The Prague Rules on the Efficient Conduct Of Proceedings in International Arbitration – Restriction to Achieve Efficiency?
V&E International Dispute Resolution Update, April 25, 2019
Trends in international arbitration show disputes becoming larger and more complex, often resulting in increasingly higher costs and lengthier timetables, much to the dissatisfaction of its users. While flexibility is one of arbitration’s inherent features, it is quickly becoming one of its shortcomings, enabling disputes to run over several years and at great cost to the parties.
The IBA Rules on Taking of Evidence in International Arbitration (“IBA Rules”) are often adopted as the standard for dealing with evidence in international disputes. Some practitioners have raised concerns that the IBA Rules do not encourage tribunals to take an active role in proceedings, as they follow the traditional adversarial approach to evidence seen in common law jurisdictions. On the other hand, civil law systems typically support tribunals adopting an inquisitorial approach to the taking of evidence and fact-finding.
The Rules on the Efficient Conduct of Proceedings in International Arbitration (the “Prague Rules”), which were released in December 2018, seek to redress a perceived lack of procedural efficiency in arbitration by following the civil law approach to evidence. Despite having civil law characteristics, the Working Group of the Prague Rules highlights that their application “could in fact be used in any arbitration proceedings where the nature of the dispute or its amount justifies a more streamlined procedure actively driven by the tribunal”.1
Since their release, questions have been raised as to whether the Prague Rules are truly novel, as many of their ‘original’ features could be achieved under the IBA Rules. However, there are a number of key provisions contained in the Prague Rules that, on their face, appear to mark a clear departure from the IBA Rules.
Under a typical “Redfern Schedule” approach in the IBA Rules, the parties can often be put to task on disclosure. In larger arbitrations, it is not uncommon for there to be hundreds of document requests from each party, which can span not only lengthy periods of time, but also numerous custodians within, and potentially outside, the parties themselves. Even before disclosure actually begins, it is the scope and debate over this exercise which adds costs and time to the proceedings.
The Prague Rules are much more limiting on disclosure. Under Article 4.2, the parties are “encouraged to avoid any form of document production, including e-discovery”. This itself is a bold statement, and will cause much discomfort to common law practitioners, and indeed, to practitioners routinely involved in truly complex, fact-intensive cases. In case a party believes that it needs documents from the other party, the Prague Rules do permit the parties to indicate this at the initial case management conference, request specific documents and outline what conditions have to be satisfied in order for the tribunal to order production.2 Like the IBA Rules, the standard remains relevance and materiality to the outcome of the case.
The Presentation of Witnesses and Cross Examination
In arbitration, it is a party’s right to adduce the factual evidence it wishes to rely upon. However, Article 5.2 of the Prague Rules grants the tribunal the power to decide which witnesses are to be cross-examined at the hearing, either before or after the witness in question has submitted a witness statement.3 This approach is, again to common law practitioners, questionable and could potentially infringe on a party’s rights to due process, to natural justice and to present its case. This is perhaps why the stance is softened somewhat in the Prague Rules, which gives the parties the final say on whether to present witness evidence.4 Even so, the approach reflected in the Prague Rules is in line with principles of civil law.
Cross examination of witnesses is close to the heart of any common law practitioner. The position taken in the Prague Rules is that this process is to be taken out of the hands of the parties and placed with the tribunal, which is, again, reflective of a civil law approach.
The Role of Tribunal-appointed Experts
Tribunal-appointed experts is not a new concept in either civil or common law proceedings. Article 6 of the Prague Rules deals with expert evidence and assigns the tribunal the right to appoint its own expert if it deems that specialised knowledge of a subject may be needed. While the tribunal is to seek suggestions from the parties as to the identity of the expert, it is by no means bound by the parties’ opinions and can appoint any candidate it sees fit. This expert can then be called for cross-examination either by the tribunal itself, or by either of the parties.
The Prague Rules advocate for such a tribunal-appointed expert but by no means will this lead to (i) the parties not adducing their own expert evidence and/or (ii) efficiency in proceedings for a number of reasons. Article 6 is not a marked departure from the IBA Rules, which already expressly provide for tribunal-appointed experts. Further, the more likely outcome is for there to be a ‘feast for the experts’, with perhaps three experts presenting on issues to a tribunal, thus defeating the objective of procedural efficiency.
Arbitrator or Mediator?
Article 8.1 of the Prague Rules directs the parties to try to resolve the dispute without the need for an evidentiary hearing, solely based on presented documents. In a scenario in which disclosure is purposefully limited, this may be aspirational. However, under Article 8.2, if one party requests a hearing (or if the tribunal deems it necessary to hold a hearing), a hearing shall be organised in the most cost-effective manner possible (a maxim that can also be found in the Preamble of the IBA Rules, as well as a running line throughout the IBA Rules when it comes to the conduct of the parties during the proceedings).
Under Article 9 of the Prague Rules, the tribunal may assist the parties in order to encourage them to reach an amicable settlement of the dispute. More specifically, under Article 9.2 and upon written consent from all parties, any member of the tribunal may act as a mediator and even in case of an unsuccessful mediation the tribunal member may, upon receiving a written consent from all parties, continue to act as an arbitrator in the same dispute. This duplicitous role presents potential conflict of interest issues, particularly where the parties have had discussions with the mediator on a without prejudice basis. It may also cause procedural delay if the member is required to terminate his or her engagement.
Despite the Prague Rules claiming to provide guidance on how to increase efficiency in arbitration proceedings and pushing to give arbitrators a more active role throughout the proceedings, the similarities to the IBA Rules remain somewhat obvious. While the inquisitive approach of the Prague Rules will likely appeal to parties from civil law jurisdictions, some of the objectives of the Prague Rules might also be well suited to more straightforward disputes, such as those with the need for limited documentary or expert evidence, or those where the parties’ objectives for the running of disputes are made known at the outset. On the other hand, the Prague Rules are less likely to appeal to parties involved in disputes that are high value, with complex factual matrices. In these disputes, the IBA Rules are expected to remain the preferred choice as detailed factual and forensic analysis of evidence is required.
Much of the ideals in the Prague Rules are not dissimilar to those in the IBA Rules. Whilst both sets of rules provide options, ultimately, it comes down to arbitrators to apply the powers given to them and to control the parties conduct in the running of an arbitration.
Given the Rules were only released at the end of last year, we have yet to see whether the Prague Rules will have a real noticeable impact on the time and costs of international arbitration proceedings. However, the fact that parties now have an alternative to consider is to be welcomed, and such an alternative ought to drive early and hopefully fruitful discussions as to dispute management.
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1 Note from the Working Group at page 2 of the Prague Rules: https://www.praguerules.com/upload/medialibrary/9dc/9dc31ba7799e26473d92961d926948c9.pdf
2 See Articles 4.3 to 4.5 of the Prague Rules.
3 Article 5.3 of the Prague Rules.
4 Articles 5.4 and 5.7 of the Prague Rules.