International Law

UNCITRAL Publishes New Arbitration Rules

By Ed Poulton and Thomas Yates

Mealey's International Arbitration Report
 
1. Introduction

On 15 August 2010, the new United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules (the "Rules") came into effect. The new Rules replace the 1976 version of the Rules and are designed to modernise them and bring them into line with modern practice in international arbitration. The new Rules follow a four-year review by the UNCITRAL Working Group II, which was set up in 2006 and has met twice a year to produce the new Rules.

The new Rules are certainly an improvement over the 1976 Rules and succeed in modernising the Rules without departing from the formula that has made the Rules so popular and successful over the last 31 years.

This article discusses the application of the new Rules, the major changes from the 1976 Rules and how the new Rules compare with other arbitration rules.
 
2. Application Of The New Rules

Under Article 1(2), only arbitration agreements or clauses concluded after 15 August 2010 will be presumed to have agreed to apply the new Rules. The 1976 rules will be presumed to continue to apply to those agreements or clauses which were either entered into before 16 August 2010 or which result from an offer that was made before that date. This means, in practice, that the 1976 Rules will continue to apply and be in use for a significant time to come as future disputes arise from contracts and treaties concluded before 16 August 2010.

Of course, this is only a presumption which can be displaced. For example, an arbitration clause might explicitly provide that any arbitration is to take place using the Rules as in force at the time of the arbitration. Likewise, the parties are free to agree subsequently that any arbitration should be conducted under the new Rules, rather than the 1976 Rules, notwithstanding the fact that the arbitration agreement or clause was entered into prior to 16 August 2010.
 
3. Key Changes
 
3.1 Response To The Notice Of Arbitration

Unlike many other arbitral rules, the 1976 Rules did not provide for a Respondent to file a Response to the Claimant's Notice of Arbitration. This led to the unsatisfactory position that a Respondent might take no steps in the arbitration until the service of its defence.

Article 4.1 of the new Rules now requires the Respondent to file a Response to the Notice of Arbitration within 30 days of receipt of the Notice, which reflects the practice of what frequently occurred under the 1976 Rules. The Response is required to provide the contact details of the Respondent and "a response to the information set forth in the notice of arbitration." Though the Rules do not expand on what constitutes a "response," a simple admission or denial of the claim (or parts thereof) will be sufficient together with a detailed response to proposals as to the conduct of the arbitration (e.g. number of arbitrators and the language and place of the arbitration), if not previously agreed.

Article 4.2 provides that the Response may include the following: any plea that the arbitral tribunal to be constituted would lack jurisdiction; proposal for an appointing authority; proposal for a sole arbitrator or nomination of a party appointed arbitrator; a brief description of any cross-claim or counterclaims; and a notice of any claim against a third party who is also a party to the arbitration agreement. From the non-mandatory wording of Article 4.2, it would appear that a failure to raise any of these issues in the Response, in particular in relation to jurisdiction, counterclaims or third party claims, will not prevent them for being raised at a later stage. Indeed, as is common with other arbitration rules, Article 23 explicitly provides that pleas that the arbitral tribunal does not have jurisdiction can be raised as late as in the Statement of Defence. Such an approach is entirely sensible as it may not be clear based on the Notice of Arbitration whether the arbitral tribunal lacks jurisdiction, with the issue only revealing itself once the Claimant serves a detailed Statement of Claim.
 
3.2 Appointing Authorities

Article 6 contains new rules regarding designating and appointing authorities, which are aimed at encouraging parties to agree an appointing authority as soon as possible during the arbitration. The model arbitration clause for contracts, as set out in an annex to the new Rules, contains an option but not a requirement for the parties to specify in the arbitration clause who the appointing authority shall be. In default of agreement, the Secretary-General of the Permanent Court of Arbitration (PCA) at The Hague will, upon the request of either party, designate the appointing authority.
 
3.3 Multi-Party Arbitration

The Rules also contain new provisions relating to multi-party arbitrations, including in relation to the filing of the Response (Article 4(2)(f)) and the appointment of arbitrators (Article 10). Article 10 provides how arbitrators should be appointed where there are multiple Claimants or Respondents.
 
3.4 Challenge And Replacement Of Arbitrators

The rules relating to the challenge and replacement of an arbitrator have been redrafted but are broadly consistent with the 1976 Rules. The main significant difference is that a new provision has been introduced by Article 14(2) which allows the appointing authority, where an arbitrator is to be replaced and at the request of a party and in exceptional circumstances, to deprive a party of its right to appoint the substitute arbitrator. The appointing authority can either appoint the substitute arbitrator itself or, if it occurs after the closure of hearings, authorise the other arbitrators to proceed with the arbitration and make any decision or award. It will be interesting to see in what circumstances this power is exercised and whether the exercise of this power will result in challenges to the award and/or form the basis to seek to deny the enforcement of the award.

The new Rules also provide as an Annex a model statement of independence that can be made by arbitrators. Furthermore, there is an additional optional statement that a party may request from a potential arbitrator regarding the arbitrator's ability to dedicate the necessary time for the conduct of the arbitration. This is in response to increasing dissatisfaction on the part of users of arbitration regarding delays to arbitration (in particular in finding dates for hearings and delays in the production of awards) caused by the lack of availability of arbitrators who have accepted an appointment. It follows the ICC's lead on this issue.
 
3.5 Arbitrators' Liability

Article 16 of the new Rules contains an entirely new provision which waives the parties' rights to make any claim against the arbitrators, the appointing authority and any person appointed by the arbitral tribunal based on any act or omission in connection with the arbitration, except where there has been intentional wrongdoing.
 
3.6 Focus On Time And Cost

In an attempt to address concerns regarding perceived increases in the time and cost of arbitration, a new duty has been placed on the arbitral tribunal to minimise cost and delay. While Article 17 keeps the arbitral tribunal's broad discretion regarding the conduct of the arbitration, as provided for in the 1976 Rules, it now requires the arbitral tribunal to "conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties' dispute."
 
3.7 Statements Of Case

Under the 1976 Rules the statements of case (e.g. Statements of Claim and Statements of Defence) did not explicitly require legal grounds or arguments to be included in them, although in practice this was the approach adopted by most practitioners. The new Rules now make it clear that statements of case are to include legal grounds or arguments supporting the claim.

Likewise, while the inclusion of documents or other evidence with the statements of case was optional under the 1976 Rules, the new rules now require that the statements of case should, as far as possible, be accompanied by all documents and other evidence relied upon by the parties or contain references to them.
 
3.8 Interim Measures

The rules relating to the arbitral tribunal's power to order interim measures have been expanded significantly by the new Rules. The Rules not only set out in greater detail the types of interim measures that may be ordered, but also set out a test to be satisfied for the arbitral tribunal to order such measures.

The Rules provide, in a non-exhaustive list, that an arbitral tribunal may order a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause:

(i) current or imminent harm; or

(ii) prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

The party requesting an interim measure under paragraphs (a) to (c) above is required to satisfy the arbitral tribunal that:

(a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and

(b) There is a reasonable possibility that the requesting party will succeed on the merits of the claim. The determination on this possibility shall not affect the discretion of the arbitral tribunal in making any subsequent determination.

Under the 1976 Rules there are no explicit criteria against which an application for an order for interim measures should be assessed, thereby rendering the potential outcome of such an application more uncertain. The codification of factors that the arbitral tribunal is to take into account is to be welcomed and should ensure greater consistency in UNCITRAL arbitration and greater certainty for the parties. It will be interesting to see whether arbitral tribunals in future arbitrations under the 1976 Rules adopt as a matter of practice the criteria set out in the new Rules to assess applications for interim measures.
 
3.9 Choice Of Law

According to Article 35 of the new Rules, in the absence of a choice of law by the parties, "the arbitral tribunal shall apply the law which it determines to be appropriate." This replaces the need for the arbitral tribunal to apply the law determined by the conflicts of laws rules which it considered applicable and brings the new Rules in line with other international arbitration rules.
 
3.10 Arbitrators' Fees

Article 41.3 of the new Rules creates a new right allowing the parties to ask the appointing authority to review the basis upon which the arbitral tribunal will determine its fees and expenses within 15 days of the arbitral tribunal providing an explanation. The appointing authority may, within 45 days of the referral, make changes to the arbitral tribunal's fee proposal, which are binding on the arbitral tribunal, if the appointing authority considers that the original proposal is inconsistent with Article 41.1. Article 41.1 provides that "the fees and expenses of the arbitrators shall be reasonable in amount, taking into account the amount in dispute, the complexity of the subject matter, the time spent by the arbitrators and any other relevant circumstances of the case."

When the parties are notified by the arbitral tribunal of its actual fees and expenses, the arbitral tribunal now has an obligation to explain the manner in which the corresponding amounts have been calculated. The parties then have 15 days in which they can ask the appointing authority (or in the absence of one, the Secretary-General of the PCA) to review the arbitral tribunal's fees. If the appointing authority finds that the arbitral tribunal's determination is inconsistent with the arbitral tribunal's previous fee proposal or is otherwise manifestly excessive, it shall within 45 days make any adjustments to the arbitral tribunal's determination that are necessary to satisfy Article 41.1, with such adjustments being binding upon the arbitral tribunal.
 
3.11 Appeals

Unlike the default position in most other major international arbitration rules, the new Rules, like the 1976 Rules, do not exclude any right of a party to appeal an Award in the national courts (e.g. under section 69 of the English Arbitration Act 1996). However, the model arbitration clause that is annexed to the new Rules includes as an option an additional provision waiving the parties' rights to any form of recourse against an award to any court insofar as possible. Such a waiver would not oust mandatory provisions of the relevant national law (e.g. the right to challenge an award for lack of substantive jurisdiction or for a serious irregularity under sections 67 and 68 of the English Arbitration Act 1996).
 
4. Comparison With Other Arbitration Rules

There are numerous other sets of arbitration rules that are often chosen by parties for the resolution of disputes. The London Court of International Arbitration (LCIA) rules and the International Chamber of Commerce (ICC) rules are among the most popular choices of arbitration rules for arbitrations with their seat in London.
 
4.1 Institution v. Ad hoc

The key difference between the UNCITRAL Rules and the LCIA and the ICC rules is that the UNCITRAL Rules are not tied to any particular arbitration institution, while the LCIA and the ICC rules both have bodies to administer and support the arbitrations being operated under those rules. Such bodies include specialist courts of the institution to determine inter alia issues potentially not agreed between the parties (e.g. number of arbitrators, seat of the arbitration etc.) and challenges to the appointment of arbitrators. Furthermore, the ICC Court is required to scrutinise awards before they are delivered to the parties, which is designed to ensure a consistent quality in the drafting of its awards.

The relative advantages and disadvantage of ad hoc arbitration compared to institutional arbitration are beyond the scope of this article. However, it should be noted that institutions such as the LCIA act both as appointing authority and as administrator in arbitrations conducted pursuant to the UNCITRAL rules.
 
4.2 Number Of Arbitrators

Under the LCIA rules, a sole arbitrator will be appointed unless the parties agreed otherwise in writing or unless the LCIA Court determines that a three-member tribunal is appropriate, based on the value and complexity of the dispute. A similar rule is adopted under the ICC Rules of Arbitration. Under the UNCITRAL rules the default position is that a three-member tribunal should be appointed in the absence of the parties' agreement to the contrary, partly as a consequence of there being no arbitral institution to assess whether a three-member tribunal is necessary in the absence of agreement.
 
4.3 Appealing The Award

Both the LCIA and the ICC rules exclude insofar as possible the parties' ability to appeal or challenge an award. Under the UNCITRAL rules no such waiver is incorporated into the rules; however, as mentioned above, an appropriate waiver can be included in the arbitration clause itself.
 
4.4 Costs

As arbitrations under the LCIA or the ICC rules are institutional arbitrations, the parties have to pay the additional costs of the institution. However, this is the only similarity and the way the costs of the arbitration are calculated by the LCIA and the ICC are completely different. The administrative fess and the arbitrators' fees are calculated on an ad valorem basis under the ICC rules. In other words, the ICC charges a fee calculated on the basis of the sum in dispute. The LCIA charges both its administrative fees and the arbitrators' fees by way of hourly rates on a time spent basis. As noted above, there is no prescribed manner in how costs should be calculated under the UNCITRAL Rules, but the new Rules set out a process whereby the basis of the costs to be charged and the actual costs charged can be subject to review. This provides parties greater protection than under the 1976 Rules by providing in ad-hoc arbitrations some of the protections the parties might have with institutional arbitrations.

Editor's Note: Ed Poulton is a Partner and Thomas Yates is an Senior Associate in the International Arbitration practice group of Baker & McKenzie LLP. Copyright 2010 by Ed Poulton and Thomas Yates.