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International Law

Whether Arbitration Rules Should be Applied by the Issuing Arbitral Institution

Should parties provide in their arbitration clause for application of rules of an arbitral institution without corresponding oversight by that institution?
 
This Commentary, written by international arbitrator and business lawyer Paul E. Mason, discusses this emerging trend and its potential pitfalls for parties who are seeking to arbitrate their disputes.
 
Mr. Mason writes: In an effort to provide more options for parties and increase their caseloads, several years ago some major arbitral institutions took the step of opening their doors to administer cases heard under the UNCITRAL Rules. These Rules were actually designed for ad hoc arbitrations. This helped begin the “mixing and matching” trend, whereby arbitral institutions found themselves in a position of administering arbitrations using rules other than the ones issued by their own organization. It became clear that certain problems can arise and delay is likely to result where an arbitral institution is asked to apply and interpret rules which it did not originally create because parties have requested its involvement solely for the purpose of administering the arbitration.
 
For example, this author participated as counsel in an arbitration over offshore oil exploration between Brazilian and Scandinavian parties which was administered by the London Court of International Arbitration (LCIA), using the UNCITRAL Rules, a standard practice reflected in arbitration clauses in certain oil industry contracts.
 
That case had a number of thorny administrative matters to be resolved prior to commencement of the arbitration hearings. The most important of these was a challenge to one of the arbitrators based on alleged conflict of interest. The UNCITRAL Rules are quite general and open-ended in nature, leaving large gaps in dealing with these kinds of situations – clearly a drawback for parties who engage in non-administered arbitrations should a disagreement of this nature arise. As a result, the LCIA was asked to decide on the challenge during various stages of the proceedings, which delayed the arbitration for over one year due to repeated party motions and objections.
 
After the door was opened, a number of scenarios arose where parties, either at the time of contract negotiation or subsequently, have adopted a “mixing and matching” approach to the arbitration of their disputes. Some of these parties have taken it one step further by requesting the application of another institution’s rules (as opposed to the UNCITRAL Rules) to the arbitration with administration to be provided by a separate institution.