The draft ‘Rules on the Efficient Conduct of Proceedings of International Arbitration’ (the “Prague Rules“), which were released on 1 September 2018, makes for sombre reading for users of arbitration. It comments that “it has become almost commonplace these days that users of arbitration are dissatisfied with the time and costs involved in the proceedings”. Indeed, interviewees of the 2018 Queen Mary survey on International Arbitration said that “the default mindset that an arbitration would last for up to 18 months should be challenged”.
Set to launch in December 2018, the Prague Rules will work as guidelines, in much the same way as the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules“), and will apply only when adopted by the parties. In general the Prague Rules appear to provide a more inquisitorial approach to the taking of evidence compared to the more adversarial style IBA Rules.
In particular, the Prague Rules Working Group identified three features of evidence-taking in arbitration – which it considers to be the main culprits causing extended time and costs – with which arbitration users are dissatisfied:
- Document production – which often entails broad categories of document requests leading to lengthy and tedious document disclosure processes;
- Too many fact and expert witnesses – which often includes witnesses who testify on irrelevant facts that do not assist the tribunal in resolving the issues in dispute; and
- Extended cross examination at lengthy oral hearings – which includes cross on issues the tribunal considers irrelevant.
IBA vs The Prague Rules – What are the differences?
The Prague Rules are not intended to compete with or replace the IBA Rules, but rather promote different options to suit differing parties’ needs.
The overarching difference between the two sets of rules is that the Prague Rules encourage a more active role for the tribunal in a bid to increase the efficiency and cost-effectiveness of international arbitration proceedings.
The more active role is most obviously seen in the Prague Rules’ approach to the disclosure of documentary evidence, fact and expert witnesses, hearings and settlement assistance.
In the Prague Rules, the tribunal “shall avoid extensive production of documents, including any form of e-discovery” (Article 4.2). This is contrasted with the outcome increasingly encountered with the IBA Rules which – despite the drafters’ original intentions to reduce the scope of disclosure – often ends up with parties making broad ranging requests for documents falling into numerous categories and a lengthy and burdensome disclosure process. This can be problematic when busy arbitrators adopt a cautious approach to relevance out of lack of understanding of the case or – in order to appear even-handed – split the issues and award the requesting party something. The Prague Rules simplify this process and a party may only request specific documents (rather than categories of documents).
Rather than the parties identifying the witnesses on whose testimony it intends to rely (IBA Rules Article 4.1), the Prague Rules dictate that after providing the parties with an opportunity to comment, the tribunal shall decide which witnesses are to be called for examination (Article 5.2). The tribunal may also decide not to call a witness for examination during the hearing, if it considers the testimony of that witness to be irrelevant for the resolution of the issues in dispute (Article 5.3).
Under the Prague Rules, the tribunal also has greater control over expert witnesses. Contrasted with Article 5 of the IBA Rules (concerning party-appointed experts), the Prague Rules contain more streamlined guidance on experts, with Article 6 noting that at either the request of a party or on its own initiative, the tribunal may appoint one or more experts to present a report to the tribunal on disputed matters which require specialised knowledge. However, the tribunal’s appointment of experts does not preclude a party from submitting its own expert reports (Article 6.4).
Article 8 of the Prague Rules provides that, to the extent possible, the dispute should be resolved on a documents-only basis. If one of the parties requests a hearing or the tribunal itself finds it appropriate, the hearing should be conducted in the most cost-efficient manner and in the shortest duration possible (including by using video, electronic or telephone communication to avoid unnecessary travel costs for arbitrators, parties and other participants). This is contrasted with the IBA Rules which assume that an oral hearing will take place.
Perhaps the most controversial feature of the Prague Rules is that it contemplates some tribunal assistance in settlement negotiations. Article 9 notes that unless one of the parties objects, the tribunal shall assist the parties in reaching an amicable settlement of the dispute at any stage of the proceedings. The tribunal may also, to the extent permissible under the lex arbitri, express its preliminary views with regard to the parties’ respective positions in order to assist in an amiable settlement of the dispute. The tribunal (or one of its members) may also act as mediator, and may continue to act as arbitrator in the event that the matter does not settle at mediation.
The Prague Rules are the latest in a long line of initiatives aimed at addressing some of the perceived causes for two of the major reported concerns with arbitration – the time and cost involved. The Rules consider that encouraging the tribunal to be more proactive in its case management function will lead to more efficient arbitrations. This is to be encouraged.
In an age of due process paranoia we query whether the risk is that an increase in tribunal intervention may lead to an increase in arbitral awards being challenged. One of the major attractions of arbitration is party autonomy and the Prague Rules arguably strip some of that away. There is undoubtedly a fine line between tribunals driving arbitrations to be as efficient and as inexpensive as possible, and the parties having the flexibility to decide the format of dispute resolution that best suits them.
Only time will tell whether there will be user uptake of the Prague Rules, particularly in common law jurisdictions, and their December 2018 release will be watched with interest by the international arbitration community.