In recent decades, we have seen a dramatic increase in the volume of international trade and commerce. As disputes arising out of transnational commercial contracts also increase, there has been a corresponding growth in parties resorting to international commercial arbitration as a means of resolving disputes in a manner which is more neutral, flexible and sometimes less expensive than litigation.
Over the past months, significant efforts have been made within Australia to increase the attractiveness of Australia as a seat for international commercial arbitration. Examples of these efforts include regulatory and government initiatives such as:
- the recently introduced Commercial Arbitration Act 2010 (NSW),1 which is intended to modernise the law in New South Wales with respect to domestic commercial arbitration
- the International Arbitration Amendment Act 2010 (Cth),2 which substantially amended the International Arbitration Act 1974 (Cth) in order to promote the use of arbitration as a method of resolving disputes arising out of transnational contracts, and
- the opening of Australia’s first international dispute resolution centre, the Australian International Disputes Centre.3
In addition, a number of cases recently decided in Australia have revealed a judicial approach in favour of arbitration:
- In Cargill International SA v Peabody Australia Mining Ltd,4 Justice Ward emphasised the importance of ‘the exercise of judicial restraint in interference with or intervention in arbitral decisions which otherwise would be final and binding.’5
- In Wagners Nouvelle Caledonie Sarl v. Vale Inco Nouvelle Caledonie SAS,6 the Queensland Court of Appeal referred to the importance of ‘minimal court interference with the finality of an arbitral award’.7
These moves are reflective and representative of a broader global awareness that continued growth in the attractiveness of international commercial arbitration depends on the existence of modern rules and procedures for arbitration which:
- respond to the needs of corporations and practitioners
- address procedural deficiencies identified in past cases, and
- take advantage of the latest developments in technology and practice.
Motivated by this awareness, many leading organisations have recently updated their rules of arbitration including:
- the United Nations Commission on International Trade Law, which has released the UNCITRAL Arbitration Rules 2010 (UNCITRAL Rules), and
- the International Bar Association, which has released a 2010 version of the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules).
The following sections focus on the key changes introduced by the UNCITRAL Rules and the IBA Rules and discuss why those changes may be of significance to you.
How have the Rules changed?
The UNCITRAL Rules are intended to replace the original UNCITRAL Arbitration Rules 1976 (the 1976 Rules), which are widely recognised as the world’s leading rules for ad hoc commercial arbitration.
The UNCITRAL Rules are also:
- often used in institutional arbitrations administered by institutions such as SIAC, and the LCIA, and
- provided as a dispute resolution option in many bilateral investment treaties and free trade agreements.
- In the absence of a contrary intention, parties to an arbitration agreement concluded after 15 August 2010 shall be presumed to have referred to the UNCITRAL Rules.
The UNCITRAL Rules make numerous changes to the 1976 Rules with the core objective of improving the efficiency of the arbitration. This objective is reflected in a new overarching requirement for the tribunal to conduct proceedings ‘so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute.’ More specifically, the UNCITRAL Rules contain the following key changes:
- response: a respondent is now formally required to provide a response to a notice of arbitration. The response must:
- respond to the information set out in the notice of arbitration, and
- be provided to the claimant within 30 days of receipt of the notice of arbitration (Article 4)
- interim measures: the range and scope of interim measures available to the arbitral tribunal has been clarified. These measures include injunctions and Mareva orders and, in most cases, may only be granted where the tribunal is satisfied that:
- harm which is not adequately reparable by an award of damages is likely to result if the measure is not ordered
- 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
- there is a ‘reasonable possibility’ that the requesting party will succeed on the merits of the claim (Article 26)
- substantive law: in the absence of a designation of the applicable substantive law, the tribunal must apply the law it determines is ‘appropriate’ (Article 35(1)). Unlike its predecessor, the new Article does not expressly provide that the substantive law should be determined having regard to conflict of law rules
- arbitrator appointment in multi-party arbitration: in cases of multi-party arbitration, the default position is now that the multiple parties jointly (whether as claimant or respondent) shall appoint one arbitrator (Article 10)
- joinder: the tribunal (upon request) may join a person who is a party to the arbitration agreement as a party to the arbitration unless the tribunal finds, after giving all parties (including the person(s) being joined) the opportunity to be heard, that the joinder should not be permitted because of prejudice to those parties (Article 17(5))
- notices: notices may now be given ‘by any means of communication that provides or allows for a record of [their] transmission’. This includes ‘electronic means such as facsimile or email’ (Article 2)
- witness examination: witnesses may be examined ‘through means of telecommunication that do not require their physical presence at the hearing (such as videoconference)’ (Article 28(1))
- experts: prior to the appointment of an expert by the tribunal, parties are entitled to object to the expert’s ‘qualifications, impartiality or independence’. Any objections must be dealt with promptly by the tribunal and any objection to the expert’s ‘qualifications, impartiality or independence’ following appointment may only be made for reasons of which the party becomes aware after the appointment has been made (Article 29(2))
- exclusion of liability: a broad exclusion of liability (save in cases of intentional wrongdoing) for the acts or omissions of the arbitrators, appointing authority and any person appointed by the arbitral tribunal in connection with the arbitration (Article 17), and
- tribunal fees: fees and expenses of the arbitrators must be reasonable taking (in particular) into account the amount in dispute, the complexity of the subject matter and the time spent by the arbitrators (Article 41(1)). The parties are also now entitled to refer the tribunal’s determination of fees and expenses to the appointing authority (or, if none is appointed, the Secretary-General of the PCA) for review (Article 41(4)).
The UNCITRAL Rules also now annex a model clause, which may be used where parties wish to exclude recourse, for example by way of court appeal, against the arbitral award that may otherwise be available under the applicable law:
The parties hereby waive their right to any form of recourse against an award to any court or other competent authority, insofar as such waiver can validly be made under the applicable law.
The IBA Rules revise the earlier 1999 version of the IBA Rules with the aim of promoting an ‘efficient, economical and fair process for the taking of evidence in international arbitrations’.
The IBA Rules have become widely accepted, either by incorporation or reference in arbitration agreements, or as a guide for arbitral tribunals in conducting arbitral proceedings.
The key changes introduced by the IBA Rules, which will apply to any arbitration agreement made on or after 29 May 2010, include:
- consultation: an obligation that the tribunal consult the parties at the earliest appropriate time with a view to agreeing on an ‘efficient, economical and fair process for taking evidence’ (Article 2(1))
- confidentiality and privilege: greater guidance on the factors which will be relevant to the tribunal’s assessment of whether or not to exclude a document, statement or oral testimony from evidence, production or inspection due to reasons of confidentiality or privilege (Article 9(3))
- third party documentation: increased clarity with respect to when the tribunal should exercise its discretion to obtain the production of documents from a person or organisation who is not a party to the arbitration and from whom the party cannot obtain the documents on their own (Article 3(9))
- e-disclosure: greater guidance on how the tribunal may respond to requests for e-disclosure, including a new provision allowing the tribunal to order a party requesting the production of documents maintained in electronic form to identify specific files, search terms, individuals, or other means of searching for such documents in an ‘efficient and economical’ manner (Article 3(3)(a))
- expert reports: more comprehensive requirements regarding the content of expert reports and, in particular, requirements that the expert report contain:
- a description of the instructions pursuant to which the expert is providing his or her opinions and conclusions (Article 5(2)(b)), and
- a statement of the expert’s independence from the parties, their legal advisors and the tribunal (Article 5(2)(c))
- witnesses: a discretion for the tribunal to allow the use of videoconferences or similar technology in the taking of evidence (Article 8(1)), and
- good faith: an express requirement of good faith in taking evidence, and an ability for the tribunal to take into account lack of good faith in awarding costs (Article 9(7)).
Why are these changes significant?
The changes to the UNCITRAL Rules and IBA Rules are likely to make arbitration in accordance with these rules more efficient, economical and flexible. If your business transacts globally, this may be of interest to you when determining:
- whether arbitration should be preferred as a method for resolving disputes arising out of, relating to or in connection with your contracts, and
- which rules of arbitration are appropriate in the context of your commercial arrangements.
In addition, if you are a party to an arbitration agreement concluded after 15 August 2010 (in the case of the UNCITRAL Rules) or 29 May 2010 (in the case of the IBA Rules), the above changes will apply to any arbitration in accordance with that agreement unless the arbitration agreement provides for the application of the earlier versions of those rules.
Importantly, the changes discussed above are part of a broader global initiative to modernise international commercial arbitration. The Singapore International Arbitration Centre has recently released the SIAC Rules 2010 and further initiatives in this area, such as the anticipated amendments to the rules of arbitration for the International Chamber of Commerce and the London Court of International Arbitration, should be closely monitored over the coming months.