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New dawn for international arbitration

New dawn for international arbitration

Non-institutional international arbitration is now more appealing following recent changes to UNCITRAL Arbitration Rules, write Allens Arthur Robinson's Stephen McComish and Sam Luttrell.The…

Non-institutional international arbitration is now more appealing following recent changes to UNCITRAL Arbitration Rules, write Allens Arthur Robinson's Stephen McComish and Sam Luttrell.

The release this month of updated arbitration rules by the United Nations Commission on International Trade Law significantly changes the landscape for ad hoc international arbitrations, particularly in multi-party contexts, and reinvigorates the competitiveness of this option for resolving cross-border disputes.

For companies engaged in cross-border transactions in our region, the updated rules should increase the attractiveness of ad hoc - or non-institutional - arbitration as an alternative to institutional arbitration. Legal and commercial advisers to these companies should be less wary of the UNCITRAL system of ad hoc arbitration as a means for resolving cross-border disputes.

Where there is a real need for complete confidentiality and bespoke procedures for resolving a dispute, the new UNCITRAL Rules may offer the ideal starting point. These changes come at a crucial time for ad hoc arbitration in its battle to retain a foothold against institutional arbitration.

To be more competitive in the buoyant market for cross-border dispute resolution services, a number of international arbitration institutions operating within our region, such as the Singapore International Arbitration Centre and the Australian Centre for International Commercial Arbitration, have recently changed their rules, fee structure and administrative processes, and established new and impressive facilities.

In comparison, the option for ad hoc arbitration has been lost in all the noise of these developments and the UNCITRAL Rules, which have been in play since 1976, were looking antiquated and deficient in certain areas. However, with the release of the updated UNCITRAL Rules companies and states engaged in cross-border transactions in our region now have as an alternative to institutional arbitration an improved system of ad hoc arbitration worthy of serious consideration for resolving their disputes.

There is no doubting the positive influence the UNCITRAL Rules have had on international arbitration. It has been the benchmark for procedures in ad hoc international arbitrations involving states and they have often been incorporated in dispute resolution clauses of cross-border contracts and investment treaties (including many signed by Australia).

The UNCITRAL Rules have also been adapted and used in the context of proceedings before 'hybrid' international tribunals, such as the Iran-United States Claims Tribunal and tribunals convened under the auspices of the World Bank.

"It will be interesting to see whether the updated rules cross-pollinate the rules of international arbitration institutions within our region, as their predecessor did."

However, the Rules were put to the test on a number of occasions and holes were exposed. These holes were often filled by arbitrators adopting practices from jurisdictions with which they were familiar, sometimes resulting in less than ideal outcomes. Other more fundamental aspects of the Rules, such as the right to appoint an arbitrator, proved even more problematic.

For example, in the Pertamina case, which related to government measures affecting foreign-held Indonesian geothermal energy assets, it was not clear whether both the Republic of Indonesia and its utility had a right to appoint an arbitrator. Subsequent arguments delayed proceedings and exposed the award to challenge at the enforcement stage.

If the Pertamina case was managed under the updated rules, there would be no issue - if the host state and its utility could not agree on a single arbitrator, an appointing authority designated by the Permanent Court of Arbitration (PCA) at The Hague would appoint one for them. In situations where this default appointment is made, and the claimant has the arbitrator of its choice but the respondents do not, the updated rules now empower the appointing authority to revoke earlier appointments and constitute the tribunal in full.

Another gap in the old UNCITRAL Rules was the lack of regulation for establishing the basis upon which the arbitrators would charge for their services and be reimbursed for their expenses. There was also no review mechanism for these costs.

These issues have now been addressed. However, it still remains the case that while ad hoc arbitration can be an overall cheaper option than institutional arbitration, the scale-based regulation of fees is an attractive aspect of institutional arbitration for those needing to manage the budget associated with resolving a dispute. While the new rules do not provide a scale, they do bind the arbitrators to a fee proposal which they are obliged to make at the outset of the proceedings.

The new rules also give broader powers to the arbitrators to grant interim measures of protection, such as injunctions. The conditions that must be satisfied for granting these measures are also clarified.

More broadly, the updated UNCITRAL Rules will ensure the continued renaissance of the PCA as an international dispute resolution institution. From the formation of the PCA in 1899 to the settlement of the first UNCITRAL Rules in 1976, the case load of the PCA was very low, so much so that it was at times said to be 'almost dormant'. However, more recently, especially since the late 20th century proliferation of investment treaties containing investor-state dispute resolution clauses referring to the UNCITRAL Rules, the role of the PCA as the appointing authority saw the institution reinvigorated and having a regular role as a venue proper.

The updated rules should enhance the growth opportunities for the PCA. As mentioned above, they improve the default appointment functions of the PCA and expand its powers in certain areas, such as the review of arbitrator fees and expenses where they are 'manifestly excessive'.

The first UNCITRAL Rules played an important role in developing the law and practice of international dispute resolution. It will be interesting to see whether the updated rules cross-pollinate the rules of international arbitration institutions within our region, as their predecessor did.

Stephen McCormish is a partner, and Sam Luttrell is a lawyer, at Allens Arthur Robinson

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