Legal Alerts / 4 Jun 2012

Legal Alert – Revamping the Rules of International Arbitration Continues

1 Introduction

A wave of reform continues to sweep through major international arbitration institutions. As noted in our legal alert of 15 September 2011, the most popular institutional arbitration rules, namely the Arbitration Rules of the ICC (International Chamber Commerce),
were recently renewed and came to force at the beginning of this year.

Prior to that and already in 2010, we saw the revising of the most popular ad hoc arbitration rules (the UNCITRAL Rules), together with the rules of the SCC (Stockholm Chamber of Commerce), a popular choice among Scandinavian companies especially in commercial disputes linked to Scandinavia. This was followed by the new arbitration rules of the Singapore Arbitration Centre (SIAC), playing a significant role in international arbitrations in Asia. On top of all that, the IBA (International Bar Association) Rules on the Taking of Evidence in International Arbitration, setting the guidelines for the production of evidence,
were likewise recently updated.

It would then be fair to say that the playing field of international arbitration was and continues to be in turmoil. The wave of reform is mostly driven by the discussion that focuses on controlling costs and time in international arbitrations that grow increasingly more complex with multiple claims and parties. Another clearly observable trend is the recent invention of “emergency” arbitrators that allow a party to obtain immediate interim relief before the constitution of the actual arbitral tribunal.

Next in line in this development are the CIETAC (China International Economic and Trade Arbitration Commission) Arbitration Rules and the Swiss Rules of International Arbitration by the Swiss Chambers’ Arbitration Institution. CIETAC’s new rules took effect in 1 May 2012, while the Swiss Rules came to force in 1 June 2012, respectively.

The achieving of time and cost benefits and interim relief have also clearly been the focal points of the revising of especially the Swiss Rules. Switzerland is seen by many as the home of international law and cradle of arbitration. The Swiss Chambers’ Arbitration Institution has traditionally prided itself as offering cost-effective and forward-thinking set of arbitration rules and is now looking to retain that image through revamping its rules.

CIETAC on the other hand has been recognized as the leading arbitration institution for foreign-linked arbitrations in China, and also Finnish companies have occasionally ended up arbitrating their disputes under the auspices of CIETAC. Its previous rules however had a strong Chinese flavor and in anticipatory of a surge in international case-load, CIETAC is attempting to bring its arbitration rules in line with the modern practices of international arbitration. Notable changes include granting CIETAC discretion in designating other languages besides Chinese as the language of arbitration in the absence of an explicit choice by the parties (Article 71).
Similarly, CIETAC can also choose another country besides China as the seat of arbitration (Article 7.2).  

2 Controlling Costs and Time

Like said, efficacy in general especially in the current economy has been a hot topic for discussion. The Swiss Rules have with the efficacy in mind tweaked the procedure in several aspects, for example by broadening the powers of the newly renamed administrative body, the Arbitration Court, with respect to the time limits it has fixed (Article 2.3) and by requiring the parties to front-load their case by submitting relevant pieces of evidence with their written pleadings (Articles 18.2 and 19.3).

Secondly, the Swiss Chambers’ Arbitration Institution added a general requirement of good faith (Article 15.7). In its essence, the requirement of good faith is intended to discourage the parties from obstructing the arbitral proceedings and use their best efforts to ensure a speedy resolution of the dispute. There however is no clear sanction for acting against the said requirement and only time will tell what significance arbitrators in practice place on it. If nothing else, the good faith requirement may offer basis on which an arbitrator might indirectly build rulings on costs against the obstructing party.

With regard to time and costs, CIETAC has adjusted its summary procedure came to be known as one of the hallmarks of CIETAC administered arbitrations (Chapter VI).
According to the new rules, disputes having a value of less than CNY 2,000,000 (approx. EUR 250,000) are subject to a mandatory summary procedure (Article 54.1).
The threshold has been raised to better correspond to the amount at stake in international disputes. CIETAC is now also offering enhanced possibilities for alternative dispute resolution attempts, including CIETAC mediation, to be taken during arbitration (Article 45). The results are encouraging with nearly 30 % of arbitration cases being resolved through mediation.

3 Arbitrating Multi-party and Multi-contract Disputes
 
Another critical element in fighting rising costs and the prolonging of the proceed-ings is the possibility to consolidate connected cases between multiple parties or that concern multiple contracts all into the same proceedings. Trade is no longer bi-lateral, but instead many projects involve numerous contracts and interested parties. Besides wasted time and money, parallel and separate arbitrations run the risk of conflicting awards.  

In this respect, the Swiss Rules have gone the furthest. The administrative body,
the Arbitration Court, after having considered all the circumstances and consulted the parties and the arbitrators, can decide to consolidate two cases. No consent of the parties is required. In connection, the Arbitration Court may even go as far as to revoke the appointment of the arbitrators currently presiding and ultimately constitute a new tribunal to make consolidation possible (Article 4.1).
Moreover, the Swiss Rules also leave it to the sole discretion of the arbitrators to allow third parties at request to join the arbitral proceedings even if no claim is pending against them (Article 4.2).

CIETAC has adopted a more reserved attitude toward multi-party and multi-contract disputes. A welcomed addition is the renewal of the provisions concerning the appointment of arbitrators in multi-party disputes. If either the group of claimants or respondents fail to nominate an arbitrator, CIETAC can step in and resolve the deadlock by appointing the arbitrators (Article 27.3). Consolidation is possible, but it requires the consent of both Parties (Article 17.1). Joinder of third parties into the proceedings under the old or new CIETAC rules is not possible. 

4 Obtaining Interim Relief

The Swiss Rules have been included with a provision on the appointment of a sole emergency arbitrator that is becoming the hall-mark of all modern arbitration rules.
Under Article 43, an emergency arbitrator can be appointed by the Arbitration Court and then urgently issue the requested interim relief. In other respects, the Swiss Rules, while acknowledging that in some countries such as Finland the courts of law may have the sole competence to issue enforceable interim relief (Article 26.5), grant very broad powers to the arbitrators.
These include ex parte relief, amending, suspending and terminating granted interim orders and also awarding damages that flow from granted interim orders that are later deemed unjustified (Article 26).

Under the old CIETAC rules, interim relief available was limited to only to those few conservatory measures available in China. Instead of granting them, arbitral tribunals were required to forward the request by a party to a competent court of law. 
Under the new rules, any measures that are available under the applicable law can now also be granted by the tribunal (Article 21.2). As the “applicable law” as a standard refers to the law of the seat of arbitration, this is another amend-ment aimed almost solely to benefit parties arbitrating outside of China under the CIETAC rules.

5 Concluding remarks

If the revised ICC Rules of Arbitration are taken as the baseline, the Swiss Rules can be categorized as the most progressive, entrusting arbitrators and the Arbi-tration Court with the power to undertake certain measures even when the parties disagree.
While the ICC Rules of Arbitration stand in the middle-ground laying down basic ground rules and limitations to joinder and consolidation, CIETAC Arbitration Rules try to adopt many forward-thinking features while still keeping the parties at the wheel.

It needs to however be kept in mind that the practice to be adopted by the arbitrators will ultimately dictate how broadly the arbitrators intend to utilize the new powers accorded to them, or whether they are to go with a more conservative approach.

In the months that will follow, the attention will next be directed towards LCIA (London Court of International Arbitration) and HKIAC (Hong Kong International Arbitration Centre), who are also in the process of considering modifying their international arbitration rules. From a Baltic point of view, LCIA is known as the preferred choice for many Russian-linked oil and gas disputes, while HKIAC ranks among the top arbitration institutions in Asia. Lastly but not least, the FCCC (Arbi-tration Institute of the Finland Chamber of Commerce) will be launching its new rules in the near future.  

FOR ADDITIONAL INFORMATION

Markus Kokko

Heidi Merikalla-Teir

Tero Kovanen

 

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