Published in The Construction Lawyer, Volume 39, Number 1 Winter 2019. © 2019 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Unlike federal or state court litigation, international arbitration proceedings lack explicit and mandatory procedural rules. Instead, both institutional and ad hoc arbitration rules in international arbitration allow the parties to conduct the proceedings in the manner they believe most appropriate. As a result, unless they agree otherwise, parties who select international arbitration as their preferred dispute resolution method are not required to follow a standardized procedural schedule (e.g., complaint, motion to dismiss, summary judgment, etc.), discovery methods (e.g., document production, depositions, interrogatories, initial disclosures), or trial/hearing procedures (e.g., Federal Rules of Evidence).
The absence of default procedural rules for international arbitration is, in part, what makes the process a flexible and attractive dispute resolution mechanism. But that absence also requires parties and tribunals to develop their own best practices, often in a vacuum. To fill this gap, a working group from the International Bar Association’s Arbitration Committee developed the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules), a standardized set of rules developed by international arbitration practitioners from various legal traditions concerning topics such as document production, witness and expert testimony, and the management of evidentiary hearings.1 Since their release in 1999 and subsequent update in 2010, the IBA Rules have become one of, if not the most, commonly accepted set of procedures for the taking of evidence in international arbitrations.2
While the IBA Rules’ popularity in international arbitration speaks to the efficacy of those procedures, much of their success may also stem from the fact that the IBA Rules are, quite simply, the only real game in town. In recent years, however, the IBA Rules have been increasingly criticized, particularly by practitioners from civil law jurisdictions, for ostensibly favoring common law practices that civil law practitioners find distasteful, such as expansive discovery, lengthy legal submissions, and unnecessary party-driven examinations.3 According to these critics, the increasing “Americanization” of international arbitration, in part caused by the growing acceptance of the common law procedures contained in the IBA Rules, has given rise to a variety of problems within modern international arbitration practice and led to more lengthy and costly proceedings.4
While many practitioners in the field of international arbitration find those criticisms misplaced,5 the sentiments of these civil law practitioners were on full display on April 20, 2017, during a panel session of the Fourth Russian Arbitration Association Annual Conference in Moscow entitled “Creeping Americanization of International Arbitration: Is It the Right Time to Develop Inquisitorial Rules of Evidence.”6 There, panelists explained the efforts of a working group focused on the development of an alternative set of standardized rules for international arbitrations to counter the influence of the IBA Rules.7
After more than a year of internal debate and drafts, on December 14, 2018, the working group released the Rules of the Efficient Conduct of Proceedings in International Arbitration, otherwise known as the “Prague Rules.”8 True to their promise, the Prague Rules offer a distinct set of standardized procedures for international arbitration proceedings that are clearly influenced by civil law norms—most prominently the “inquisitorial,” tribunal-driven approach instead of the adversarial, party-driven approach, adopted by common law practitioners.9
The ongoing development and anticipated release of the Prague Rules sparked an intense debate within international arbitration circles concerning the effectiveness of the IBA Rules and other common practices and whether the Prague Rules present a viable alternative. To some, the Prague Rules mark a distinct break from accepted international arbitration norms.10 To others, the Prague Rules accomplish little more than what the IBA Rules already offered.11 While the Prague Rules remain in their infancy, the reality probably lies somewhere between these two poles.
To many within the field of construction law, and particularly those in the United States, the Prague Rules are likely to have limited impact. While the Prague Rules offer an alternative to the IBA Rules, several features of these new rules may be unpalatable to common law practitioners, even those seasoned in the practice of international arbitration.12 The IBA Rules are, therefore, likely to remain the preeminent set of standardized rules for U.S.-based entities that find themselves engaged in international arbitration disputes.
Nevertheless, where U.S.-based firms find themselves operating in civil law jurisdictions, opposed to civil law counsel, or before civil law arbitrators, a party or arbitrator may propose the Prague Rules as a set of standardized procedures. As a result, practitioners within the construction field would be well served to familiarize themselves with the Prague Rules and understand precisely what they could mean for their international arbitration dispute.
This article attempts to introduce the Prague Rules to U.S.-based practitioners, including practitioners operating within the construction field, by highlighting how the Prague Rules compare to procedures that common law practitioners are more familiar with, and what considerations parties should keep in mind when assessing the costs and benefits of applying the Prague Rules to their disputes. This piece consists of three parts. First, this article introduces some of the more commonly accepted practices seen in international arbitrations concerning the taking of evidence, including the practices set out in the IBA Rules. Second, this article compares and contrasts the IBA Rules and the Prague Rules. Third, this article sets out the considerations U.S.-based firms should keep in mind when assessing how the Prague Rules could impact their international arbitration disputes.
Common Norms Used in International Arbitration Proceedings
When parties opt to resolve their dispute through international arbitration, the lack of an explicit set of procedural rules does not mean that parties wade blindly into the proceedings. Instead, certain procedures have become commonplace in international arbitrations. Critically, however, because international arbitration has been influenced by both common law and civil law traditions, these norms are, in some ways, markedly distinct from what U.S. attorneys experience in federal and state court.
Before diving into a lengthy discussion of the Prague Rules, this section briefly sets out some of the norms that parties commonly follow in international arbitrations—most, if not all, of which have been accounted for in the IBA Rules. From there, the potential impact of the Prague Rules on modern international arbitration practice will be clearer.
Document Production and Other Discovery Devices
Although civil law practitioners commonly object to the expansive use of discovery in international arbitration,13 in truth, discovery-related practices in international arbitration are significantly more restrictive than the devices seen in U.S. litigation. Indeed, document production is, practically speaking, the only discovery device that both U.S. litigation and international arbitration proceedings have in common.14 Other discovery tools such as depositions, interrogatories, requests for admissions, and initial disclosures are rarely, if ever, utilized in international arbitrations.
Although standards for document production or “disclosure” (the term more commonly used in international arbitrations) may vary from arbitration to arbitration, the most broadly accepted set of document disclosure procedures is set out in Article 3 of the IBA Rules.15 There, the IBA Rules provide detailed instruction concerning how parties and tribunals should manage the disclosure of three broad document categories: (1) documents upon which a party wishes to rely and are in the party’s possession, (2) documents upon which a party wishes to rely but are in the possession of the opposing party or a third-party, and (3) documents upon which neither party wishes to rely but that the arbitral tribunal believes are relevant and material to the dispute.
For the first category (documents upon which the party in possession wishes to rely), the procedures set forth in the IBA Rules are straightforward and unsurprising. Namely, at the tribunal’s order, the party must disclose all documents that it believes are required to support its case.16
For the second category (documents upon which a party wishes to rely but cannot do so because an opposing party or third-party entity is in possession of the relevant documents), the IBA Rules permit a party to petition the tribunal to order the disclosure of those documents that are “relevant and material” to the party’s case.17 While the procedure for making document requests takes a slightly different form from what is seen in the U.S. courts, the concept should be relatively familiar to U.S. attorneys. Under the IBA Rules, the requesting party first sets out the documents or categories of documents that it wishes the opposing party (or a third party)18 to disclose in accordance with a series of requirements under Article 3.3.19 The opposing party then has the opportunity to object to the requests based on one of seven grounds set out in Article 9.2 of the IBA Rules or for the requesting party’s failure to satisfy the requirements of Article 3.3.20 Typically, these requests are set out in tabular format, rather than separate submissions, in a document that is commonly referred to as a “Redfern Schedule.”21 If, after these exchanges, the parties cannot resolve their differences, the tribunal will subsequently rule on the propriety of the document requests.22
This approach to document disclosure is distinct because the IBA Rules were designed to restrict the scope of document production in international arbitration from what is more commonly experienced in U.S. litigation.23 To do so, the IBA Rules apply the “relevant and material” standard to document requests, meaning that the tribunal cannot order the disclosure of documents unless the requested documents are relevant to a party’s arguments and, more importantly, material to the outcome of the dispute.24 Although recent revisions to the Federal Rules of Civil Procedure narrow the scope of document requests from the “may lead to admissible evidence” standard, the scope of document discovery in U.S. litigation remains more expansive than what IBA Rules would permit.25
For the final document category (documents that the tribunal believes are relevant and material to the dispute but have not been disclosed by either party), Article 3.10 of the IBA Rules permits the tribunal to order the disclosure of these documents on the tribunal’s own volition as long as the documents satisfy the requirements of Article 3.3 (e.g., “relevant and material”) and none of the objections listed in Article 9.2 apply.26 Ultimately, while tribunal-driven document requests are less common, it is a practice that is not unheard of in international arbitrations and is one that few practitioners are likely to have experienced before the U.S. courts.
Fact and Expert Witness Testimony
Fact and expert witness testimony are critical elements to both U.S. litigation and international arbitration, and the procedures used in international arbitrations should be straightforward for most U.S. practitioners. There are, however, two significant differences.
First, direct testimony is most commonly taken in the form of written evidence. While written expert reports are common in U.S. proceedings, the same is not true for fact witnesses.27 Specifically, in international arbitration, fact witnesses regularly present direct evidence in detailed written witness statements, akin to affidavits, well before the arbitration hearing.
Second, although not terribly common in arbitrations where counsel or the tribunal is composed of common law practitioners, tribunal-appointed experts are occasionally utilized in international arbitration proceedings.28 Consistent with the practice seen in civil law proceedings, arbitral tribunals may appoint their own independent experts to conduct a separate assessment of the dispute and advise the tribunal accordingly. In these cases, although the tribunal remains responsible for overseeing tribunal-appointed experts, the parties continue to play a key role in the process.
For example, as set out in Article 6 of the IBA Rules, in cases where a tribunal-appointed expert is utilized, (i) the tribunal must consult with the parties in advance about the use of a tribunal-appointed expert, (ii) the parties reserve the right to object to the proposed expert(s), (iii) the parties must supply and receive any documents that the expert believes are necessary to conduct his or her assessment, (iv) the parties can submit a response to the tribunal-appointed expert’s report, and (v) the parties may examine the tribunal-appointed expert at an evidentiary hearing.
The format of examinations in international arbitration hearings is akin to examinations conducted in the U.S. courts (i.e., direct examination, followed by cross-examination, followed by redirect examination). However, there are a number of practices in international arbitration proceedings that U.S. practitioners may find relatively unusual.
Most prominently, as alluded to above, because fact and expert witness direct testimony is most commonly set out in written witness statements or expert reports, oral direct testimony becomes exceedingly limited, if permitted at all. As a result, most arbitration hearings focus on the cross-examination of witnesses and experts.
While counsel principally conducts examinations in international arbitration proceedings, arbitral tribunals occasionally engage in their own line of questioning during the hearing. In some instances, this process involves a series of questions asked during the course of one party’s examination. In other cases, an arbitral tribunal may reserve time to call a witness, or a pair of opposing witnesses/experts (a technique known as “witness conferencing” or “hot tubbing”), to jointly answer the tribunal’s questions.29
How the Prague Rules Stack Up
The IBA Rules and the Prague Rules offer similar but distinct visions of how international arbitration proceedings should be managed.
On one hand, the IBA Rules already account for many of the Prague Rules’ procedures, a fact that has led some to question the necessity of the Prague Rules in the first place.30 Given that one of the IBA Rules’ express goals was to bridge the gap between common law and civil law traditions, the IBA Rules’ drafters consciously embedded procedures that would be commonplace in civil law proceedings (e.g., tribunal-appointed experts).31 As a result, if so inclined, parties and tribunals operating with the IBA Rules could, in theory, set in place procedures that are substantially similar to those found in the Prague Rules.
The converse, however, is not necessarily the case. Specifically, while the Prague Rules still afford the parties and tribunals some flexibility to shape the arbitral proceedings, the unmistakable intent of the Prague Rules is to provide arbitral procedures developed by civil law practitioners, for civil law practitioners. While nothing in the Prague Rules explicitly delineates this concept, the emphasis and tone of the procedures themselves make clear that the Prague Rules were intended to normalize a set of civil law–friendly procedures in international arbitrations where none previously existed. What this means is that, if the parties agree to apply the Prague Rules, tribunals, especially those composed of civil law practitioners, will undoubtedly manage the proceedings according to civil law practices. Below is a comparison of the IBA Rules and the Prague Rules, highlighting areas of specific note for U.S. practitioners.
Ultimately, international arbitration proceedings operating under the Prague Rules will function differently from what might otherwise be the case under the IBA Rules. On paper, however, the structure and substance of the two sets of rules are similar in multiple respects.
Scope of Application
As an initial matter, Article 1.2 of the Prague Rules permits an arbitral tribunal to apply the Prague Rules “at its own initiative,” a prospect that, at first glance, might appear to cut against the principle of party autonomy and underscore the significant authority the Prague Rules grant to arbitral tribunals. What may come as a surprise, though, is that the IBA Rules contain a similar provision. Specifically, under the heading “Scope of Application,” Article 1.1 of the IBA Rules states that those rules “shall govern the taking of evidence” when either “the Parties have agreed or the Arbitral Tribunal has determined to apply the IBA Rules of Evidence.” As a practical matter, it is highly unlikely that a sophisticated arbitral tribunal would apply either set of rules without the joint consent of the parties. Nevertheless, while Article 1.2 of the Prague Rules could, at first glance, be viewed as novelty, it is, in fact, akin to what already existed under the IBA Rules.
Case Management Conferences
According to Article 2 of the Prague Rules, arbitral tribunals are instructed to host initial case management conferences (a practice common to practically all arbitrations) where the parties are expected to brief the tribunal on the details of their cases. Notably, Article 2 of the Prague Rules goes further and permits the tribunal to issue its “preliminary views” on issues concerning (i) the allocation of the burden of proof, (ii) the specific relief sought, (iii) disputed issues of law and fact, and (iv) the weight of evidence the parties could submit during the course of the arbitration. At first glance, the prospect of permitting a tribunal to offer its preliminary views on certain elements of the dispute before reviewing all of the evidence and submissions might seem premature and inappropriate. But Article 2 of the Prague Rules is relatively similar to Article 2.3 of the IBA Rules, which encourages the arbitral tribunal to identify issues (i) it believes are relevant and material to the outcome of the case or (ii) “for which a preliminary determination would be appropriate.” While arbitral tribunals are likely to apply these two provisions in different manners, in both cases, the Prague Rules and the IBA Rules reflect an effort by the drafters to aid the arbitral tribunal to identify and narrow the disputed issues of a case and promote overall efficiencies.
Under Article 3 of the Prague Rules, arbitral tribunals are instructed to maintain a “proactive role in establishing facts . . . which it considers relevant for the resolution of the dispute.” In particular, under Article 3.2, the Prague Rules emphasize that the tribunal is authorized, on its own initiative, to (i) request parties to submit documentary evidence or make witnesses available, (ii) appoint experts, (iii) order inspections, and (iv) “take any other actions which it deems appropriate.” Again, however, these powers are not dissimilar from the authority the IBA Rules afford arbitral tribunals. For example, as mentioned above, Article 3.10 of the IBA Rules grants the arbitral tribunal the authority to order the production of documents or separately take steps to obtain documents on its own initiative. The same goes for the appointment of experts and ordered inspections under Articles 6 and 7 of the IBA Rules.
The Prague Rules emphasize the tribunal’s authority to restrict the presentation of fact witness testimony it deems unnecessary or unhelpful. Under Article 5.3 of the Prague Rules, the arbitral tribunal has the authority to preclude witness testimony that it believes “irrelevant, immaterial, unreasonably burdensome, duplicative, or for any other reasons not necessary for the resolution of dispute,” a prospect that many could view as overly intrusive. But the concept of affording the tribunal the authority to restrict fact witness testimony is not novel. Article 9.2 of the IBA Rules similarly grants the arbitral tribunal the authority, on its own motion, to exclude witness evidence (whether in the form of written witness statements or oral testimony) if the tribunal concludes that the evidence at issue lacks “sufficient relevance to the case or materiality to its outcome.”
Lastly, although the Prague Rules singularly emphasize the practice of tribunal-appointed experts at the exclusion of party-appointed experts (a significant difference between the two rules as discussed below), both the Prague Rules and the IBA Rules contain substantially similar procedures for the use of tribunal-appointed experts. Indeed, under Article 5 of the Prague Rules and Article 6 of the IBA Rules, if the parties/tribunal elect to utilize a tribunal-appointed expert, the parties will have the opportunity to (i) consult with the tribunal concerning the appointment of the expert, (ii) review all of the materials upon which the tribunal-appointed expert relied, (iii) submit their own expert reports in response to the tribunal-appointed expert’s written conclusions, and (iv) examine/question the tribunal’s expert at an evidentiary hearing.
As alluded to above, the fundamental difference between the IBA Rules and the Prague Rules may not rest in any individual provision or set of rules, but rather the Prague Rules’ intent to create a procedural framework based on civil law traditions and practices. As a result, while the Prague Rules may cover much of the same ground as the IBA Rules, they cater to the interests of civil law practitioners and restrict the ability of tribunals to implement more common law–friendly practices. Below are some of the key ways in which the Prague Rules diverge from the IBA Rules.
Role of the Tribunal
While not stated in any individual provision, the overarching goal of the Prague Rules is to elevate the role of the tribunal from a passive entity to a proactive body that asserts control over nearly every facet of the proceedings (often at the expense of the parties’ ability to control the presentation of their own case). Critically, the IBA Rules afford tribunals the same authority to proactively oversee the arbitration, but in practice, arbitral tribunals operating under the IBA Rules will more commonly defer to the parties to manage the proceedings. As a result, like it or not, if the parties elect to apply the Prague Rules to a specific arbitration, they will almost certainly obtain a materially different type of arbitral tribunal than would otherwise be the case in most international arbitration proceedings.
Fact Finding and Iura Novit Curia
The Prague Rules apply special emphasis on the arbitral tribunal’s duty to actively investigate and independently determine the facts of the case instead of exclusively relying on the submissions and evidence supplied by the parties. Article 3 of the Prague Rules provides that while the parties still maintain responsibility for satisfying their respective burdens of proof, the “arbitral tribunal is entitled and encouraged to take a proactive role in establishing the facts of the case. . . .” As mentioned above, while tribunals operating under the IBA Rules retain similar authority to conduct their own fact-finding investigations,32 the common practice in international arbitrations tends to follow the common law adversarial model. That the Prague Rules include an express provision to encourage tribunals to proactively engage in fact-finding investigations suggests that if a tribunal applies the Prague Rules, the parties can expect that the arbitral tribunal will take a far more robust role in determining the relevant facts of the case for itself.33
Separately, in addition to the arbitral tribunal’s expansive duty to investigate the facts of the dispute, Article 7 of the Prague Rules applies the civil law concept of iura novit curia, which requires the tribunal to find and apply rules of law that it considers appropriate, even if the parties themselves have not raised the specific issues of law in the proceedings. In these cases, the parties are allowed to offer their views on the issues of law that the tribunal independently identified, but much like the Prague Rules’ approach to fact finding, an obligation for a tribunal to independently seek out and apply law upon which neither party has relied is a relatively unique feature of the Prague Rules.
Consistent with civil law practitioners’ general distrust of expansive document disclosure, the Prague Rules provide for a very limited form of document disclosure—one that is even more restrictive than the procedures set out in the IBA Rules. Under Article 4.2 of the Prague Rules, the arbitral tribunal is explicitly discouraged from utilizing “any form of document production, including e-discovery.” If document production is permitted in the arbitration, it must be limited to requests for specific documents.34 Notably this approach differs from Article 3 of the IBA Rules because, although the Prague Rules maintain the “relevant and material” standard, the IBA Rules permit the parties to request both specific documents and categories of documents.35 As discussed below, Article 3 of the Prague Rules therefore presents a problem to parties that cannot identify the precise documents they require and, therefore, can only formulate requests concerning specific categories of documents.
As a general matter, cross-examination is a foreign concept to civil law practitioners.36 As a result, it is not surprising that Article 8.1 of the Prague Rules encourages arbitral tribunals, where possible, to resolve the dispute on a “documents-only basis” in an effort to do away with arbitration hearings and cross-examinations altogether. While Article 8.1 is a recognition that the cost of hosting an arbitration hearing is among the most significant expenses associated with international arbitration, Article 8.1 also stems from the limited value civil law practitioners place on hearings and cross-examinations.
Where the parties and the tribunal agree that examination should take place, Article 5 of the Prague Rules makes clear that examinations of fact witnesses will be conducted “under the direction and control of the arbitral tribunal” and not the parties.37 As a result, in addition to the right to determine whether or not a witness should be called to testify at all (as explained above), the Prague Rules make clear that the tribunal can decide items such as “setting the order of examination of witnesses, time limits on examination or the types of questions to be allowed or hold witness conferences, as it deems appropriate.”38 While time limits, witness conferencing, and even limitations on the scope of questioning may be relatively common in international arbitrations, many practitioners will probably view a tribunal’s effort to control the order of witnesses as a step too far, given that the order of witnesses is commonly viewed as a strategic decision left to the parties’ counsel.
Interestingly, the procedures outlined under Article 5 of the Prague Rules only appear to apply to examinations of fact witnesses. As a result, there appears to be an omission concerning the examination of expert witnesses (though, practically speaking, there is little doubt that the examination of expert witnesses will likely follow the same procedures outlined in Article 5). Instead, the Prague Rules only briefly address expert examination procedures by acknowledging that (i) party-appointed and tribunal-appointed experts who submit expert reports will be called for examination and (ii) those experts may be required to conference and prepare joint expert reports.39
As explained above, the Prague Rules afford the arbitral tribunal significant authority to control how parties present fact witness testimony in the arbitration, including the right to exclude witnesses when the tribunal believes those witnesses will not be helpful or relevant to the dispute.40 Importantly, though, even if the tribunal determines that a fact witness should not appear at an evidentiary hearing, Article 5.4 of the Prague Rules still affords parties the right to submit a witness statement for the excluded witness. This could be relevant in cases where a witness’s testimony may be necessary to meet the party’s burden of proof, but the facts upon which the witness testifies are not controversial. Moreover, if a party insists on calling a witness whose statement has been submitted by opposing counsel, the Prague Rules make clear that the arbitral tribunal should generally permit the party to call the witness to testify at the hearing.41
Ironically, in some ways, the Prague Rules’ treatment of fact witnesses falls in line with practices that U.S. attorneys will be more familiar with. For example, under Article 5.1, the Prague Rules account for the need of the parties to provide advanced notice of the potential witnesses they intend to call, along with the scope of the witness’s testimony and why the testimony is relevant and material to the dispute. In this way, the Prague Rules approach is not entirely dissimilar from a party’s pretrial disclosure obligations under Rule 26(a)(3) of the Federal Rules of Civil Procedure, although Article 5.1 of the Prague Rules suggests that parties should make these disclosures fairly early on in the proceedings.
Unlike the IBA Rules, which afford the parties and tribunals the opportunity to exclusively utilize party-appointed experts to resolve the dispute (the common practice in most international arbitrations), under the Prague Rules, if expert evidence is required, the parties/tribunal are required to utilize tribunal-appointed experts.42 Indeed, while the Prague Rules’ procedures concerning the use of tribunal-appointed experts broadly mimic the procedures concerning tribunal-appointed experts in the IBA Rules, there is simply no mechanism in the Prague Rules that would permit an arbitral tribunal to decide the dispute without a tribunal-appointed expert.
Among the most unique provisions contained in the Prague Rules is Article 9, titled “Assistance in Amicable Settlement.” Absent an objection from either party, Article 9 of the Prague Rules affords any member of the arbitral tribunal the ability to assist the parties to reach an amicable settlement.43 While it would be hardly out of the ordinary for a U.S. judge to recommend that parties try to settle a dispute and even order the parties to engage in mediation, Article 9 of the Prague Rules goes one step further and permits a tribunal member to actually serve as a mediator.44 As a result, if the parties elect to mediate the dispute with a member of the tribunal, that member may receive confidential ex parte information from the parties that could impact the tribunal member’s impartiality in the event settlement fails. The Prague Rules recognize the risk that failed settlement proceedings could compromise the neutrality of the arbitrator/mediator and permit the parties to object to the arbitrator/mediator’s continued participation on the tribunal;45 however, doing so will inevitably require the appointment of a new tribunal member, which, in turn, will necessarily cause delays and increased costs as the new tribunal member familiarizes himself or herself with the pending dispute.
Implications of the Prague Rules
Given the Prague Rules’ divergence from several common practices of international arbitration (particularly those with which common-law practitioners will be more comfortable), it seems unlikely that U.S. counsel or parties will jump at the chance to apply the Prague Rules. Nevertheless, in cases where the Prague Rules are proposed or could influence the proceedings, there are a number of ways in which these new rules could indirectly impact the international arbitration. Below are a few considerations.
In the event the parties have already determined that the Prague Rules will apply to their dispute (e.g., pursuant to a contract provision), special care should be applied when selecting a tribunal. For example, the selection of a civil law practitioner as a party-appointed arbitrator or chair would be an obvious choice in the event the parties intend for the proceedings to follow a civil law framework. On the other hand, the appointment of a common law practitioner could help blunt the influence the Prague Rules might have on the arbitration.
Separately, given that the Prague Rules expect the arbitral tribunal to proactively engage in the proceedings from the very early stages of the arbitration, parties must seriously consider the specific qualities of the arbitrators. Indeed, not only will parties require a tribunal of experienced arbitrators who understand the nuances of international arbitration, a special emphasis should be placed on those individuals’ leadership qualities and substantive expertise in the subject matter of the dispute. For example, that the Prague Rules require the tribunal to proactively collect relevant facts and law means that the arbitral tribunal, and particularly the chair, must be well organized to serve as both an adjudicative and investigative body—a role that tribunals rarely serve. Separately, the arbitrators’ expertise in the subject matter of the dispute is even more significant under the Prague Rules. Specifically, without a substantive background in the area of the dispute (e.g., construction), a tribunal may not be able to efficiently discharge its responsibility to effectively issue “preliminary views” on initial matters or investigate and identify relevant facts and law.
Perhaps most importantly, though, the emphasis on a proactive tribunal under the Prague Rules means that tribunal members must spend more time and effort engaged in the dispute. As a result, in arbitrations where the Prague Rules will apply, the parties and/or tribunal members must consider whether the arbitrators have the availability to actually manage a proceeding under the Prague Rules. In fact, it would be entirely foreseeable for certain arbitrators to decline appointments where the parties have agreed to apply the Prague Rules in advance. Given the increased time and effort required to oversee a dispute under the Prague Rules, as compared to a dispute governed by more common procedural rules, such as the IBA Rules, it may be more financially advantageous for an arbitrator to decline an appointment in an arbitration using the Prague Rules in favor of another, less time-intensive, arbitration.
The Prague Rules have been premised, in part, on the theory that a more proactive tribunal will increase cost savings and improve overall efficiency, a goal shared by practically every user of international arbitration. However, whether that actually proves to be the case for complex international arbitrations is debatable.
The Prague Rules could actually increase costs and delays because they create additional procedural steps in the arbitration. For example, in cases where the parties wish to present fact witnesses, those parties must first convince the panel that the witness testimony is relevant and material to the dispute and that the tribunal should not preclude those witnesses’ testimony from the hearing. Additionally, where expert testimony is required, the parties must engage in the additional step of reviewing potential expert candidates to become a tribunal-appointed expert, pay for the fees of the tribunal-appointed expert, and also select their own party-appointed expert to ensure the party can adequately address any conclusions that the tribunal-appointed expert gets wrong. The additional steps that the Prague Rules impose, although developed with the overarching goal of improving efficiencies, could accomplish the opposite.
Separately, depending on the arbitrator compensation structure, the Prague Rules could increase the cost of compensating the tribunal members for their time. While arbitral rules such as the ICC Rules of Arbitration assess arbitrator compensation according to the amount in controversy and complexity of the dispute, other arbitration rules like the ICDR’s or LCIA’s arbitration rules compensate arbitrators according to an hourly rate.46 Under the Prague Rules, where a tribunal must proactively engage with the dispute, independently investigate issues of fact and law, and oversee independent experts, the added time necessary to do so will inevitably increase the costs of the arbitrators’ services.
Given the Prague Rules’ emphasis on limiting document disclosure, fact witness and expert testimony, and preference for documentary evidence, the Prague Rules may be better suited for international arbitrations that center around disputes of law. In high-value, complex cases, where issues of fact are key elements of the dispute and extensive fact witness testimony or document disclosure could be required, the Prague Rules may be poorly suited to address the needs of the parties.
For example, Article 4.5 of the Prague Rules only permits parties to request the production of a specific document. However, parties are commonly unable to identify specific documents that they require to prove their case and are therefore only capable of describing categories of documents in their document requests. Under those circumstances, the Prague Rules fail to assist parties to establish facts that might be critical to their case/defense. As a result, before applying the Prague Rules, parties should consider whether the Prague Rules actually contain the procedural mechanisms that the parties need to resolve the dispute.
Risk of Less Accurate Decisions
The Prague Rules ostensibly place a high value on controlling costs and delays by restricting the discovery tools commonly used in international arbitration proceedings and granting the arbitral tribunal greater control over the presentation and collection of evidence. Those limitations, however, are not without risk.
In theory, limiting the use of discovery or permitting the arbitrators to determine the issues and evidence they believe are relevant may lower overall costs and delays. However, doing so may also cause arbitral tribunals to issue suboptimal awards. Indeed, while sophisticated arbitrators should undoubtedly be able to ascertain the issues and facts that they believe are relevant to the proceedings, the restrictions imposed by the Prague Rules on the parties’ ability to present their case may prohibit those arbitrators from considering evidence and nuances that they would not otherwise be aware of or appreciate.
To many, arbitral tribunals should allow parties to present every piece of evidence and argument that those parties consider relevant, notwithstanding the risk of increased costs. Doing so, in theory, ensures that the arbitral tribunal has everything it needs to make a fair and just decision. The drafters of the Prague Rules, however, made the calculated decision that the benefits associated with practice described above are not worth the cost. Instead, to the drafters of the Prague Rules, the risk that an arbitral tribunal will issue an incorrectly decided award based on incomplete evidence is less costly than the added expense of allowing parties to engage in broader discovery and argument.
In this respect, the Prague Rules raise a more fundamental question (one that is not unfamiliar to U.S. practitioners) about how to determine when the volume of evidence and argument submitted in a case is too much. That the drafters of the Prague Rules have elected to apply more restrictive procedures is a value choice that comes with inherent risks and benefits. As a result, if faced with a decision of whether to apply the Prague Rules, the parties must decide (i) how much value they place on the risk that an arbitral tribunal could reach the wrong decision based on incomplete facts and (ii) whether the value of that risk is greater than the cost of engaging in more expansive discovery, examinations, argument, etc. that would be utilized in an arbitration not governed by the Prague Rules.
Set Aside, Vacatur, Enforcement Risks
The parties’ right to decide how best to resolve a dispute is at the core of international arbitration, and, therefore, should the parties elect to apply the Prague Rules to their dispute, the tribunal’s efforts to faithfully apply those procedures should naturally be respected by the local courts where a party may challenge an award.
However, parties should be keenly aware of the law of the jurisdictions in which a potential award might be challenged. Indeed, if the arbitration is seated in a common law jurisdiction or the award is likely to be enforced before common law courts, it is possible that some local courts could view a proceeding under the Prague Rules with a degree of skepticism. The same might even be true for civil law jurisdictions whose local courts are familiar with modern international arbitration practices. Importantly, while set-aside and enforcement challenges are intended to be exceptional cases, an arbitral tribunal’s willingness to interfere with the parties’ ability to put on their case/defenses could be viewed, by at least some courts, as an infringement on a party’s due process rights.47 In those cases, the local courts could very well set aside or refuse enforcement of the arbitral award.
This is not to say that the Prague Rules will necessarily violate due process or that the Prague Rules inherently run afoul of the New York Convention. However, it is conceivable, especially given how relatively new the Prague Rules are, that a local court could view a tribunal’s actions, even if sanctioned by the Prague Rules, as a step too far.
The Prague Rules are unlikely to become a regularly accepted set of procedural rules for U.S. and other common law practitioners in international arbitrations. Instead, although the Prague Rules remain in their infancy, one might expect for these new procedural rules to be more commonly used in arbitration proceedings between parties/counsels/arbitrators with civil law backgrounds. Even in cases where the parties’ backgrounds are a mix of common and civil law traditions, it is difficult to envision a scenario where the Prague Rules will unseat the IBA Rules as the most common set of procedural standards for international arbitrations.
That said, credit should be given to the drafters of the Prague Rules for their effort to develop a set of procedural rules that civil law practitioners feel are better suited to settle international arbitration disputes. At a high level, the Prague Rules should be viewed as part of the ongoing evolution of international arbitration and an effort by users of the dispute resolution mechanism to improve the process and ensure international arbitration remains an efficient and cost-effective method of dispute resolution.
1 Int’l Bar Ass’n, IBA Rules on the Taking of Evidence in International Arbitration (May 29, 2010) [hereinafter IBA Rules].
2 White & Case LLP, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration 3, 35 (2015), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2015_International_
Arbitration_Survey.pdf; see also White & Case LLP, 2018 International Arbitration Survey: The Evolution of International Arbitration 36 (2018), http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey—-The-Evolution-of-International-Arbitration-(2).PDF.
3 See Draft Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) 2 (Sept. 1, 2018), https://praguerules.com/upload/medialibrary/b2e/b2e26123ac310b644b26d4cd11dc67d8.pdf [hereinafter Draft Prague Rules] (“However, from a civil law perspective, the IBA Rules are still close to common law traditions . . . .”); see also Artem Doudko & Olena Golovtchouk, Introducing the Young Contender—The Prague Rules, 4 Russian Arb. Ass’n Arbitration.ru 15 (2018); Andrey Panov, Why the Prague Rules May Be Needed?, 4 Russian Arb. Ass’n Arbitration.ru 19 (2018); Vladimir Khvalel, The Prague Rules—Spirit and Scope of Application, 4 Russian Arb. Ass’n Arbitration.ru 22 (2018); Duarte Gorjāo Henriques, The Prague Rules: Competitor, Alternative or Addition to the IBA Rules on the Taking of Evidence in International Arbitration, 36 ASA Bull . 351 (2018).
4 Draft Prague Rules, supra note 3, at 2 (“However, from a civil law perspective, the IBA Rules are still close to common law traditions . . . .”); Doudko & Golovtchouk, supra note 3; Panov, supra note 3; Khvalel, supra note 3; Henriques, supra note 3; see also Lawrence W. Newman & David Zaslowsky, The Russians Are Coming, and They Want to Change How We Conduct International Arbitration, N.Y.L.J., May 23, 2018.
5 See generally George M. von Mehren & Alana C. Jochum, Is International Arbitration Becoming Too American, 2 Global Bus. L. Rev. 47 (2011); see also Newman & Zaslowsky, supra note 4.
6 Is It Time for a Change?, Prague Rules (Apr. 20, 2017), https://praguerules.com/news/is-it-time-for-a-change-/; see also Henriques, supra note 3, at 351.
7 Is It Time for a Change?, supra note 6.
8 Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) (Dec. 2018), https://praguerules.com/upload/medialibrary/9dc/9dc31ba7799e26473d92961d926948c9.pdf [hereinafter Prague Rules].
9 Readers should note, however, that many commentators have criticized the Prague Rules on the grounds that they are not even truly representative of civil law practices and, instead, are more reflective of norms utilized by practitioners from Russian and former Soviet states. Michal Kocur, Why Lawyers from Civil Law Jurisdictions Do Not Need the Prague Rules, Kluwer Arb. Blog (Aug. 19, 2018), http://arbitrationblog.kluwerarbitration.com/2018/08/19/why-lawyers-from-civil-law-jurisdictions-do-not-need-the-praguerules/; Michael McIlwrath, The Prague Rules: The Real Cultural War Isn’t Over Civil vs Common Law, Kluwer Arb. Blog (Dec. 12, 2018), http://arbitrationblog.kluwerarbitration.com/2018/12/12/theprague-rules-the-real-cultural-war-isnt-over-civil-vs-common-law/; Newman & Zaslowsky, supra note 4.
10 Doudko & Golovtchouk, supra note 3; Panov, supra note 3; Khvalel, supra note 3; Henriques, supra note 34.
11 Guilherme Rizzo Amaral, Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills—Part I, Kluwer Arb. Blog (July 5, 2018), http://arbitrationblog.kluwerarbitration.com/2018/07/05/prague-rules-v-iba-rules-taking-evidence-international-arbitration-tilting-windmills-part/; Guilherme Rizzo Amaral, Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills—Part II, Kluwer Arb. Blog (July 6, 2018), http://arbitrationblog.kluwerarbitration.com/2018/07/06/prague-rules-v-iba-rules-taking-evidence-international-arbitrationtilting-windmills-part-ii/; see also Kocur, supra note 9; McIlwrath, supra note 9.
12 The Prague Rules on the Taking of Evidence, The “Civil War” in the “Common Law” World of Arbitration, Jones Day (Nov. 13, 2018), https://www.jonesday.com/the-prague-rules-on-the-takingof-evidence-the-civil-war-in-the-common-law-world-of-arbitration/.
13 See generally Doudko & Golovtchouk, supra note 3; Panov, supra note 3; Khvalel, supra note 3.
14 The only potential exception to this statement is that inspections are not unheard of in international arbitrations. See, e.g., IBA Rules art. 7. Separately, in cases where the parties are both represented by U.S. counsel, depositions are sometimes, though not always, used.
15 See generally id. at art. 3; 1999 IBA Work ing Part y & 2010 IBA Rules of Evidence Review Subcomm., Commentary on the Revised Text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration 6–14 (2010), https://www.ibanet.org/Document/Default.aspx?DocumentUid=DD240932-0E08-40D4-9866-309A635487C0 [hereinafter Commentary on 2010 IBA Rules].
16 IBA Rules art. 3.1; Commentary on 2010 IBA Rules, supra note 15, at 6–7.
17 IBA Rules art 3.2–3.3; Commentary on 2010 IBA Rules, supra note 15, at 7–11.
18 In cases where a third party is in possession of the relevant documents, the requesting party may petition the tribunal to grant the party leave to obtain the documents in accordance with the laws of the seat of the arbitration. IBA Rules art. 3.9.
19 Id. at arts. 3.2–3.3.
20 Id. at art. 3.5.
21 For more information on Redfern Schedules, and the document disclosure process in international arbitrations, see Albert Jan van den Berg, Organizing an International Arbitration: Practice Pointers, in The Leading Arbitrators’ Guide to International Arbitration 415 (3d ed. 2014).
22 IBA Rules arts. 3.6–3.7.
23 Commentary on 2010 IBA Rules, supra note 15, at 7–8.
24 IBA Rules art. 3.3(b).
25 Fed. R. Civ. P. 26(b)(1).
26 IBA Rules art. 3.10.
27 See, e.g., John Fellas, Preparing Witness Statements in International Arbitration Proceedings, N.Y.L.J., Oct. 18, 2017.
28 See, e.g., IBA Rules art. 6.
29 See Himlar Raeschke-Kessler, Witness Conferencing, in The Leading Arbitrators’ Guide to International Arbitration, supra note 21, at 689.
30 Amaral, Part I, supra note 11; Amaral, Part II, supra note 11; see also Kocur, supra note 9; McIlwrath, supra note 9.
31 See, e.g., IBA Rules, forward; see generally Commentary on 2010 IBA Rules, supra note 15.
32 See, e.g., IBA Rules arts. 3.10, 4.10.
33 Prague Rules art. 3.1.
34 Id. at art. 4.5.
35 IBA Rules art. 3(a)(ii).
36 Philippe Pinsolle, Cross-Examination of Fact Witnesses: The Civil Law Perspective, Global Arb. Rev.: Guide to Advocacy—Second Edition (2017), https://globalarbitrationreview.com/chapter/1147751/cross-examination-of-fact-witnesses-the-civil-law-perspective.
37 Prague Rules art. 5.9.
39 Id. at arts. 6.6, 6.7.
40 Id. at art. 5.3.
41 Id. at art. 5.7.
42 Compare IBA Rules arts. 5, 6, with Prague Rules art. 6.
43 Prague Rules art. 9.1.
44 Id. at art. 9.2.
45 Id. at art. 9.3.
46 Int’l Centre for Dispute Resolution, International Dispute Resolution Procedures art. 35.2 (June 1, 2014); London Court of Int’l Arbitration, Schedule of LCIA Arbitration Costs art. 2(i) (Oct. 1, 2014).
47 Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V(1)(b), June 10, 1958, 21 U.S.T. 2517.
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