October 24, 1997, Geneva, Switzerland
The Draft New 1998 LCIA Rules
Mr. V.V. Veeder, QC
London Court of International Arbitration (LCIA)
Essex Court Chambers
(London, United Kingdom)
As every draftsman knows, it is much harder to revise existing arbitration rules than to draft new rules. For example, the vital energies expended for the original WIPO Rules count for nothing compared to those recently required for the revised International Chamber of Commerce (ICC) Rules. The London Court of International Arbitration (LCIA) is no exception; but the LCIAs New Rules are now almost complete after at least three years work; and subject to minor editorial changes, they will come into effect on January 1, 1998.
The LCIAs arbitration rules extend back to 1892, when the LCIA was founded in London as a reaction against the perceived deficiencies of the English legal system, particularly for transnational trade centred in the City of London. Revisions to its arbitration rules were certainly made in the two following decades; but the LCIAs surviving archives contain only editions of the rules made in 1926, 1931 (albeit undated), 1935, 1964, 1970, 1976, 1978, 1981 and, more extensively, 1985 based upon the UNCITRAL Arbitration Rules. Each revision represents a massive investment of time and goodwill by practitioners, arbitrators and users, particularly the revisions in 1981 and 1985.
After extensive consultation, the New 1998 Rules contain a large number of changes, mostly of a minor nature, which are derived from developments in international practice over the last 12 years and particularly the New English Arbitration Act 1996. This paper highlights only certain of these changes but also certain non-changes, i.e., demands for changes which have not been made to the LCIA Rules.
There is nevertheless an element of continuity in the New LCIA Rules. Indeed every institutions rules has distinctive features; for example, the ICC with its International Court of Arbitration, the ICC Secretariat, terms of reference and the formal scrutiny of the tribunals draft award prior to publication of the award to the parties. In many ways, the LCIA occupies a position halfway between full institutional arbitration and ad hoc forms of arbitration. Its two distinctive features straddle this division, which are fully maintained in the New Rules.
First, Article 14.1 grants to the parties a complete autonomy over the conduct of their arbitration, consistent with basic considerations of international public policy: "The parties may agree on the conduct of their arbitral proceedings and they are encouraged to do so ...". This was an innovative rule first expressed in the 1985 edition (Art. 5.1) and it encapsulates the fundamental principle of party autonomy in an LCIA arbitration: it is the parties arbitration. Moreover, as regards the exchange of written submissions and documents in the early part of the arbitration proceedings, Article 15 provides only a procedure where the parties or the tribunal have not determined differently; and even so, Article 15 only provides a procedure up to the stage of a reply to a defence or defence to counterclaim, requiring the parties and the tribunal to fix themselves the further conduct of the arbitration up to the making of the final award. (Article 14.1 contains additions to the old rule required by the "mandatory" provisions of Section 33 of the New English Arbitration Act 1996.)
In an LCIA Arbitration, there are thus no terms of reference, no scrutiny of the award by the LCIA Court and no secretarial supervision, other than ensuring that the LCIA and the tribunal are in funds sufficient to pay the fees and expenses of the arbitrators and the LCIA. To this end, the New Rules place an important economic obligation on the tribunal: Article 24.2 restrains the tribunal from proceeding with the arbitration without ascertaining from the Registry that the LCIA holds requisite funds from the parties.
Article 14.1 is the "Magna Carta" of LCIA arbitration, corresponding to Article 19 of the UNCITRAL Model Law. Given that the LCIAs users are usually, but not always, sophisticated commercial parties represented by experienced practitioners in the field of international commercial arbitration, it would be unthinkable to change this regime; and the New Rules change nothing in this respect.
On the other hand, the LCIA Court maintains an extremely firm hand on the appointment of LCIA arbitrators under Article 5. Because only the LCIA Court can "appoint" an arbitrator, it serves nothing for a party to nominate an arbitrator who is partial or otherwise unsuitable. Indeed, the extent of the LCIA Courts sole power to appoint has meant that a party has never pursued an improper nomination in recent times; and to my knowledge, no nomination has ever had to be rejected by the LCIA Court. Here, the informal contact between the LCIA Registrar and the parties can work effectively to oil the wheels of the arbitral machinery.
The LCIA Court also maintains a firm control over the fees and expenses of an arbitrator, from the time of his or her appointment. The informal practice has now been codified in the New Rules as follows: Article 5.2 requires an appointee to agree in writing to fee rates conforming to the LCIAs Schedule of Costs. Any dispute over an arbitrators fees and costs is resolved by the LCIA Court in accordance with the Schedule of Costs: Article 28.1 of the New Rules. Recent experience has shown that parties are becoming increasingly sensitive to the fee rates of arbitrators; and an ability to assuage that concern is a particular strength of institutional arbitration.
The LCIAs Schedule of Costs can be amended from time to time independently of the LCIA Rules. Looking back over the years, it is interesting to note that the LCIAs fixed fee in 1926 was two guineas per arbitrator for an award, where the amount did not exceed £50; and by 1964, the maximum hourly fee for an arbitrator was five guineas; and today, the figures are somewhat higher...
Whilst these powers over the appointment and remuneration of the tribunal are important, the LCIA Court has a less significant role than the ICC Court under the ICC Rules. Thus, the LCIA Court and its Registrar have no power to adjudicate upon the efficacy of an arbitration agreement or the misjoinder of parties. Neither can formally decide upon the sufficiency of the Request for Arbitration or of the Response (subject of course to the proper tender or payment of the LCIAs fees). The Registrar performs important administrative duties towards each arbitration; but all questions of competence and procedure are decided by the tribunal, in default of the parties agreement. The LCIA Court regularly reviews the progress and conduct of pending arbitrations at its six-monthly meetings against brief summaries prepared by the LCIA Registrar; but the LCIA Court performs no quality-control over LCIA awards. There is no supervision whatever over the form or content of an LCIA award.
Moreover, the confidentiality over all LCIA awards imposed by the LCIA Rules and strictly maintained by the LCIA Court has even precluded any scholarly assessment of LCIA practice. This is a pity but inevitable. It has frequently been demonstrated that LCIA users value confidentiality almost as much as a neutral forum. It may be questioned whether such strict confidentiality is in the public interest, however beneficial to the private interests concerned. Many legislators in the European Union are expressing increasing concern at the lack of transparency in commercial arbitration. Nonetheless, whilst it is possible that one day a national legislature could intervene to abolish or restrict confidentiality, it is inconceivable that the LCIA as an arbitral institution would ignore the most persistent representations of its own users.
The LCIA Court has now been given an important new power: it can severely truncate the time for appointment of a tribunal under Article 9 of the New Rules. This provision will allow the LCIA Court, in a case of exceptional urgency, to form a tribunal in a matter of hours or days, rather than follow the fixed periods elsewhere under the LCIA Rules. This new rule is the result of an important compromise.
Certain users wanted a procedure for urgent interim measures to be exercised by the LCIA Court or its delegate, given the long period required to form a tribunal after service of the Request for Arbitration, a period now averaging 16 weeks. This delay is often induced by the parties; but in an urgent case a delay of even a week is intolerable if it prevents an application for urgent interim measures within the arbitration. Other commentators strongly opposed such a procedure for different reasons; and a draft rule to such effect was effectively vetoed last summer (it is appended as an Annex to this paper). It is intended that Article 9 provides an alternative solution to an important, albeit relatively rare, practical problem. Like all compromises, it may please few.
There are other aspects of the New Rules to which attention may be drawn briefly: Article 30 codifies the LCIA practice on "Confidentiality"; and Article 31 modifies the provision on "Exclusion of Liability." Both are self-explanatory; but will these provisions be effective in practice?
As to the former, the draftsman of the English Arbitration Act 1996 was unable to formulate any rule allowing for the myriad, necessary exceptions to confidentiality; and accordingly no statutory provision was enacted. Can the LCIAs contractual provision for a general principle work in practice, where one party chooses to be deliberately recalcitrant? The answer is probably "yes" whilst the tribunal remains in place, in a position to grant interim measures and/or damages; but after the tribunal becomes functus officio, the remedy before a national court looks problematic.
As to immunity from suit, the English 1996 Act contains provisions for statutory immunity for both arbitrator and arbitral institution; but what of the contractual effect of Article 31 in other jurisdictions and laws? In common law systems, a form of contractual or statutory immunity is now essential to ward off tactical legal threats to the arbitral process; but in other jurisdictions, does the mere existence of a contractual immunity demonstrate the prior existence of a contractual or delictual liability to a party? Time will tell; and there are difficult times ahead for both arbitrators and arbitral institutions. The question of immunity was a problem that vexed the ICC; but whereas an immunity rule was highly desirable, the ICC rule on immunity is drafted in absolute terms and does not, on its face, exclude fraud or dishonesty. By asking too much, there may be a risk of receiving too little.
Lastly, on a different note, it was strongly proposed by US and Australian commentators that wherever reference was made to a party or person in the New Rules, the pronouns "he" and "she" should both be used in accordance with the modern linguistic practices in the USA and Australia. The LCIA draftsmen were entirely sympathetic to this proposal; the LCIAs Chief Executive was not unnaturally opposed to it; and the result is the New Article 5.1 embracing expressly the masculine and the feminine. But like the New AAA Rules, the English language has its limitations for a draftsman of institutional arbitration rules: these new rules refer always to an arbitrator and not arbitratrix. We may at least get it right in the French version of the New LCIA Rules and, if not, perhaps in the next edition of the LCIA Rules.
The Discarded New LCIA Rule on Interim Measures by the LCIA Courts "Delegate"
This draft Article 4 was to have been a new rule in the New LCIA Rules. In its original draft form, it proved controversial at the Potsdam "Selsdon" LCIA Conference in September 1996 on three separate grounds.
First, there were objections in principle to the concept of any "Provisional Order" by a non-arbitrator. Second, there were different grave concerns expressed at its impracticalities, imposing severe administrative strains on the LCIA Registry and the LCIA President. Third, there was criticism leveled at its drafting, likely to cause immediate difficulties under Section 44(5) of the New English Arbitration Act 1996.
The wording of the first draft was modified to take account of the second and third complaints. The second draft did not survive the first objection at the LCIAs "Selsdon" Conference in May 1997; and the New LCIA Rules will contain no such new rule on interim measures.
Article 4 Exceptional Provisional Measures
4.1 Exceptionally, after the commencement of the arbitration and prior to the formation of the Arbitral Tribunal, any party may apply to the LCIA Court for an order for provisional relief which the Arbitral Tribunal (if already formed) would have power to grant in the arbitration. Such an application shall be made in writing to the Registrar and shall set out the specific grounds for such relief, including the need for exceptional measures before the Arbitral Tribunals formation.
4.2 If the application is accepted by the LCIA Court (which shall have a complete discretion in accepting or rejecting the application), the President or any Vice-President of the LCIA Court shall appoint a person who shall be impartial and independent of the parties to decide the application. Such a person shall act in the name of the LCIA Court (but need not be a member thereof), shall not be an arbitrator and shall be referred to as the Delegate for Provisional Measures ("the Delegate"). The Delegates mission shall expire immediately he is informed by the Registrar that the Arbitral Tribunal has been formed.
4.3 The Delegate shall first determine whether it is appropriate for him to decide the application before the formation of the Arbitral Tribunal; and if the application is accepted for decision, the Delegate may decide whether to grant or deny the application in whole or in part, with power to abridge any time-table for the formation of the Arbitral Tribunal and the conduct of the arbitration. The Delegate is free to determine his own procedure consistent with fairness to the parties; he is not required to hear oral evidence or submissions from the parties; and he shall have power to determine any challenge to his authority or to the exercise of his powers.
4.4 A Provisional Order shall be made in writing and need not state the reasons on which it is based. It shall have the same force and effect as a contractual obligation agreed between the parties. Any failure to comply with a Provisional Order may be treated by the Arbitral Tribunal as a breach of the Arbitration Agreement, but such failure shall not by itself be treated as any repudiatory breach of the Arbitration Agreement. Upon its formation, the Arbitral Tribunal shall have power to maintain, amend or discharge any Provisional Order in whole or in part.
4.5 Neither the provisions of this Article nor the fact that a Provisional Order is granted shall deprive a party from seeking interim relief from any state court or other judicial authority before the formation of the Arbitral Tribunal.
4.6 The President or any Vice-President of the LCIA Court shall fix an amount to be deposited by the party applying for a Provisional Order on account of the costs of the LCIA and the Delegate. This deposit may be increased in light of the difficulties raised by the application. All such costs shall be borne and paid by the applicant party, with a right to seek recovery of all or part of the same (together with its own costs) as costs of the arbitration in the exercise of the Arbitral Tribunals discretion.