"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.

Tuesday, August 2, 2011

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

This post is the third part in the series of posts on the analysis of the new features in the UNCITRAL Arbitration Rules, 2010. This post deals with provisions pertaining to notice invoking arbitration and the constitution of the arbitral tribunal. Previous posts of this series can be accessed from here and here.

Notice of Arbitration:
Under the Old Rules, there was no option for the respondent to file a reply to the notice invoking arbitration. This, at times, denied the respondent an opportunity to comment on the jurisdiction, claim or the counter-claim. (Para 33, A/CN.9/WGII/WP.143). Further, the absence of such a right to the respondent was regarded as leading to improper understanding of the dispute and also having an adverse impact on the possibility of amicable settlement.(p. 5-6, Jan Paulsson & Georgios Petrochilos, Revision of the UNCITRAL Arbitration Rules)

Hence, the Working Group decided to make provisions to enable the respondent reply to the notice of arbitration. Accordingly, Article 4(3) provides that the respondent should communicate to the claimant the Response to the Notice of Arbitration within thirty days from the receipt of notice of arbitration. The content of the Response is virtually same as that of the Notice. However, the Response may also include:
(a) Any plea that an arbitral tribunal to be constituted under these Rules lacks jurisdiction;
(b) A proposal for the designation of an appointing authority referred to in article 6, paragraph 1;
(c) A proposal for the appointment of a sole arbitrator referred to in article 8, paragraph 1;
(d) Notification of the appointment of an arbitrator referred to in articles 9 or 10;
(e) A brief description of counterclaims or claims for the purpose of a set-off, if any, including where relevant, an indication of the amounts involved, and the relief or remedy sought;
(f) A notice of arbitration in accordance with article 3 in case the respondent formulates a claim against a party to the arbitration agreement other than the claimant
Further, while discussing the issue of incomplete Notice or Response, the Working Group was in favour of leaving the consequences of such incomplete notice to the arbitral tribunal rather than dealing with the same in the rules. Therefore, the Rules specifically provide that a deficiency in the Notice of Arbitration or the Response to the Notice of Arbitration would not prevent the arbitral tribunal from being constituted. Once the arbitral tribunal is constituted, it would decide on whether the notice invoking arbitration was sufficient or not.

Appointing Authority:
Under the Old Rules, in case of failure of the party appointed procedure for constituting the arbitral tribunal, the parties could agree upon the appointing authority. In case of absence of an agreement as to appointing authority, whether in the first place, or after proposal by a party, the parties had to approach the Secretary General of the Permanent Court of Arbitration (PCA) at The Hague. Article 6(2) of the 1976 Rules provided:
If within thirty days after receipt by a party of a proposal made in accordance with paragraph 1 the parties have not reached agreement on the choice of a sole arbitrator, the sole arbitrator shall be appointed by the appointing authority agreed upon by the parties. If no appointing authority has been agreed upon by the parties, or if the appointing authority agreed upon refuses to act or fails to appoint the arbitrator within sixty days of the receipt of a party's request therefor, either party may request the Secretary-General of the Permanent Court of Arbitration at The Hague to designate an appointing authority.”
Thus, under the Old Rules, the role of the Secretary-General of the PCA was to designate an appointing authority which would complete the process of constitution of the arbitral tribunal. While the UNCITRAL Working Group was considering revision of the Rules, there were proposals, supported by the representatives of the PCA in the Working Group, for making the PCA as the default appointing authority rather than mandating the PCA to designate an appointing authority (Paras 46-50, A/CN.9/665 - Report of Working Group II (Arbitration and Conciliation) on the work of its forty-ninth session). Need for a simple, efficient, and streamlined procedure was the argument given in support of the said proposal. Conversely, the Working Group felt that the existing procedure had been in vogue for several decades and “the proposal [to make the PCA the appointing authority] constituted a major and unnecessary departure from the existing UNCITRAL Arbitration” (Para 49, A/CN.9/665). The Working Group was of the view that the issue was a “political” issue and the UNCITRAL was the appropriate body to take a decision on the same. Ultimately, the proposal to designate the Secretary General of the PCA as the default appointing authority was not retained in the 2010 Rules. However, the Working Group chose a middle path: the Secretary General of the PCA could appoint himself as the appointing authority if one of the parties proposed his name as one of the appointing authorities (Para 51, A/CN.9/665). Article 6(1) of the 2010 Rules reads:
"Unless the parties have already agreed on the choice of an appointing authority, a party may at any time propose the name or names of one or more institutions or persons, including the Secretary-General of the Permanent Court of Arbitration at The Hague (hereinafter called the “PCA”), one of whom would serve as appointing authority.”
As stated in our previous post, it makes sense from efficiency and economy perspectives for the parties to an agreement to designate an appointing authority in their arbitration agreement if they opt for UNCITRAL Arbitration Rules. In this regard, Thomas H. Oehmke states: “Cases under the UNCITRAL Arbitration Rules will proceed more efficiently when parties have named in their contract an experienced, impartial institution to act as the authority to designate arbitrators if the parties do not.” [Thomas H. Oehmke, Appendix B5: Procedures for Cases under the UNCITRAL Arbitration Rules (9/15/2005), CMLARB APP B5 (Westlaw)]

Number of Arbitrators:
Like in the previous version of the Rules, the default number of arbitrators in the present Rules is three. The Working Group deliberated on the suggestion to have one arbitrator as the default arbitrator (Para 59-61, A/CN.9/614 - Report of the Working Group on Arbitration and Conciliation on the work of its forty-fifth session). The suggestion was that a single arbitrator tribunal was less costly than a three member tribunal. Another advantage was that constitution of the tribunal became simpler and swifter with a single arbitrator. The Working Group also considered the practice of arbitral institutions like LCIA, AAA etc which gave preference to a sole arbitrator. LCIA Arbitration Rules, for instance, provides:
5.4 … A sole arbitrator shall be appointed unless the parties have agreed in writing otherwise, or unless the LCIA Court determines that in view of all the circumstances of the case a three-member tribunal is appropriate.”
In the Old Rules, the default number was three. The same practice was retained in the Model Law as well. The Working Group felt that a three member tribunal as the default number has been in vogue for several decades and should continue in the “interests of familiarity”. Hence, Article 7(1) provides for a three member arbitral tribunal by default, subject to the agreement of the parties to a sole arbitrator.

Articles 7(2) is a novel provision, intended to reduce the burden of costs on the Claimant in case where the dispute is such that a resolution of the same by a single arbitrator tribunal would be more appropriate. As stated above, Article 7(1) provides that the default number of arbitrators will be three. Article 7(2) provides:
Notwithstanding [Article 7(2)], if no other parties have responded to a party’s proposal to appoint a sole arbitrator within the time limit provided for in paragraph 1 and the party or parties concerned have failed to appoint a second arbitrator in accordance with articles 9 or 10, the appointing authority may, at the request of a party, appoint a sole arbitrator pursuant to the procedure provided for in article 8, paragraph 2 if it determines that, in view of the circumstances of the case, this is more appropriate.”
Thus, the appointing authority would help constitute a sole arbitrator instead of a three member tribunal if the following conditions are satisfied:
  1. the party issuing the notice of arbitration proposes a single member tribunal;
  2. the recipient of the notice invoking arbitration neither responds to the proposal for appointment of the sole arbitrator nor appoints the second arbitrator;
  3. a request is made by a party to the appointing authority to consider appointing a sole arbitrator; and
  4. the appointing authority comes to a conclusion that it would be more appropriate to appoint a sole arbitrator instead of constituting a three member tribunal.
The UNCITRAL Arbitration Rules are used in several ad hoc arbitration agreements and disputes that may arise in respect of such agreements may not necessarily be high stakes disputes. In such cases, Article 7(2) affords a certain amount of flexibility and enables the parties to have a cost effective arbitration.

More in the next post.

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