Jorge López Fung*
ABSTRACT
It is argued that Prague
Rules and IBA Rules on the taking of evidence are incompatible and cannot be
applied to the same arbitration proceeding. Regardless of the discussion of
whether the rules are more favourable to parties from civil or common law, this
post concludes that it is possible to apply them together. However, this ‘joint
formula’ will not reduce the costs and duration of arbitral proceedings if the
arbitrators are reluctant to impose sanctions on the parties' misconduct.
1.
INTRODUCTION
Since
the publication of the Prague Rules on the Efficient Conduct of Proceedings in
International Arbitration (‘Prague Rules’) in December 2018, an intense debate
has been taking place as to whether this new set of rules will substantially reduce
the costs and duration of arbitral proceedings (for related blog posts at
Kluwer Arbitration Blog, go here,
here,
and here.)
Particularly, when compared with the well-established IBA Rules on the Taking
of Evidence in International Arbitration (‘IBA Rules’), a prior blog post
stated that the Prague Rules would not improve the procedural efficiency in
arbitral proceedings. To support this position has been argued that they ‘are
intended to undermine the uniform character of arbitration practices’ set out
by the IBA Rules while ‘setting out different standards’ based on an
inquisitorial model of discovery practices. However, is necessary to
respectfully disagree with this premise and the suggestion that the Prague
Rules were conceived simply as a new regulation based on a civil law approach
to the gathering of evidence and as an alternative to the IBA Rules. Instead,
this post proposes to overcome such vail debate regarding this inexistent
dichotomy between common or civil law approach and see the Prague Rules as a
complement, and not a substitute, of the IBA Rules.[1]
Although
some authors have already developed the compatibility of applying the Prague Rules
together with other institutional arbitration rules,[2] the possibility of a complementary
application to the IBA Rules has not been explored yet. For that purpose, this
post defends the merits of what can be called ‘joint formula’ while also
addressing the main challenges of its implementation in a context of frequent
parties’ misconduct in the arbitral proceedings that remain unsanctioned by
arbitrators.
2.
THE PRAGUE RULES AS A POSITIVE ‘COMPLEMENT’ TO THE IBA RULES
Despite
some unique characteristics previously discussed,
the Prague Rules are not as innovative as initially anticipated by the
international arbitration community. Four long years of drafting and
negotiations have resulted in a new ‘soft law’ set of rules that intends to ‘provide
a framework for arbitral tribunals and parties […] to increase efficiency of
arbitration.’ (Prague Rules, Preamble, paragraph 1). In similar terms, the
IBA Rules share this broad objective and conclude in its Preamble, paragraph 1,
that ‘[the IBA Rules] are intended to provide an efficient, economical and
fair process.’ In essence, both sets of rules pursue the same objectives
and seek to satisfy the parties’ expectations at the arbitral proceedings.
However, although the final version of the Prague Rules is not that innovative,
this new set of rules can certainly be a valuable addition to the IBA Rules in
pursuit of a more efficient and cost-effective proceeding.
In
this regard, the preamble of the Prague Rules states, in relevant part, that ‘[the
Rules] are designed to supplement the procedure to be agreed by the parties.’
Similarly, the IBA Rules provide, in related part, that ‘the parties and
arbitral tribunals may adopt the IBA Rules of Evidence, in whole or in part,’
and that the parties ‘may vary them or use them as guidelines in developing
their own procedures.’ (IBA Rules, Preamble, paragraph 2). Nothing within
the language of both sets of rules prohibits the parties to use them in
conjunction. Consequently, there are no apparent obstacles for a joint formula
if the parties benefit towards a more efficient and expedited resolution of the
proceedings. In fact, this formula could provide the parties with additional
guidelines when tailoring the practice of evidence to the specifics needs of
their case.
Even if one of the parties prefers Prague and the other IBA Rules, there could be a situation in which they decide to make reciprocal concessions and, consequently, partially apply both rules to adapt the process to shared interests.
Even if one of the parties prefers Prague and the other IBA Rules, there could be a situation in which they decide to make reciprocal concessions and, consequently, partially apply both rules to adapt the process to shared interests.
For
instance, if the production of e-discovery was relevant due to the nature of a
particular dispute, the parties could agree upon the use of the IBA Rules
rather than the Prague Rules that, in Article 4.2., encourage the parties ‘to
avoid any form of document production, including e-discovery.’
Additionally, the parties could disregard Article 4 of the IBA Rules dealing
with the use of witnesses and, instead, apply Article 5 of the Prague Rules
which allows the arbitral tribunal to control the number of witnesses
testimonials throughout the proceedings in order to reduce the duration of the
case. In summary, there are many examples of how the parties could benefit from
the joint use of both soft laws.
However,
a question remains unanswered: would such joint formula create redundancies,
produce confusion and lack of communication between the arbitral tribunal and
the parties? The response is no, or at least not necessarily if both sets of
rules are combined exclusively by specific sections. For example, if the
parties choose the provisions of the Prague Rules to witness evidence, they
could no longer accept the similar section of the IBA Rules, but they could
choose the sanctions regime of the latter, considering that those dispositions
are not mutually exclusive. Thus, the suggest joint application must only be
effective if the parties clearly establish and communicate their preferences
while further complying with them in good faith and avoiding any dilatory
practices.
3.
JOINT FORMULA: A NEW TOOL TO DISCOURAGE THE PARTIES’ MISCONDUCT?
Having
concluded that Prague Rules and IBA Rules can be applied in a complementary
manner (according to the convenience of the parties), there is a remaining
issue whether this joint use would discourage the parties’ misconduct during
the arbitral proceeding. The answer is no, at least ‘no’ without the rigour and
severity by the arbitrators. To understand this premise is necessary to address
the real problem, which is not, by the way, legally limitations.
It
has been argued for a long time that the IBA Rules, promoting a broad document
production and usually allowing the interrogation of all proposed witnesses,
provoke the arbitration proceedings to become more expensive and lengthier for
the parties. In response to these valid concerns, allegedly, the Prague Rules
were conceived as the final solution to this problem by taking away power from
the parties and granting it to the arbitral tribunal. Nevertheless, neither the
application of the IBA Rules nor that of the Prague Rules will truly achieve
its mission if the arbitrators refuse to apply the sanctions available to them
under both sets of rules.[3]
In
general terms, the arbitrators’ refusal to sanction any parties’ misconduct
during the arbitral proceedings, and particularly during the document
production phase, may respond to the so-called ‘due process paranoia,’[4] or the lack of guidelines to understand the scope of privileges to oppose the
production and sanctions before the misconduct of the parties (not producing
the document, alleging non-existence [falsely], fishing expedition, among
others). Thus, as long as the arbitrators continue to be reluctant to impose
the sanctions recognised under both sets of rules, the problem of an
inefficient and lengthy arbitral proceeding will inevitably remain unsolved.
In
consequence, it is not true that Prague Rules are per se a solution to
the problem and the arbitration community does not need an inquisitorial system
because there is not a problem of legally limitations. Instead, the problem is
related to a lack of application of sanctions (which are also within the IBA
Rules) by arbitrators. This conclusion is supported by the periodic surveys
published by the School of International Arbitration of the Queen Mary
University of London, in which 69% of respondents (main arbitration actors)
have indicated that IBA Rules are an effective mechanism in the development of
its arbitrations and 70% consider them to be an efficient mechanism for civil
law and common law systems.[5]
Henceforth,
to the extent that arbitral tribunals impose exemplary sanctions for parties
acting in bad faith like, for instance, adverse inferences or cost imposition,
a more efficient process could be achieved.[6] What the arbitration
market should be looking for is to encourage arbitrators the use of sanctions
as a necessary and efficient tool. If the arbitrator’s decision is
well-motivated, an adverse inference or imposition of costs must not be
understood as a violation of the parties’ right of defence. Also, the
arbitration community has proposed ‘[...] should
make use of this power more often, as long as they give appropriate warnings to
the parties in advance of doing so [adverse inferences]. [7] Thus, as the arbitral
community itself suggests, perhaps the arbitrators should warn the parties that
if not act in good faith, the tribunal will be forced to apply the sanctions
that the same parties have accepted when referring to a specific regulation. Of
course, the criteria for annulling an award depend on where the arbitration is
based; however, it is not legally logical for an arbitrator to fear for the
annulment of a decision that has adhered to what is strictly agreed by the
parties as evidence rules in their arbitration agreement or during the arbitral
proceeding.
*
LLM Candidate in Comparative and
International Dispute Resolution at Queen Mary University of London
[1] Mario Reggiardo and Eduardo Dibos, ‘Las
Reglas de Praga no son tan malas como parecen,’ Forseti Revista de Derecho, Vol.
7, Issue 10 (August 2019): 08-28, available here. The authors argues
at page 9 that the IBA Rules, since their publication in 1999, had as their
primary purpose to fill the gap between the practices of common and civil law
easily available for both legal traditions.
[3] For
additional reference, see: White & Case, Queen Mary University of London
& School of International Arbitration, ‘2018 International Arbitration
Survey: The Evolution of International Arbitration,’ 8, available here; identifying ‘the lack of
effective sanctions’ as top 2 current problems in international arbitration. In
particular, answering this survey, ‘respondents complained about the various
dilatory tactics employed by counsel that go unsanctioned either because
the arbitrators are reluctant to order appropriate sanctions or because they do
not possess the right instruments to do so.’
[4] This
phenomenon is understood as the reluctance of the arbitrators to act with a
decision in critical situations for fear that the arbitral award can be
questioned on the basis that a party did not have the opportunity to present
their case. For additional reference, see: Klaus Peter Berger and Ole Jensen, Due
process paranoia and the procedural judgment rule: a safe harbor for procedural
management decisions by international arbitrators. Arbitration
International, Vol. 32, 3rd edition (Oxford: Oxford University Press, 2016), 415-435.
[5] For
additional reference, see: White & Case, Queen Mary University of London
& School of International Arbitration, ‘2012 International arbitration
Survey: Current and Preferred Practices in the Arbitral Process,’
21, available here.
[6] For additional reference, see: Jorge López Fung, ‘¿Tsunami de documentos o sequía de
información? Posiciones a favor y en contra de la producción de documentos como
regla estándar en el arbitraje comercial internacional,’ Spain Arbitration Review,
Vol. 2019, Issue 35 (May 2019): 122 - 151, available here.
Fuente de Imagen: Ideal.es
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