arbitration Rules A/CN.9/WGII/WP.143/Add.1). Ultimately the requirement that to the counter-claim or set off should be from the same contract was deleted.
More on the Rules in the next post.

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