La Revue Squire

The New LCIA Rules 2014


Rédigé par Christian Hausmann et Rose Castle le 15 Septembre 2014

The London Court of International Arbitration (“LCIA”) has announced the adoption of its much anticipated new arbitration rules (the “2014 Rules”), which will apply to any arbitration proceedings instigated on or after 1 October 2014, unless the parties agree otherwise.



Background and history of the LCIA

The LCIA is one of the world’s leading international institutions for commercial dispute resolution. The international nature of the LCIA’s services is reflected in the fact that, typically, over 80% of parties in pending LCIA cases are not of English nationality.

The Court has a history stretching back as far as 1883, when the Court of Common Council of the City of London set up a committee to draw up proposals for the establishment of a tribunal for the arbitration of domestic and, in particular, of trans-national commercial disputes arising within the ambit of the City. The scheme was finally adopted in 1891 with the opening of “The City of London Chamber of Arbitration”.

To reflect the international nature of its work, the name of the Court was changed in 1981 to “The London Court of International Arbitration". New rules were also adopted that year.

In 1985, not far short of its centenary, the rules were again revised and the LCIA Arbitration Court was established, marking the coming of age of the LCIA as an international institution. In 1986, the LCIA became a private not-for-profit company, limited by guarantee, and fully independent of its three founding bodies. It then set about consolidating its position in the international arena.

In 1998, the current, soon defunct, arbitration rules of the LCIA were created.

On 1 October 2014, the new Rules will be coming into force.


The LCIA’s international position


  Arbitrations filed 2013 Increase from 2012 Countries that parties are from in 2013
International Centre for Dispute Resolution (AAA) 1,165 17% 102
International Chamber of Commerce (ICC) 767 1% 138
Hong Kong International Arbitration Centre (HKIAC) 260 20% 32
London Court of International Arbitration (LCIA) 290 10% 30
 

The 2014 Rules

The 2014 Rules have been brought up-to-date with those of other arbitral institutions (such as the recently amended ICC Arbitration Rules 2012) and include modernisations that should increase the efficiency and reduce the costs of arbitral proceedings.

The key changes of the 2014 Rules relate to the following three areas:
  1. Case management efficiency;
  2. professional conduct guidelines for legal representatives and related sanctions; and
  3. emergency proceedings.

Yet, the LCIA has not simply mirrored the provisions of other arbitral institutions. The Rules have been completely revised with nearly every rule having been subject to an amendment of some description, therefore warranting careful review for parties and practitioners. Some innovative provisions have been included that distinguish the LCIA from other international institutions, but it has also retained the rules which previously made it unique.

For example, the costs of an LCIA arbitration continue to be calculated on the basis of hourly rates and not on the amount of the claim, as in most other institutions. This has the effect that parties are more inclined to negotiate and settle disputes instead of asking the tribunal to continue to the final award.

The 2014 Rules also include provisions that effectively fill in the gaps of incomplete arbitration agreements. This will have an impact on the drafting of arbitration clauses of which parties should be aware if they do not wish to take on the standard LCIA provisions.

A.         CASE MANAGEMENT EFFICIENCY

International arbitration continues to be widely used and as demand has increased, so has the sophistication of the parties and their representatives. Commercial parties have expressed concern that arbitration proceedings take too long and are too costly. This has been one of the major drives for the changes to the 2014 Rules, which aim to make the process of arbitration more transparent, streamlined and cost-effective. The key changes are as follows:

Costs incentives

  • Costs consequences of parties’ conduct (Article 28.4) – the conduct of the parties will be taken into account by the Tribunal when determining costs, “including any co-operation in facilitating the proceedings as to time and cost and any non-cooperation resulting in undue delay and unnecessary expenses”.

This provision will permeate the whole of the 2014 Rules and should always be at the back of parties’ minds during the proceedings. Any “undue delays” caused by one party will now not only affect the other side but also result in the responsible party having to delve deeper into its pocket at the end, whether or not they win or lose.

Procedural timetable

  • Request fee – the Claimant does not have to pay the Request fee prior to commencement of the arbitration. This will allow for proceedings to get underway without having to first wait for administrative procedures to be carried out.
  • No delay for insufficiencies in Request or Response (Article 5.1) – the formation of the Tribunal and start of the arbitration will not be delayed because of an incomplete Request or an incomplete, late or missing Response.
  • Case management encouraged (Article 14.1) – the parties are encouraged to make contact with the Tribunal “no later than 21 days from receipt of the Registrar’s written notification of the formation of the Tribunal”, to clarify points of agreement and the issues in dispute and to set out the procedure for the arbitration.

However, there is still no requirement for a case management conference like that imposed by the 2012 ICC Arbitration Rules (Article 24) and the parties’ right to submit case management proposals. The 2014 Rules have kept this provision slightly vague; it seems to be more of a declaration of the principle rather than a requirement. However, it would be hoped that this would encourage parties to arrange a meeting with the Tribunal where they could ask questions about the proceedings and discuss the timetable. The costs consequences provision discussed above may also encourage parties to take case management more seriously.

  • Timeframes – the time limits have in general been reduced slightly, to be calculated on a weekly basis (e.g. the Response is to be filed within 28 days of the receipt of the Request, as opposed to 30 days previously).
  • Electronic filing – in a welcome development, parties are now able to submit Requests and Responses by email or on standard electronic forms available on the LCIA website. This will remove the delay and expense of sending paper copies and further the efficiency of arbitration, particularly in international cases.
  • Electing to have one set of submissions only (Articles 15.2 and 15.3) – Claimants and Respondents can further shorten the procedure by electing to have their Request or Response treated as their Statement of Case or Defence respectively. Instead of having to write the initial submissions and then wait a further couple of months for the Claimant to submit their full Statement of Case and then another couple of months for the Respondent to reply with their Defence, this can all be encompassed into one set of submissions by each party. This is an innovative new rule that shows the fresh thinking of the LCIA, and may be particularly attractive for parties in fairly simple cases.
  • Consolidation of arbitrations (Articles 22.1 (ix)-(x) and 22.6) – these provisions enable the Tribunal to bring two or more claims under one arbitration proceeding in two situations:
  1. Where all parties and the LCIA Court consent; or
  2. where the arbitrations are commenced under the same or compatible arbitration agreement(s), between the same parties, and where the Tribunal has not been formed for the other arbitration(s).

The LCIA Court may itself order consolidation of arbitration proceedings if they are commenced under the same or compatible arbitration agreement(s), between the same parties, and where no Tribunal has yet been formed for any of the proceedings.

  • Timetable for award (Article 15.10) – the Tribunal is now required to hand down its award “as soon as reasonably practicable after the final submissions of the parties”, to set aside adequate time for their deliberations and provide the parties and Registrar (who carries out the day-to-day administrative functions of the Court) with an anticipated timetable for delivery of the final award. Though not setting an actual time limit, this is definitely a positive addition to the 2014 Rules, focusing more attention on a swift conclusion of proceedings. This brings the LCIA 2014 Rules more in-line with the 2012 ICC Rules, which require the final award to be rendered within 6 months from the signing of the Terms of Reference (Article 30).

The main issue with Article 15.10, however, is that there does not appear to be any power for the Court to penalise the Tribunal if they fail to adhere to it. It is possible that the tribunal’s fees could be affected but this remains to be seen.

Arbitrators’ and legal representatives’ conduct

  • Arbitrators’ efficiency (Article 5.4) – Arbitrators now have to declare that, not only are they independent and impartial, but that they are also “ready, willing and able to devote sufficient time, diligence and industry to ensure the expeditious and efficient conduct of the arbitration”. This is similar to the ICC requirement that arbitrators provide a statement of their availability.

The Court has the power to revoke the appointment of an arbitrator if he or she does not conduct the arbitration with reasonable efficiency, diligence and industry (Article 10.2). This is an interesting new provision, yet one wonders how it will work in practice. Revoking the mandate of an arbitrator would not only be harsh but it would also undermine the whole point of the provision – the promotion of efficiency. To have to find and appoint a completely new arbitrator will take time and then the “new” arbitrator would have to familiarise themselves with the case - an unnecessary delay except in cases of extreme misconduct.

  • Change of legal representatives subject to approval (Articles 18.3 and 18.4) – Parties must notify the Tribunal of any change in their legal representation. The Tribunal can then withhold approval of such change if it could compromise the composition of the Tribunal or finality of the award. This is to prevent parties from obstructing and delaying proceedings by repeatedly appointing new counsel. It is also a device to prevent conflicts of interests. We are not aware of similar provisions in other institutional rules.

B.         PROFESSIONAL CONDUCT GUIDELINES

This is the most discussed feature of the 2014 Rules and is the provision that really sets the LCIA apart from other institutions.  There has been much debate in arbitration circles about whether more should be done to define standards of professional conduct and it was encouraged at the ICCA congress 2010 for arbitral institutions to introduce a code of ethics. The LCIA is, it seems, the first international institution to do so and to authorise the arbitral tribunal to sanction counsel against inappropriate conduct. The sanctions include a written reprimand, a written caution as to future conduct, and “any other measure necessary to fulfil within the arbitration the general duties required of the Arbitral Tribunal…” (Article 18.6).

Despite being an innovative addition to the LCIA Rules, legal representatives are already subject to mandatory laws and professional conduct rules from their own regulatory bodies and as such, these professional conduct guidelines in the 2014 Rules do not necessarily add that much. It will be interesting to see what measures tribunals will take under this new power of “any other measure necessary”. The draft rules of the LCIA contained provision for the tribunal to refer the legal representative to his or her regulatory body, but it was removed from the final 2014 Rules. This seems to suggest that tribunals are unlikely to enforce any significant sanctions.

It is noteworthy that the LCIA has set itself apart from other arbitral institutions by introducing these conduct guidelines but it remains to be seen how they will work in practice and if they are anything more than a talking point to make the LCIA stand out in the world of international arbitration.

C.         EMERGENCY PROCEEDINGS

One of the most common amendments in recent changes to arbitral rules has been that of a mechanism to obtain emergency interim relief. The LCIA Rules already contained provision for the expedited formation of the arbitral tribunal (Article 9A). The 2014 Rules introduce a new mechanism for the appointment of an emergency arbitrator to provide interim relief (Article 9B).

This new provision allows an award of relief before the Tribunal is formed. Without it, parties must go to the courts for such relief. It must be accompanied by a Request/Response, along with a special fee that will form part of the arbitration costs to be apportioned between the parties.

On a successful application, the LCIA Court will appoint the emergency arbitrator within 3 days. The latter will then decide the claim for interim relief within 14 days of his/her appointment, the timeframe for which is 15 days.

The LCIA Rules are the only ones to include both an emergency arbitration procedure for interim relief and for an expedited mechanism for formation of the full tribunal. It will be interesting to see which procedure is used more often and why. An emergency arbitrator may be able to issue decisions more quickly but an expedited formation of the full tribunal will allow for final, as opposed to interim, decisions. This may prove to be more useful, as although the Rules provide that emergency relief can be granted in the form of an award, which should make it easier to enforce interim measures, it is not clear whether national courts will regard them as such for the purposes of enforcement under the New York Convention.

The emergency arbitrator provisions will apply automatically to all arbitration agreements entered into on or after 1 October 2014 unless the parties expressly opt-out.

D.         DRAFTING CONSIDERATION

Parties should consider the inclusion of ‘gap-filling’ provisions. If an arbitration clause or agreement does not provide for certain aspects of the arbitration procedure, the provision within the 2014 Rules will automatically apply. For example, the 2014 Rules provide that where no law is specified in the arbitration agreement, the governing law will default to that of the seat of the arbitration (Article 16.4). This means that parties will be well-advised to expressly profile a governing law for the arbitration agreement, if they do not want to rely on the default law of the seat.

Further, parties will want to consider the wording of any clause providing for adherence to the LCIA Rules and particularly whether or not to opt-out.

Thus careful attention needs to be taken for arbitration provisions such as “agree to the LCIA Rules as in effect on the date of signing this contract” or “agree to the LCIA Rules as in effect on the date of commencement of arbitration”, which are to be treated with caution by parties depending on whether they wish to avail themselves of this option.

E.         GENERAL COMMENTS

Language

Although the new rules are in many ways attractive for international parties, some of the drafting language is open to interpretation. Procedural rules should not be difficult to interpret yet some provisions of the new rules are unnecessarily complex. Take for example, Article 6.3 which governs the nationality of arbitrators: “…A person who is a citizen of two or more States shall be treated as a national of each State; citizens of the European Union shall be treated as nationals of its different Member States and shall not be treated as having the same nationality…” After a close reading, this presumably means that a person with German nationality will not subsequently have European nationality.

Wide Discretion
Arbitrator’s discretion can be an excellent means of dealing with issues that arise in the course of a proceeding, the rationale being effective case management. The 2014 Rules give arbitrators “the widest discretion” in discharging the general duties of the Tribunal – those being “to act fairly and impartially..” and “to adopt procedures suitable to the circumstances of the arbitration avoiding unnecessary delay and expense, so as to provide a fair, efficient and expeditious means for the final resolution…”. Rules cannot cover every imaginable dispute which would make them unnecessarily complicated.  However, granting “the widest discretion” may go too far. The essence of the attractiveness of arbitration over judicial dispute resolution is the parties’ power to maintain some element of choice and control. It will be interesting to see how the limits to arbitral discretion will be interpreted in the context of these new provisions.

F.         FINAL REMARKS

The 2014 Rules address most major issues that affect contemporary arbitration practice and bring the LCIA in line with the latest developments in the world of arbitration. They are designed to improve the efficiency and economy of LCIA arbitration proceedings.

Significantly though, they retain their distinctive characteristics, such as hourly-based fees as opposed to quantum-based fees. This particular rule along with the new rule on costs consequences makes the LCIA an attractive choice for international arbitrations. The 2014 Rules also go further than recent rule amendments of other institutions by being the first to introduce guidelines on the conduct of legal representatives. It nevertheless remains to be seen whether it is of practical relevance as opposed to just for show.

Ultimately, as the outgoing director general of the LCIA remarked, the 2014 Rules represent more of an “evolution not revolution”.[1] Yet the changes introduced should ensure that the LCIA remains a prominent institution of choice for international arbitrations. Whilst separately each rule is not revolutionary, the combination of the 2014 Rules’ focus on efficiency and a focus on the importance of reducing costs, making it an attractive choice for any party considering arbitration.

This being said, the parties remain free, under the 2014 Rules, to decide which substantive law shall apply to the dispute resolution, the seat of the Tribunal, language(s) of the proceedings, bifurcation, expert proceedings and the like, not to minimize the appointment of the arbitrators, counsels and witnesses.

Let us, as a closing statement, express hope that international arbitration centres will continue to also focus on mediation and provide bridges between large arbitration proceedings and mediation as well as promote other settlement devices. What is wrong with an arbitral tribunal suggesting mediation to parties, whilst this is done routinely by judges?

Contact : christian.hausmann@squirepb.com



[1] ‘The LCIA: New rules and new frontiers’, The Lawyer, Kate Beioley 19 March 2014.





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