Samuel Johnson famously said that change should be avoided unless there was “reason sufficient to balance the inconvenience”. The prevailing climate today is rather more innovation-minded and it is often assumed that change is for the better, perhaps not always with much analysis of the potential downside.
There has been a welcome drive to increase efficiency in arbitration over the last few years, which has led to the revision of the rules of major arbitral institutions and new legislation in support of arbitration in a number of jurisdictions. Hot on the heels of all this innovation comes yet more, with the introduction of the Prague Rules, launched in the Czech Republic in December 2018.
The Prague Rules on the Efficient Conduct of Proceedings in International Arbitration have come out of the frustrations of a group of civil law arbitration practitioners with what they view as the excessively common-law focus of the IBA Rules. We covered their concerns in our previous Prague Rules blog post in November, which commented on the penultimate draft of the Prague Rules.
The final version of the Prague Rules was published just before their launch in December and we understand that the rules have already been adopted in at least one arbitration. Will the wider arbitration community be tempted away from the IBA Rules and, if they are, will they find the change worth it?
The Prague Rules are more closely aligned with civil law traditions and they target inefficiency in arbitration. The need to try to reduce both delay and wasted costs is something arbitration lawyers from across the civil and commercial law spectrum can agree on, but the critical question is whether switching to the Prague Rules will help.
The overall approach of the rules is to give more power to tribunals and then rely on them to make a set of radical procedural orders. While much of what is in the Prague Rules could be done under the IBA Rules, if all the defaults in the rules are adopted this would result in a leaner and very different arbitral procedure.
Under the Prague Rules the tribunal is asked to hold an early case management conference where relief sought, facts in dispute, legal arguments and the timetable will be set out (Article 2). The tribunal can make preliminary decisions on either legal or factual issues (Article 2.4). The tribunal can also reduce costs and narrow the proceedings by setting out the facts it believes remain in dispute, relevant evidence, its understanding of the parties’ legal positions and the relevant burden of proof (Article 2.4). A Prague Rules tribunal can operate inquisitorially and can instruct its own expert witnesses, determine pivotal facts and request documents from the parties (Article 3). The tribunal can require site inspections and set down deadlines for the production of key evidence (Article 3).
Prague Rules arbitrations should be disclosure-light, as the rules tell tribunals and parties to “avoid any form of document production, including e-discovery” (Article 4.2). In this strict approach the parties must disclose the documents they rely on, but can only request documents at the first conference. Requests for documents can only be made later in “exceptional circumstances” (Article 4.4).
The rules deal with the cost of hearings by attempting to dispense with them altogether, asking tribunals to try to deal with disputes on paper only (Article 8.1). It seems likely that, in reality, many parties are going to want to exercise their right under the rules to request an oral hearing. If there is then a hearing under the Prague Rules, the tribunal will take the lead, using the inquisitorial approach to witnesses.
The Prague Rules also aim to save costs by prioritising settlement of disputes and the rules include arbitrator-facilitated settlement and mediation provisions (Article 9). These arb-med/med-arb provisions have provoked concern in relation to arbitrator impartiality, though the rules do allow a party to ask an arbitrator previously involved in settlement attempts to step aside.
This creative approach to the current problems with arbitral proceedings has been welcomed by many. But the approval has not been universal, as there is real scepticism about whether tribunals under the Prague Rules are actually going to exercise the level of close supervision envisaged and whether their orders will really reflect the defaults set out in the rules. For example, although the disclosure provisions state that disclosure requests after the initial conference will be permitted only in “exceptional” situations, it remains to be seen how strictly this is going to be interpreted in practice. Tribunals may not be able to set aside lurking due process paranoia about refusing to let parties gain access to key documents later in the process and perhaps with good reason, given the risk of due process challenges.
Time will tell whether using the Prague Rules will really revitalise proceedings and deal with disputes more efficiently. The costs benefits are currently unproven and there is some concern that costs will be front-loaded under the rules. Given the active role required of the tribunal and the emphasis on narrowing the focus of disputes early, the Prague Rules may well generate higher costs for some cases that go on to settle. This has to be off-set against the reality that radically cutting disclosure (among other measures in the rules) could potentially produce significant savings.
The Prague Rules are likely to be selected primarily by parties involved in lower value, less complex cases which centre on disputed legal issues. The rules will allow parties from civil law jurisdictions to exercise their party autonomy in selecting an approach closer to their own domestic experience. For the right case, with like-minded parties, making the change may be worth it.
Whether the drafters can carry tribunals with them and the leaner process actually materialises in practice will determine whether the Prague Rules become widely accepted. As tribunals are often criticised for not robustly managing arbitral proceedings, it will be interesting to see how this works out. It is difficult to imagine that the rules will gain significant traction in high value disputes with complex factual matrices, where extensive evidence is going to remain key.
