On 29 June 2015, the London Court of International Arbitration (“LCIA“) published guidance notes designed to facilitate the “diligent and timely conduct of arbitrations” under the LCIA Rules 2014 (the “Rules“). There are three separate notes: (i) for the parties to the proceedings; (ii) for arbitrators; and (iii) focussing on emergency procedures. A good example of the LCIA’s user-friendly approach to arbitration, the notes provide helpful advice which allows both arbitrators and parties to assist the LCIA Secretariat in ensuring arbitrations run smoothly. They provide a fascinating insight into the operation and approach of the LCIA to a number of important issues. It is likely that the notes will be referred to frequently in proceedings.
Below is a brief comment on each of the three notes; summarising the purpose and highlighting areas of particular interest.
To read the notes in full, please click here. Herbert Smith Freehills has produced a Step by Step Guide to Arbitration under the LCIA Rules 2014. To request a copy, please contact Arbitration.Info@hsf.com.
LCIA Notes for Arbitrators
These notes provide an overview of “the broad principles by which Arbitral Tribunals should be guided in the conduct of LCIA arbitrations.” It takes arbitrators through their role in the arbitral process and outlines their responsibilities.
The notes primarily constitute a detailed narrative explanation of the operation of the Rules but they also include certain new ideas to facilitate efficient proceedings and user satisfaction, as well as information. For example, the notes directly encourage arbitrators to hold the hearings on consecutive days so as to avoid breaking up the hearing, and permit a Tribunal to appoint a secretary to assist with the internal management of the case. The following three new points are of particular significance to parties.
Arbitrators are required to complete a form of availability
The LCIA requests that candidates for arbitrator submit a form of availability. This establishes the anticipated workload of a candidate by setting out the number of hearings, outstanding awards and other pre-existing commitments which a potential arbitrator has. It then enables the LCIA to inform the parties confidently that a candidate for arbitrator has sufficient time to devote to the arbitration. This form is not mentioned in the Rules and its absence was a notable difference between LCIA procedure and that of the International Chamber of Commerce (the “ICC“). Indeed, the LCIA now requires a greater level of detail from potential arbitrators than the ICC, which only asks candidates to broadly note the “number of pending cases” they are involved in rather than requiring them to declare more specific particulars such as whether they have any outstanding awards. This is one of a number of steps taken by the LCIA to discourage arbitrators from delaying the production of their awards. Others are detailed below.
Early procedural conferences encouraged
The notes also place significant emphasis on the fact that Article 14.2 of the Rules (which encourages the parties to agree their own procedural timetable) should be preferred to the use of the default timetable under Article 15. The Rules provide, and the LCIA expects, that arbitrators will arrange a procedural conference within 21 days of the Tribunal’s formation, to encourage the parties to agree a reasonable timetable, appropriate for the circumstances, at the outset of proceedings. Arbitrators are encouraged to review the timetable regularly with the parties to ensure that last minute requests to extend deadlines are avoided.
The LCIA Secretariat can review draft awards
Finally, the notes for arbitrators include an offer from the LCIA Secretariat to review draft awards and provide comments on non-substantive issues. This extends to providing “suggested wording for inclusion in the award specifying the costs of the arbitration.” This level of involvement from the Secretariat is not specified in the Rules but, provided the LCIA is disciplined in commenting only on non-substantive issues, it should not prove controversial. It is indicative of the LCIA’s increasingly active approach to ensuring the Rules are applied consistently and arbitrations progress without delay by encouraging arbitrators to work directly with the LCIA Secretariat.
This review process, albeit less formal, is a step towards narrowing the difference between arbitration under the LCIA Rules and arbitration under the ICC Rules, under which the ICC Court scrutinises draft awards and where appropriate, remits a draft award to the tribunal for further consideration.
LCIA Notes for Parties
The notes for parties “highlight points for parties to consider in the conduct of LCIA arbitrations.” A significant portion of the content is devoted to encouraging the use of LCIA arbitration and providing a user-friendly yet detailed explanation of how the Rules function in practice. The notes constitute a very useful introduction to LCIA arbitration. The notes may reduce the number of queries addressed to the LCIA. However, the LCIA remains open to responding to queries on the Rules.
Further, the notes include a number of new clarifications. For example, the notes make it absolutely explicit that a party need not be represented by a lawyer in an LCIA arbitration; they may be represented by anyone lawfully authorised to do so. The notes also explain that a fast-track process for smaller claims can be provided on request. The more significant of these clarifications are expanded upon in detail below.
The LCIA’s approach to the appointment of arbitrators – diversity
The notes provide detail of the LCIA’s careful approach to the appointment of arbitrators. They confirm that the LCIA is happy to provide a shortlist of suitable candidates to the parties where parties agree to this method of appointment, as opposed to the polarised alternatives of party nomination or LCIA appointment. Significantly, the notes emphasise that the “LCIA strives to maintain strong diversity (in all its guises) among the candidates selected” and that, for this reason, the LCIA will not resist first-time appointments if a candidate is otherwise suitable.
The commitment to diversity is to be welcomed and the approach of the LCIA should lead to subtle changes to the composition of LCIA tribunals over time (in those cases where the LCIA selects the members of the tribunal). This is another step forward for the LCIA towards providing a more modern and streamlined method of dispute resolution.
The LCIA’s flexible approach to its fees
The Rules, unlike those of the LCIA’s competitors, allow for the LCIA’s fees to be calculated by hourly rate rather than ad valorem. The notes explain that this “is because the LCIA is of the view that a substantial monetary claim (and/or counterclaim) does not necessarily mean a technically or legally complex case and that arbitration costs should be based on time actually spent”. The LCIA might therefore be preferred by parties conducting high value business on the basis of simple contracts which should not result in excessively complex disputes.
The ICC does now allow for some adjustment to take account of the complexity of the matter but fundamentally its system remains ad valorem and its payment structure is up-front and pre-determined. Therefore, the LCIA’s hourly rate system, which requires deposits to be paid at certain intervals during proceedings and enforces rigorous reporting obligations on the LCIA Court, remains the more party-friendly of the payment systems. This is perhaps a consequence of the LCIA being not-for-profit as opposed to the corporate nature of many of its rival institutions. Indeed, this is also reflected in the fact that the LCIA produces publicly available guidance notes to supplement the Rules. In contrast, the ICC has taken the approach of publishing a Secretariat’s Guide which must be purchased.
Ensuring the timeous production of the award
The notes describe the “proactive and robust” approach which the LCIA adopts to ensure that unnecessary delays are avoided. Apart from those aspects described above, and those which are self-evident from the Rules (such as the fact the final Award is required as soon as reasonably possible following the final submissions of the parties and within a timetable notified to the LCIA), the notes also confirm that the LCIA actively monitors the progression of the timetable and deliberately does not formally scrutinise awards in order to ensure they can be released promptly to the parties.
These are further steps taken by the LCIA to address the perception that awards take too long to reach the parties. The extent to which this increasingly active approach to case monitoring will effectively reduce the length of proceedings remains to be clearly seen.
LCIA Notes on Emergency Procedures
The notes on emergency procedures are designed to highlight points for the parties to consider prior to making an emergency application. It deals primarily with two procedures: the process of expediting the formation of the tribunal and the appointment of an emergency arbitrator. Again much of its content is familiar from the Rules. However in this case, significant guidance is given on how the LCIA Court will make its decision on whether formation of the tribunal will be expedited or an emergency arbitrator appointed, or both.
Expediting the appointment of the Tribunal
Significant points highlighted by the notes in relation to the process of expediting the appointment of the Tribunal include the following:
- an applicant for emergency procedures is encouraged to provide advance notice to the LCIA and include full details for all parties to the arbitration and their representatives;
- the LCIA Court may, but need not, hear comments from the other side before granting an application for the expedited formation of the tribunal; and
- the LCIA may curtail express time limits agreed by the parties in their arbitration agreement when expediting the appointment of the Tribunal and they need not give reasons for their decision to do so.
It might appear that, if the LCIA exercised its power under point (c), a party would have grounds to resist enforcement of an award under the New York Convention on the basis that the arbitration agreement had not been followed. However, in this situation, the parties would have agreed to incorporate the LCIA Rules and so, through incorporation by reference, would have agreed that the express terms of the arbitration agreement can be varied.
The appointment of an emergency arbitrator
Concerning applications for the appointment of an emergency arbitrator, the notes add the following comments:
- appointment of an emergency arbitrator is only available by default where the arbitration agreement was concluded on or after 1 October 2014 whereas all other aspects of the Rules apply where the arbitration itself was commenced on or after 1 October 2014; and
- the two procedures of expedited appointment and an emergency arbitrator are not mutually exclusive: a party may apply for both concurrently.
Guidance as to what constitutes exceptional urgency
Both emergency procedures require the situation to be considered as “exceptionally urgent” before an application is granted. Perhaps the most useful parts of the notes on emergency procedures are the explanations of what has previously been determined as “exceptionally urgent” by the LCIA Court and what has not. The following situations met the criteria for exceptional urgency:
- early termination of an agreement for TV distribution rights which could lead to a TV provider’s customers no longer receiving certain programmes within 27 days; and
- a court injunction restraining the unlawful invocation of a bank guarantee was due to expire in 5 days.
The situations where exceptional urgency was not recognised by the LCIA Court were:
- where the claimant said it relied on a credit line from the respondent as a primary source of revenue but the respondent replied that such interim impecuniosity was no different from a normal damages claim; and
- where a $10 million interest-free loan had been provided but not paid back. The fact that the sum was large and the repayment significantly overdue was not enough.
Therefore, the LCIA Court appears to consider a situation to be exceptionally urgent where there is a clear deadline approaching and an obvious direct loss will occur at that time. More nebulous claims for ongoing financial loss, even where significant in value, do not appear to be considered exceptionally urgent by the LCIA Court when there is no clearly demarcated deadline. Such an assessment must be recognised as broad and preliminary though, and as always, each case is to be judged on its particular circumstances.
The guidance notes provided by the LCIA are of significant use to parties; providing both a more user-friendly picture of the chronology of the arbitral process and a more detailed explanation of how the LCIA Rules may be implemented in practice, which explanation can then be referred to in proceedings. The notes ensure that the arbitral process remains flexible and autonomous whilst highlighting the LCIA’s scope to intervene so as to safeguard the smooth and timely progression of arbitral proceedings. They are a welcome tool from the LCIA.