Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules)
By Rebecca Ardagh, Associate, Fenwick Elliott
One of the benefits of international arbitration as a dispute resolution forum is that participants have the flexibility to develop a framework that best suits them and their dispute by combining institutional and ad hoc rules. This flexibility and, to a certain extent, the control the participants have when compared with, say, domestic court systems are a compelling drawcard for international arbitration.
On the other hand, a significant number of participants in international arbitration consider the costs of such proceedings to be excessive.1 The Prague Rules Working Group believes that these high costs are likely caused by the common law, adversarial style approach which is favoured in the institutional rules that are available, such as the IBA Rules. In a draft version of the Prague Rules, the Working Group stated:
“… from a civil law perspective, the IBA Rules are still closer to common law traditions, as they follow a more adversarial approach regarding document production, fact witnesses and Party-appointed experts. In addition, the parties’ entitlement to cross-examine witnesses is almost being taken for granted.
These factors contribute greatly to the costs of arbitration, while their efficiency is sometimes rather questionable.”2
To this end, the Working Group formulated the Prague Rules, which are based on a civil law, inquisitorial approach, in an effort to resolve or reduce the cost issues prevalent in the common law alternatives, particularly the IBA Rules.
The Prague Rules were launched on 14 December 2018 and now the questions on everyone’s mind are:
- do the Prague Rules represent an alternative style of proceeding to that provided by the IBA Rules; and
- will they result in a more time- and cost-effective mode of international arbitration?
How the Prague Rules are Different
The Prague Rules’ overarching expectation is that the tribunal be proactive in its management of proceedings. This is set out at Article 2 of the Prague Rules, with Article 2.1 requiring the tribunal to hold a case management conference without delay. Article 2.2 states that, as part of this case management conference, the parties and tribunal will consider a procedural timetable and the parties will set out:
- the relief sought by the parties;
- the facts that are undisputed between the parties and the facts that are disputed; and
- the legal grounds on which the parties base their positions.
There is no such provision in the IBA Rules for a case management conference that requires the parties to have formed positions on the above. This does place a higher burden on parties at the early stages of proceedings, which could result in a front-loading of costs that is not encountered when following the IBA Rules. If cases settle at the early stages of proceedings, which is something encouraged by the Prague Rules, then it could be that the costs in parties reaching that stage are higher under the Prague Rules than they would have been under the IBA Rules, even if the Prague Rules are successful at reducing the costs of proceedings in their entirety.
Another important area of divergence between the two sets of rules concerning the case management conference is that the tribunal has an opportunity under Article 2.4 to set out, amongst other things, its preliminary views on:
- the allocation of the burden of proof between the parties;
- the relief sought;
- the disputed issues; and
- the weight and relevance of evidence submitted by the parties.
Although receiving an indication from a tribunal on these issues could assist in focusing the parties’ minds and perhaps, ultimately, a narrowing of the issues to be addressed, the prospect of a tribunal exercising such a right is likely to cause trepidation amongst parties and practitioners more accustomed to a common law system. Article 2.4 is completed by a disclaimer that “expressing such preliminary views shall not by itself be considered as evidence of the arbitral tribunal’s lack of independence or impartiality, and cannot constitute grounds for disqualification”. Whether this is sufficient to assuage the minds of those concerned remains to be seen.
In a similar vein, Article 9 provides the tribunal with the ability to assist the parties in reaching an amicable settlement at any stage of the proceedings. Again, this may generate concerns in relation to impartiality if a settlement is not ultimately reached (particularly in circumstances where the tribunal has acted as mediator, as allowed for under Article 9.2). Article 9.3 provides that the member of a tribunal who has acted as a mediator may, in the case of non-settlement:
- continue to act as an arbitrator with the written consent from all parties at the end of the mediation; or
- terminate his or her mandate.
The final provision that has no sister provision in the IBA Rules is contained in Article 7. This is the Prague Rules’ allowance for the Iura Novit Curia principle. Essentially, this provision allows the tribunal to apply legal principles or rely on legal authorities that have not been pleaded by the parties, but which it nonetheless considers relevant to the proceedings. This does not extinguish either party’s burden of proof,3 and where a tribunal chooses to exercise this right it must allow the parties the opportunity to comment on the legal principles or authorities proposed.
Where the Prague Rules are “Same Same, but Different”
The Prague Rules Working Group had particular IBA Rules in mind that it sought to improve upon when drafting its own Rules. These included the provisions for document production, fact and expert witnesses, and examination at hearing.
The Prague Rules encourage tribunals to avoid any form of document production, including e-discovery.4 Rather, the parties are encouraged to provide copies of the documents upon which they intend to rely.5 If a party believes that it may need to request documents from another party, it needs to indicate this and the reasons for this at the case management conference. If the tribunal agrees that the document production may be needed, then it will decide on the procedure for this and allow for it in the timetable.6Document requests after the case management conference will only be considered in exceptional circumstances and if the tribunal is satisfied that such a request could not have been made at the case management conference.7
The IBA Rules contemplate a process carried out outside the tribunal’s oversight. The tribunal will order a time by which documents are to be submitted;8 however, the process of requesting documents occurs between the parties.9 Where one party objects to the categories of documents it has been requested to produce, this disagreement is referred to the tribunal as umpire for decision.10
Witnesses of fact
The Prague Rules state that a party will identify which fact witnesses it intends to rely on and the elements of their testimony at the time it files its statement of claim or statement of defence.11 The tribunal will then determine which witnesses, if any, will be called to present evidence at hearing.12 A party is still entitled to submit a written witness statement for a witness, even if the tribunal has decided that that witness should not be called for examination.13 If a party insists, the Prague Rules encourage the tribunal to allow the witness to testify at the hearing; however, the Rules do allow for the tribunal to refuse this if there are “good reasons not to do so”. The Prague Rules contain a disclaimer that the decision not to call a witness for examination, even if he or she has submitted a witness statement, does not limit the tribunal from affording as much evidential weight to that statement as it deems appropriate.14 To have the tribunal afford weight to a witness statement that has not undergone cross-examination, particularly when documentary evidence is also significantly limited, is likely to cause concern for both parties and practitioners that are accustomed to a common law system.
The expectation under the Prague Rules is that expert evidence will be provided by a tribunal-appointed expert.15 The parties are involved in the selection of the expert and the formulation of the terms of reference,16 and will have the opportunity to examine him or her at the hearing.17 The appointment of an expert by the tribunal does not preclude one or both parties appointing their own experts,18 although the clear default position is that the issues in dispute that require expert opinion are intended to be addressed by one, rather than multiple experts. The IBA Rules, however, provide separately for party-appointed experts19 and tribunal-appointed experts20, with the provision for party-appointed experts occurring first in time. The IBA Rules also outline an expectation of a joint process where there are experts appointed for both parties and areas of disagreement remain after the initial reports are submitted.21 This type of process is not encouraged under the Prague Rules.
What are the Answers?
The Prague Rules Working Group clearly consider that the best way to increase time and cost efficiency is by placing more control of the proceedings in the hands of the tribunal. Perhaps the high costs of international arbitration are attributable to parties making larger than necessary document requests, introducing witness evidence that replicates information already in documents, requiring hearings in person, undertaking extensive cross-examination during hearings and requiring party expert evidence rather than assisting with the instruction of a tribunal expert. In these cases, the tribunals often acquiesce to these participant preferences rather than exercise the control afforded to them in the interests of time and cost.
Though some of the powers granted to the tribunal under the Prague Rules do not exist within the IBA Rules and their default positions may be more restrictive, tribunals have always had similar power when it comes to management of the proceedings under the IBA Rules. Therefore, if the participants have had the flexibility and the tribunals have had the power to conduct proceedings in the way envisaged by the Prague Rules all along, it is hard to see how the Prague Rules will be sufficient to change the way parties already approach cases and tribunals manage them.
To conduct the proceedings in another way (not to ensure they have seen every document they may want to see from the other side, or put every bit of documentary and witness evidence in front of the tribunal that they think could be important, or have control over the instruction of and unrivalled access to an expert) would be to relinquish a large amount of the control that participants feel over their cases when engaging in international arbitration. When it is your time and your money, control can be important.
The Prague Rules are still too new an addition to see any real change in the international arbitration sphere yet, and so, unfortunately, the tribunal is still out when it comes to the two questions we asked at the beginning of this piece. We will certainly be watching trends as they develop and, if people engage with the Prague Rules in the spirit in which they were intended, it could be that they present the streamlined, cost-efficient, international arbitration option people have been waiting for.
- 1. 2019 International Arbitration Survey conducted by the School of International Arbitration, Queen Mary University of London.
- 2. Note from the Working Group, Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules), draft dated 1 September 2018.
- 3. Article 7.1
- 4. Article 4.2
- 5. Article 4.1
- 6. Article 4.3
- 7. Article 4.4
- 8. Article 3.1
- 9. Article 3.3
- 10. Article 3.5
- 11. Article 5.1
- 12. Article 5.2
- 13. Article 5.4
- 14. Article 5.8
- 15. Article 6.1
- 16. Article 6.2
- 17. Article 6.4
- 18. Article 6.5
- 19. Article 5
- 20. Article 6
- 21. Article 5.4