October 24, 1997, Geneva, Switzerland
Recent American Arbitration Association International Activities
Mr. William K. Slate II
President, American Arbitration Association (AAA)
(New York, United States of America)
In response to the ever-growing use of arbitration in the resolution of international commercial disputes, the American Arbitration Association (AAA) has undertaken significant steps to further improve and streamline the administration of its international arbitration caseload.
First and foremost, the AAA has established its International Center for Dispute Resolution, devoted exclusively to the handling of international cases by a multilingual staff of attorneys, who are well versed in the administrative rules and procedures governing such cases. From its inception date, June 1996 through June 1997, the Center has received 280 newly filed cases, a dramatic increase from the 180 cases filed in 1995.
Another featured change is the AAAs ongoing comprehensive review of its international panel of neutrals, to ensure that parties are provided with arbitrators and mediators of the highest quality from countries worldwide. In conducting this review, the AAA is evaluating each candidates overall credentials, their depth of international expertise, prior arbitration experience and demonstrated acceptability.
As a significant corollary project, the AAA directed a task force to focus on and update, where appropriate, the International Arbitration Rules in light of modern international practice. The AAA introduced its first set of International Arbitration Rules in 1991. In contemplating the current amendments, the AAA concluded that the Rules worked very well, but would benefit from fine-tuning and additional provisions to reflect and advance current practice.
In conducting their review, the task force considered not only the International Arbitration Rules, but also other recently developed rules, such as those of the World Intellectual Property Organization and of the Commercial Arbitration and Mediation Center for the Americas. Also considered were proposals by concurrent task forces for revisions of other AAA rules and input from a wide range of foreign practitioners and the AAAs Arbitration Law Committee and International Arbitration Committee, respectively.
When considering the changes, the AAA focused on several areas: (i) expediting the process by shortening various time periods; (ii) designing a new method of appointing arbitrators in multiparty proceedings; (iii) clarifying the extent of impartiality and independence required of the arbitrators; (iv) clarifying the tribunals power to rule on its own jurisdiction; (v) giving the tribunal more control over issues such as admitting evidence; (vi) accounting for applicable legal privileges; (vii) clarifying the power to issue interim measures; (viii) identifying arbitrator authority regarding currency and interest issues; and (ix) reversing the presumption concerning the availability of punitive damages.
1. Applicability of International Rules
Contrary to the earlier version, the International Rules have been amended to specify arbitration under them whenever the arbitration is international and if the parties have chosen the AAA without designating particular rules. In the past, the International Rules have stated that they would apply only where the parties have agreed to apply them, and the AAAs Commercial Arbitration Rules provided that they would apply when specifically chosen or when parties have provided for AAA arbitration without specifying particular rules. This amendment will give the AAA the flexibility to administer international disputes under rules that are more appropriate for international arbitration.
a) Expediting the Proceedings
Under Article 3 which governs the submission of statements of defense and counterclaims, the timeframe for filing such submissions has been reduced from 45 days to 30 days.
Due to the reality that parties to an international proceeding are often from differing nations around the world, a period of time may sometimes elapse before a party receives the notice of commencement or the filing of a pleading. Therefore, the Rules also provide the arbitral tribunal, or the administrator if the tribunal has not yet been formed, with the discretion to extend such time periods in justifiable circumstances.
Under Article 6 which governs appointment of arbitrators, the parties now have 45 days, reduced from 60 days, after the commencement of the arbitration within which they must select the arbitrator(s). These changes should streamline the beginning of the arbitration proceedings and serve to facilitate an efficient process.
b) Multiparty Arbitration
The former version of the Rules, as well as the UNCITRAL Rules, were written in contemplation of an arbitration including two parties, or groups of parties, of equal interest in the outcome of the proceedings. However, frequently international contracts containing arbitration clauses involve multiple parties whose interests are not easily aligned into two opposing groups.
Recognizing the importance of party autonomy, the Rules do encourage parties to develop their own solutions in such situations. In the event that the parties are unable to agree, the newly amended Rules provide the following default mechanism: "where there are two or more claimants or two or more respondents named in the Statement of Claim, unless the parties have agreed otherwise no later than 45 days after the commencement of the arbitration, the administrator will appoint all the arbitrators."
c) Impartiality and Independence of Arbitrators
Of fundamental importance to a successful arbitration process is the impartiality and independence of the tribunal. Certainly the former version of the Rules provided that arbitrators are to be impartial and independent and also provide for disclosure of any circumstance likely to give rise to justifiable doubts as to the arbitrators impartiality or independence. With respect to communications between a party and its appointed arbitrator, the Rules were amended to set out the proper scope of such communications.
Article 7 now provides in pertinent part that ex parte communications with any arbitrator or with any candidate for appointment as party-appointed arbitrator shall be limited to the general nature of the controversy and of the anticipated proceedings; the candidates qualifications, availability or independence; and the suitability of candidates for selection as a third arbitrator if the parties are involved in such selection. The Article also further clarifies that parties shall not have any ex parte communication relating to the case with any candidate for presiding arbitrator.
d) Jurisdictional Challenges
Consistent with modern international practice, the AAAs rules have provided the tribunal with the authority to rule on its own jurisdiction, implementing the "kompetenz-kompetenz" principle. The relevant provision, Article 15, has been amended to broaden this power to include the term "scope" to make clear that the tribunal shall have the widest power to rule on any challenge to its own jurisdiction.
Changes were also made to clarify the time constraints in which such jurisdictional challenges are to be filed, while affording the tribunal the power to rule on such objections at any time it considers appropriate. Finally, an additional sentence has been added concerning separability of the arbitration agreement from the rest of the contract to conform more closely to the terminology reflected in the UNCITRAL Model Law.
e) Conduct of the Arbitration
Increasingly, international arbitration practitioners have recognized the need for the tribunal to have the authority to manage the proceedings in the most efficient manner practicable, in accordance with the agreement of the parties. Therefore, Article 16 has been revised (i) to make more express the need to conduct the proceedings "with a view to expediting the resolution of the disputes"; (ii) to clarify the ability, but not the duty, of arbitrators to conduct a preliminary conference to organize and schedule the subsequent proceedings; and (iii) to make clear that the tribunal may "direct the order of proof, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence, and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case."
f) Attorney-Client and Other Privileges
In assessing the applicability and value of certain privileges to arbitration proceedings, Article 20 was amended to provide that "the tribunal shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client." Clearly, the provision was drafted broadly to include any applicable legal privilege that might exist in common law or civil law systems.
g) Interim Measures of Protection
While the Rules already contained a provision for such measures, Article 21 was amended slightly to underscore that the scope of interim measures that may be ordered by the arbitral tribunal is broad, including but not limited to injunctive relief and measures for the protection or conservation of property. The Article was amended to clarify that such measures may be used to protect both tangible and intangible property such as intellectual property. A further revision enables the tribunal, if it so chooses, to apportion the costs associated with applications for interim relief in an interim award or in the final award. While the AAA has considered adding optional language for emergency interim relief prior to the establishment of a tribunal, it ultimately determined to defer the inclusion of such a provision at this time.
h) Currency and Interest
Because questions have arisen as to the requirements concerning the currency of the award, Article 28(4) has been amended to clarify that a monetary award shall be in the currency of the contract, unless the tribunal considers another currency more appropriate. A second change concerns awards of interest which indicates that the tribunal may award pre-and post-award interest as it considers appropriate, "taking into consideration applicable law."
i) Punitive Damages
In response to a recent U.S. Supreme Court decision in Mastrobuono v. Shearson Lehman Hutton, Inc., which made clear that, unless the parties expressly agree otherwise, arbitrators are empowered to award punitive damages, the AAA International Rules have been amended to reverse that presumption. Article 28(5) provides pertinently that "[u]nless the parties agree otherwise, the parties expressly waive and forego any right to punitive, exemplary or similar damages unless a statute requires that compensatory damages be increased in a specified manner." Thus, if parties wish punitive damages to be available, they may expressly so provide. It is hoped that this amendment will afford some comfort to both U.S. and foreign arbitration parties and practitioners.
As commercial enterprise has been and will continue to expand globally, so too will the number of parties to international transactions in need of dispute resolution services. Parties are generally reluctant to participate in legal proceedings in foreign courts, and have increasingly been utilizing alternative forms of dispute resolution. The AAA spends a considerable amount of its efforts to ensure that such alternatives are effective and viable options for disputing international parties. We have trimmed our international panel to provide only the most knowledgeable experts, created a highly specialized International Center to administer international cases, established cooperative relationships with 53 arbitral institutions around the globe and, most recently, we have revised our Rules to provide the most streamlined efficient process which bestows on the tribunal the requisite authority to direct the proceedings to a fair and speedy resolution.