UNCITRAL ARBITRATION RULES, 2010: Enforcing Effective Arbitration Mechanism

INTRODUCTION

Arbitration as a means of dispute resolution has gained importance and value which not only ensures justice, but also resolves the disputes in a manner that prevents depletion of prime resources of time, money and energy spent in pursing judicial forums. Arbitration has proved to be preferred method for resolving the dispute amicably and it also maintains neutrality, certainty and efficacy by enforcing the principle of party autonomy.

In the last couple of years, the pervasiveness of Arbitration in resolving disputes had generated a number of gaps requiring the rules and customs which were absent in the early stages of development of Arbitration. The need was felt to remove the problems experienced in the Arbitration Mechanism and particularly in complex or multi-party proceedings so as to prevent the scope for misuse of Arbitration Process. Many of the difficulties that have been experienced requires balancing of interest of both the users and operators of Arbitration with certain provisions increasing the accountability of Arbitrators, immunity to members of the Tribunal and harmonization of jurisprudence of appointment, challenge and cost in the Arbitration [1].

UNCITRAL

The evolution of United Nations Commission on International Trade Law (UNCITRAL) took place in 1966 by the General Assembly, enabling the United Nations to play an active role in reducing or removing legal barriers in the international trade. In establishing UNCITRAL, the General Assembly recognized that conflicts and divergences arising from the laws of different States in matters relating to international trade constitute an obstacle to the development of world trade. The General Assembly considered it desirable that the process of harmonization and unification of the law of international trade be substantially co-ordinate, systematized and accelerated and that a broader participation by States be secured.

The UNCITRAL Arbitration Rules, 1976 have gained a wide spread acceptance as the procedural framework for ad-hoc International Arbitration as the same was incorporated in dispute resolution clauses of cross-border contracts and various International Arbitral Institutions. Arbitration laws of several countries are on the basis of UNCITRAL Model Law on International Commercial Arbitration. The Model Law is a voluntary framework and countries may adopt it to the extent they wish to implement considering and incorporating the local differences. Considering the need for modifications and improvements as evolved in the prevalence of the rules, the working group of UNCITRAL completed the revision and new UNCITRAL Arbitration Rules, 2010 came into force on 15 August, 2010 and were made applicable to all Arbitration Agreements concluded after that day and also providing the discretion to choose among 2006 or 2010 Rules [2].

These new rules reflect the evolution of Arbitration Procedure in line with technological advancement, drafting process of Arbitration Clauses, and number of other changes with a view to increasing efficiency and to make the rule consistent with the procedural standards that had developed in International Commercial Arbitration since 1996. The new rules aim at simplifying the procedure particularly for the complex and multi-party Arbitration and also opportunity to the parties to review the Arbitrator’s fees and expenses.

To assist those who might adopt the UNCITRAL Rules or modified version thereof, the UNCITRAL adopted in 2013, a set of guidelines making recommendations to assist Arbitral Institutions and other Institutional Bodies with regard to Arbitration under UNCITRAL Arbitration Rules [3].

UNCITRAL ARBITRATION RULES, 2010

The important modifications in the UNCITRAL Rules [4] can be categorized as follows:-

1.  Institutionalization

The new Arbitration Rules, 2010 provide the framework giving more leverage to the institutional setup as compared to the ad-hoc Arbitration. Article 6 requires the parties to agree on appointing authority as soon as possible during the arbitration. Though UNCITRAL Rules are not tied to any particular arbitral institution, the rules can be adopted by institution both as appointing authority and as administrator in arbitration conducted pursuant to the UNCITRAL Rules.

a)  More power to the institutions acting as the appointing authority for failure of the parties in appointing arbitrators. The institution/appointing authority, in exceptional circumstances deprive a party of the right to appoint a substitute arbitrator and appoint the substitute arbitrator itself. (Article 14(2))

b)  In Multi-Party dispute, the appointing authority has the power to reconstitute the tribunal in full and revoke earlier appointments where one party fails to appoint an arbitrator. (Article 10(3))

c)  A precise procedure to be followed by the parties in relation to selecting the appointing authority and, if the parties fail to agree, the procedure of how the PCA must act upon request of a party as the designated authority to select an appointing authority. (Article 6)

d)  If the parties do not agree on the appointing authority, the appointment of an arbitrator would become complicated under the UNCITRAL Arbitration Rules.

The new rules provide more powers to the institutions but they still give the autonomy to the parties in determining the process and these powers are to minimize the abilities of the parties to create dead lock and delay the proceedings for tactical reasons. The 2010 Rules incorporate the most common solution to deal with constitution of arbitral tribunal in multi-party arbitration.

2.  Arbitral Tribunal

The new rules simplifies the procedure for constitution of Arbitral Tribunal and more power to the Arbitral Tribunal to efficiently perform its function. It provides:-

a) The appointing authority can appoint sole arbitrator as well as other arbitrators/presiding arbitrator in case of the parties failing to appoint arbitrator or two arbitrators fails to agree on third arbitrator (Article 9). The new appointment procedure will make it difficult for the parties to frustrate and delay the constitution of the tribunal.

b)  A deficiency in the notice of arbitration would not prevent the Arbitral Tribunal from being constituted and such constituted Arbitral Tribunal would decide the deficiency. (Article 3 & 4)

c)  The Arbitrators will be under a continuing obligation to disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence. In addition the prospective arbitrator has to disclose such circumstances to all the members of the Arbitral Tribunal. (Article 11)

d)  The immunity has been conferred on the Arbitrators, any person/expert appointed by the Tribunal and appointing authority from claim based on any act or omission in connection with the Arbitration except for intentional wrongdoing. (Article 16)

e)  The Tribunal will have power to grant a broader range of interim measures of protection including measures necessary to prevent current or imminent harm to the interest of parties, prejudice to the Arbitral Process itself, preservation of assets to satisfy a subsequent award and orders directed at preserving evidence. (Article 26)

3.  Arbitral Procedure

The various modifications have been made in the rules so as to make arbitration process expeditious, effectual and at lower cost. The major modifications are:-

a)  The establishment of procedural time table as soon as practicable. (Article 17(2))

b)  The inclusion of the Claimant’s legal grounds and documents and other evidence in the Statement of Claim. (Article 20(1))

c)  The efficiency of the proceedings would be improved as new rules allow the parties to elect that the notice of arbitration or response will constitute their statement of claim or defence respectively.

d)  The Tribunal shall conduct the proceedings in a manner that avoids unnecessary delay or expense and provides for a fair and efficient resolution of disputes.

e)  The detailed rules for objections to and the determination of jurisdiction. (Article 23)

f)  A rule that arbitral proceedings shall be conducted in private unless the parties agree otherwise, and rules empowering the tribunal to make orders for ‘witnesses out of court’ and direct that witnesses be heard and examined by video link. (Article 28)

g)  Regarding the choice of law it provides the arbitrators to apply the law that they determine to be appropriate, rather than strict conflict of laws rules, in the absence of an express choice by the parties. (Article 35(1))

h)  The rules for awards that require identification of the seat of the tribunal in the award and set out the circumstances in which the award may be made public. (Article 34)

4.  Technological Advancement

The modifications also incorporate the technological advancement took place which are much needed to keep pace with the changing technology/virtualization and also provide for speedier process for adjudication. It includes:-

a)  The requirement that the Arbitration Agreement be ‘in writing’ has been revoked and as such any record of an agreement to arbitrate in accordance with UNCITRAL Arbitration Rules will be sufficient. (Article 1(2))

b)  The rules for communication are in consonance with UNCITRAL Model Law on electronic commerce. The prior requirement of physical delivery of the communication has been removed and Article 2 provides that the communication can be made by any means which allow for a record of its transmission. However, the delivery by electronic means can be made at designated or authorized address.

c)  The rules also provide for option to examine witnesses through video-conference. (Article 28(4))

5.  Miscellaneous

The various other improvements have been made to fill the gaps which were exploited by the parties to frustrate the arbitration process. The important modifications are:-

a)  Article 1 does not require that the ‘parties to arbitration’ be the ‘parties to a contract’ which allows the dispute from any kind of legal relationship to be referred to the arbitration under UNCITRAL Rules.

b)  The new rules require the respondent to file a response to the notice of arbitration within 30 days unlike earlier rules which did not provide for a respondent to file a response to the claimant to the notice of arbitration.

c)  The new rules provide for joinder of other parties to the arbitration agreement (Article 17(5)) and inclusion of claim against the third parties in the response to the notice of arbitration. (Article 4(2)(f))

d)  A relaxation of the rules of waiver, under which a failure to object to non-compliance with the arbitration rules will not be a waiver of the right to object where the party in question can show that its failure to object was justified in the circumstances. (Article 32)

e)  The determination of costs regime for the proceedings and a mechanism for the review and adjustment of the tribunal’s costs under an award by the appointing authority or the Secretary General of the PCA where the tribunal’s determination of costs is either inconsistent with the agreed costs regime or is ‘otherwise manifestly excessive’. (Article 41)

INDIAN SCENARIO

Arbitration and Conciliation Act, 1996 has been enacted on the lines of UNCITRAL Model Law. The preamble to the act reveals that the parliament has enacted the act on the line of Model Law with slight changes. Therefore, the court while interpreting the provision of this act referred to the Model Law wherever need arises as the object and purpose of the enactment of the act [5]. The technological advancement under UNCITRAL Rules has already been incorporated by the non-obstante clause in the Information Technology Act, 2000 which makes electronic documents functionally equivalent to the other documents and also provides for attribution, acknowledgment and dispatch of electronic records which deals with communication in electronic medium.

The Information Technology Act, 2000 also provides for secure electronic signature, secure electronic records and thus, provides for a better level of assurance in the electronic communication than, UNCITRAL Rules, 2010 particularly keeping in view the Cyber Security Threats which may give challenge to the authenticity of electronic communication. However, India needs to incorporate the modifications made in UNCITRAL Rules, 2010 as these modifications are quite effective in enforcing the Arbitration Mechanism and would make the delivery of justice as expeditious, efficacious and cost effective. These amendments are required to be introduced to make it compatible in context of International Trade Laws as other countries are likely to follow these rules as happened subsequent to the UNCITRAL Arbitration Rules, 1976.

ADOPTABILITY BY ARBITRAL INSTITUTIONS/COUNTRIES

In the General Assembly Resolution 67/22, while recommending the use of UNCITRAL Arbitration Rules, 2010 it was noted that “the revised text can be expected to be contribute significantly to the establishment a harmonized legal framework for the fair and efficient settlement of International Commercial Disputes”. The recommendations to assist arbitral institutions and other interested bodies with regard to the arbitration under UNCITRAL Arbitration Rules, 2010[6] were made in General Assembly Resolution 67/90 wherein it was observed that the UNCITRAL Arbitration Rules have been used by Arbitral Institutions including Chamber of Commerce and Trade Associations:-

a)  These rules served as model for institutions, drafting their own arbitration rules which range from inspiration to full adoption of the rules.

b)  Institutions have offered to administer dispute under UNCITRAL Arbitration rules.

c)  Institutions render administrative services in ad-hoc Arbitration under these rules.

d)  An Institution may be requested to act as appointing authority under these rules.

The institutions adopting the UNCITRAL Arbitration Rules as their Institutional Rules will certainly need to add provisions or to carry out certain modifications which may diverge from the UNCITRAL Arbitration Rules and such modifications may include:-

i)  Effective date of application of revised rules.

ii)  The communication channel between the parties and the institution before the constitution of arbitral tribunal for which an institution may adopt Article 3 & 4. The corresponding modification may be required in the each article referring to communication.

iii) Substitution of the reference to the “appointing authority” by the name of the institution and make the corresponding modification in the other rules.

iv)  If the functions of the appointing authority are fulfilled by an organ of the institution, it should be explained.

v)  The modification is to be made in Article 41 by the institution to include its Schedule of Fees and also provision of Article 40(2)(f) would not apply.

Apart from this, the institutions may provide administrative services for arbitration under UNCITRAL Arbitration Rules or institutions merely act as an appointing authority, needs to make appropriate rules or amendment in the existing rules as provided in the above recommendations.

CONCLUSION

The new UNCITRAL Rules are quite comprehensive, incorporating the modifications to fill the gaps that are evolved during the last three decades. These contemporary changes sought to counter some of the pervasive problems of Arbitration as comprehended by various arbitral institutions and bodies throughout the world. The new rules leveraging institutional framework would alleviate the number of problems particularly in complex, multi-party arbitration. The new rules aims at expediting the arbitral award by giving more discretion to the tribunal and making it mandatory that the proceedings are conducted efficiently, fairly and in most effective manner. These changes would certainly bring reforms and would provide quick and effective dispute resolution through arbitral proceedings. India needs to amend the Arbitration and Conciliation Act, 1996 to incorporate these modifications which will positively contribute to the efficient conduct of Arbitration. The effectiveness of the new rules would also depend upon its adaptability by the member states and international arbitration institutions and trade associations so as to bring uniformity in legal framework for international trades.


[1] Revising the UNCITRAL Arbitration Rules: Seeking Procedural Due Process Under the 2010  UNCITRAL Rules for Arbitration

[2] Recent Developments of the Works by the UNCITRAL Working Group II: The UNCITRAL Arbitration Rules as Revised in 2010

[3] General Assembly Resolution 67/90

[4] UNCITRAL Arbitration Rules (as revised in 2010) [http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf]

[5] Gas Authority of India Ltd. Vs. Keti Construction (I) Ltd. [(2007)5SCC38]

[6] Recommendations to assist arbitral institutions and other interested bodies with regard to arbitration under the UNCITRAL Arbitration Rules

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