Any introductory lecture on international commercial arbitration will at some point address the balance that has been struck, or has sought to be struck, between the common and civil law procedural traditions. The “soft law” IBA Rules on the Taking of Evidence in International Arbitration will be referred to as an example of how this compromise has been reached in the standard approach to evidence, and much will be made of their use and acceptance within the global arbitral community.
Yet the release of the draft Rules on the Efficient Conduct of Proceedings in International Arbitration (known as The Prague Rules), due to be finalised in December 2018, has rather upset the apple cart. This cosy narrative of a happy partnership between two legal traditions appears to have been a fiction, at least for some. With hindsight, this has been coming for a while. The reception of the IBA Guidelines on Party Representation prompted a strong backlash from a number of quarters, particularly the Swiss Arbitration Association (ASA), for being too heavily slanted towards the common law approach.
The Prague Rules have been given support by a number of arbitral bodies from across Eastern Europe and Russia in particular, and the drafting committee contains many notable individuals from across the common law and civil law spectrum. Clearly, there has been a strong feeling from some that the standard procedure set out in the IBA Rules, or as applied in practice, had not struck the right balance.
What are the “common law” approaches that the Prague Rules seek to challenge and how do the new rules try to do so? And is a new set of soft rules really the answer?
Common law evidentiary processes as drivers of cost and inefficiency
The foreword to the Prague Rules, whilst carefully written, doesn’t pull any punches. It highlights the role of evidence in exacerbating cost and inefficiency in the arbitral process. The IBA Rules are described as a “success” in bridging a gap between the common and civil law traditions and standardising procedure. But the use of the past tense in referring to their success will be lost on no one.
The drafters’ concerns are then very clearly set out:
“From a civil law perspective, the IBA Rules are still closer to the common law traditions, as they follow a more adversarial approach with document production, fact witnesses and party appointed experts. In addition, the party’s entitlement to cross examine witnesses is almost being taken for granted.”
The foreword then questions the need for and value of some of these standard practices. It states that it is rare that document production ever “brings a smoking gun to light”, and questions whether fact witnesses and party-appointed experts are useful to the process. The foreword then moves to discuss how concerns around the use of procedures are compounded by a lack of active case management by arbitral tribunals. The solution, according to the foreword at least, is to move towards a more “inquisitorial model of procedure” with a more active role for tribunals, thus contributing to increased efficiency and reduced time and cost.
What do the Prague Rules contain?
The common law lawyers among you may be expecting some fairly radical changes following a read of the foreword. But you may be surprised by how familiar many elements of the Prague Rules (as currently drafted) are.
For example, elements of Article 2 mirror the movement of many arbitral institutional rules in recent years towards enhanced procedural efficiency. There is provision for an early case management conference at which the relief sought, the facts that are disputed and undisputed, the legal grounds of the parties, and a procedural timetable, are all recorded. Indeed, it reads very much like the ICC Terms of Reference process. Very much in line with current expectations of active case management and tribunal duty, Article 2.4 empowers the tribunal to determine issues of law or fact as preliminary matters, with full discretion in respect of the number of submissions each party may make, provided that they treat the parties fairly and equally with a reasonable opportunity to present their respective cases.
Article 2.3 is also within the comfort zone of many common law lawyers. As the drive for reduced cost and greater efficiency has increased, so we have seen more arbitrators from all legal traditions seek actively to narrow the issues in dispute and ask parties to focus on specific legal or factual questions in their evidence and pleadings. Article 2.3 simply confirms this existing power, enabling the tribunal to indicate the facts which it considers to be undisputed between the parties and the facts which it considers to be disputed, types of evidence the tribunal might consider appropriate, its understanding of the parties’ legal grounds and its preliminary view on the allocation of the burden of proof between the parties.
The “fact finding” powers of the tribunal in Article 3 are also familiar. The arbitral tribunal is entitled and encouraged to take an active role in establishing the facts of the case which it considers relevant for the resolution of the dispute and can, of its own motion, request that a party produce relevant documents, appoint its own experts, order site inspections and impose a cut-off date for the production of evidence. While subject to the requirement to give the parties a reasonable opportunity to state their views, the LCIA Rules contain exactly the same powers at Article 22.
Articles 5 and 6 also look surprising similar to the provisions of the IBA Rules in respect of fact and expert witnesses. Where things have shifted slightly is the tone. Arguably, the IBA Rules assume more in the way of party latitude to determine the evidence they wish to use and rely on, while the Prague Rules assume that the tribunal may, in its discretion, limit that party choice.
So where do we see the civil law traditions come into play? Article 4.2 is perhaps the first example of a clear change in direction. It states that, “Generally, the Arbitral Tribunal shall avoid extensive production of documents, including any form of e-discovery.” Evidently, this is intended to severely limit document production. But it does not exclude it. Article 4 continues in a vein similar to that of the IBA Guidelines, albeit focused on the production of specific document(s) that are relevant and material to the outcome of the case, not in the public domain and are in the possession or control of another party. Article 8 also leans towards the inquisitorial role of a civil law judiciary in providing that “the examination of the fact witness shall be conducted under the direction and control of the Arbitral Tribunal”. We also see an express preference “to the extent appropriate… and possible” for a dispute to be resolved on a documents-only basis and, where a hearing is requested or appropriate, for it to be organised in the most cost-efficient manner possible.
However, perhaps the most challenging aspect for a common law lawyer will be Article 9, “Assistance in Amicable Settlement”. The provision looks similar to that contained in the DIS Rules in allowing the arbitral tribunal to assist the parties in reaching an amicable settlement of the dispute at any stage of the proceedings, to express its preliminary views with regard to the parties’ positions, to assist in an amicable settlement or to act as mediator. While common practice in many civil law jurisdictions, particular in Asia, the arbitration-mediation or mediation-arbitration process does not sit easily for many common law practitioners. Many see an active role in settlement as conflicting with an arbitrator’s duty of neutrality. However, the rules do not make these powers absolute. Each of them is subject to the right of one of the parties to object or fail to give consent. One might therefore question the practical utility of the provision in many disputes involving counsel on one side from the common law tradition.
Are the Prague Rules really so different to the IBA Rules?
The drafters of the Prague Rules have raised concerns that the standardised use of common law processes such as document production, fact and expert evidence, coupled with a lack of active case management exacerbate time and costs in international arbitration. And the criticisms do have some truth to them. Failure to manage actively a document production exercise and uncontrolled fact and expert evidence can certainly lead to spiralling costs. Much of this is already recognised by many common lawyers themselves, perhaps indicating that common lawyers and civil lawyers in the arbitration community will often have more in common than what divides them. There are signs that, within the UK at least, the tide is turning against the application of a common law disclosure model designed for an era when transactions involved a limited number of paper documents to the proliferation of documents and data in the electronic age. The Business and Property Courts are likely to pilot a new disclosure regime for court litigation from January next year. On their menu of models is a no-search required option, where disclosure could be limited to adverse documents already known to the disclosing party. Questions are also being asked about whether the current approach to fact evidence is fit for purpose and the use of witness evidence in the English Commercial Court is also being reviewed. These developments have sparked interest among common law arbitration lawyers.
One could however question whether it is the prevailing arbitration processes themselves or the lack of management that is at fault. Indeed, it is arguable that the drafters’ complaints rest with the users and tribunal members rather than the IBA Rules or “common law” processes. It is therefore surprising that the solution offered by the Prague Rules to a criticism of the lack of active case management by arbitral tribunals is to place even more control and more active case management powers in the hands of those same arbitral tribunals.
It is certainly arguable that the lack of active case management under the IBA Rules does not stem from a lack of power or discretion, but from a lack of willingness to exercise that power or discretion. Article 9 aside, everything set out in the current draft of the Prague Rules could be achieved or argued for under the IBA Rules and within standard arbitral procedure, bringing arbitration closer to a truer balance between the civil and common law legal traditions. Yet few tribunals or counsel truly engage with the materiality threshold of the IBA rules in terms of documentary evidence in their requests for production. Few tribunals exercise their right to request the appointment of a tribunal-appointed expert. Counsel are generally reluctant to propose “radical” procedural approaches in which documentary, witness and expert evidence is severely curtailed in the first procedural conference. And parties are generally reluctant to agree to a process which requires their arbitral tribunal to be so well-prepared and well-versed in the case that they can actively manage it from the outset if this also front-loads costs.
What you do have with the Prague Rules is a clear difference in tone. The default position is subtly different to that under the IBA Rules, and the tone of the rules points the tribunal clearly towards a procedure in which evidence is curtailed and the tribunal is an active participant in the direction of that evidence. And tone matters. But is it enough? Fundamentally, arbitral procedure will still rest within the hands of the same arbitrators, with the same counsel; the same arbitrators and counsel who may not have used the discretions that already exist under the IBA Rules. Tone also cannot placate the concerns of tribunal members of a challenge on the grounds that they have not given parties a reasonable opportunity to put their case or to treat those parties fairly and equally.
And there will of course continue to be arbitrations where one or both parties or the tribunal will be attracted to the IBA Rules, because they actively want the benefits of detailed documentary, witness and expert evidence. One of the drafters of the Prague Rules drafters recently acknowledged that the common law adversarial approach remains appropriate when a “case is complex, fact-heavy and has a lot at stake“. The continuing appeal of the common law evidence approach may also explain why, while significant drive for the Prague Rules has come from the Russian arbitration community, Russian companies continued to be among the heaviest users of the London Commercial Courts in the first half of this year. In these courts, the current evidence regime tends to result in significantly more extensive disclosure than is usual in international arbitration.
Only time will tell whether the Prague Rules will become widely adopted. And only time will tell whether, when adopted, arbitrators will exercise their broad discretion under the Prague Rules to implement the same standardised process as they have done under the IBA Rules, just under a different name.