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Asia Pacific – Changes To The LCIA Arbitration Rules: Fundamental, Or Just Functional?

6 November, 2014

 

 

Another year, another update to a major set of arbitration rules: following significant updates to various major arbitral procedural rules (HKIAC, SIAC, CIETAC, ICC and UNCITRAL), the LCIA has now joined the club and introduced its New 2014 Arbitration Rules.


Are the new LCIA Arbitration Rules a transformation from its predecessor, or simply a long overdue update of the old rules which remain fundamentally in-tact? A combination, it appears. These Rules are designed to implement practices that are already seen as common in contemporary arbitration practice, but also contain certain provisions which are arguably more advanced (and perhaps controversial) than its counterpart institutional rules.


Background To Implementation Of The Rules


In 2010 UNCITRAL and SIAC gave pace to the current wave of reform by introducing significant changes to their rulebooks. In 2012 it was the turn of CIETAC and the ICC, and in 2013 SIAC (again) and HKIAC. Now 2014 has seen the LCIA become the latest international arbitral institution to join the reforming trend: its new arbitration rules came into effect on 1 October and will apply to arbitrations commencing on or after that date.


This marks the culmination of a fairly protracted process of review, which involved the publication of initial and revised drafts of the rules (in March 2013 and February 2014 respectively) before a definitive text was agreed. The new rules were drafted by a sub-committee of three – V V Veeder QC (a Vice-President of the LCIA Court and barrister at Essex Court Chambers), James Castello (a Partner in the Paris office of King & Spalding) and Professor Boris Karabelnikov (an academic at the Moscow School of Social and Economic Sciences). They were also subject to final consideration by the LCIA Court in May 2014 before subsequent promulgation in final form in July.


While not changing the character of LCIA arbitrations or the essential structure of the rules, the changes are comprehensive and, some would say, overdue: this is the first overhaul of the LCIA Arbitration Rules since 1998. For this reason some of the new rules are no doubt familiar to many readers: provisions allowing for the appointment of an emergency arbitrator and the consolidation of arbitrations, for example, have become established in recent years as standard elements of the typical institutional rulebook. The factors driving the changes adopted by the LCIA – the need to speed up proceedings, increase their efficiency, reduce their cost and bring LCIA arbitrations into line with current arbitral practice – will likewise be familiar: they have become the oft-cited rationale for the majority of recent amendments to institutional arbitration rules.


Yet the LCIA is not simply playing catch-up. Just as the new rules differ significantly from the 1998 Rules, there is much in them that marks them out as distinct from the rules of the international arbitral institutions with which the LCIA competes. Those aspects of the LCIA Arbitration Rules which have historically made them distinct – such as the mechanism for the expedited appointment of a Tribunal – have been retained (Article 9A). More significantly, certain new provisions – most notably those relating to changes to, and the conduct of, parties’ legal representatives – are genuinely novel additions to the LCIA’s offering. This article summarises the key features of the new provisions relating to legal representation and considers their likely impact on future arbitrations.


Legal Representation: The Way Things Were


The new provisions in the LCIA Arbitration Rules relating to legal representation merit the greatest scrutiny as they are without equivalent in the rulebooks of other major arbitral institutions. The key provisions – namely Articles 18.1-18.6 and the Annex – also differ markedly from their forerunners in the 1998 version. 


The 1998 provisions (18.1-18.2) simply acknowledged the right of any party to be represented by legal practitioners or other representatives and recognised the right of the Arbitral Tribunal to require proof from any party of the authority granted to its representatives. These elements have now been bolstered considerably by provisions which are intended to promote far greater transparency regarding parties’ legal representation and discourage any misconduct on the part of parties’ legal representatives capable of having a detrimental effect on arbitral proceedings.


Changes To Legal Representation: The Parties’ Obligation Of Disclosure And The Arbitral Tribunal’s New Power Of Veto


A party can now be required to provide ”written confirmation of the names and addresses of all such party’s legal representatives in the arbitration” either by the Registrar (before the formation of the Arbitral Tribunal) or by the Arbitral Tribunal itself (Article 18.2). From the moment the Arbitral Tribunal is formed there is an obligation on each party to provide written confirmation of any intended change or addition to its legal representatives to all other parties, the Arbitral Tribunal and the Registrar (Article 18.3). This requirement is clearly intended to provide for maximum transparency as between the parties, the Arbitral Tribunal and the LCIA as the administering institution with the intention of addressing all potential conflicts of interest at an early stage of the proceedings. 


Interestingly, the Arbitral Tribunal has a new right of veto over any change to a party’s legal representation, although two safeguards hardwired into Article 18.4 considerably restrict the circumstances in which the veto can be exercised. 


The first is the fact that the Arbitral Tribunal’s power of veto can only be exercised in two specific circumstances, namely ”where such change or addition could compromise the composition of the Arbitral Tribunal or the finality of any award (on the grounds of possible conflict or other like impediment)”. 


The second is a requirement for the Arbitral Tribunal to think pragmatically when considering whether or not to withhold approval: ”the Arbitral Tribunal shall have regard to the circumstances, including: the general principle that a party may be represented by a legal representative chosen by that party, the stage which the arbitration has reached, the efficiency resulting from maintaining the composition of the Arbitral Tribunal (as constituted throughout the arbitration) and any likely wasted costs or loss of time resulting from such change or addition”. This is clearly intended to reassure parties who might otherwise have been concerned at the prospect ofan Arbitral Tribunal wielding its power of veto without reference to the broader context of the arbitration.


This new power of veto will hopefully promote greater certainty and save costs by reducing the likelihood of an untimely change to legal representation jeopardising – or at least delaying – the conduct and progress of LCIA arbitrations. That there is a need for institutional arbitration rules to be responsive to the risk that late changes to counsel might create unanticipated conflicts is not in doubt. It has been clear for some time (as a result of cases like Hrvatska Elektroprivreda v Slovenia) that there will inevitably arise situations (e.g. where counsel and a member of the arbitral tribunal come from the same barristers’ chambers) in which the possible bias that might result from allowing certain legal representatives to appear before an Arbitral Tribunal will need to be considered. It therefore follows that the parties to arbitral proceedings should enjoy a degree of certainty from their outset that any such situation will be dealt with in a particular way. 


Conduct Of Legal Representatives: New Guidelines And Sanctions


The new provisions which seek to impose minimum standards of professional conduct on parties’ legal representatives – namely Articles 18.5 and 18.6 – are perhaps the most radical additions to the LCIA Arbitration Rules. 


Article 18.5 stipulates that “[e]ach party shall ensure that all its legal representatives appearing by name before the Arbitral Tribunal have agreed to comply with the general guidelines contained in the Annex to the LCIA Rules, as a condition of such representation”. And although its scope is more limited than the version found in the revised draft – it relates not to ”all” legal representatives of a particular party but rather only those “appearing by name before the Arbitral Tribunal” – it has been given teeth by a provision to the effect that, by permitting any legal representative to appear before the Arbitral Tribunal, “a party shall thereby represent that the legal representative has agreed to such compliance”.


Should any breach of the guidelines by a party’s legal representative be suspected, Article 18.6 provides a mechanism for the Arbitral Tribunal (either on its own initiative or following a complaint by another party) to decide “whether or not the legal representative has violated the general guidelines”, in which event a discretionary power of the Arbitral Tribunal to impose sanctions against the relevant legal representative would be triggered. 


So what of the new guidelines themselves set out in a seven-paragraph Annex? Rather than seeking to introduce a detailed professional code to level the playing field between arbitration lawyers subject to different national regulatory frameworks and different ethical standards, they seek to promote “good and equal conduct” and specifically prohibit some of the most egregious – and, one would hope, rare – forms of professional misconduct. These include the making of false statements, the knowing preparation of or reliance upon false evidence, the knowing concealment of documents and the initiation of unilateral contact with the Arbitral Tribunal or LCIA Court.


Conclusion


Most of the changes to the LCIA Arbitration Rules now in force should not be regarded as transformative. As other commentators have noted, the LCIA has to a large extent been engaged in a process of benchmarking over the last few years, updating its offering to include those features that arbitral (read market) practice has made essential. Yet in deciding to address the issue of professional conduct head on, the LCIA has shown a willingness to depart from current trends – and possibly a desire to set new ones. To continue the marketing metaphor, a new USP has been found. 


It remains to be seen whether LCIA arbitrations increase in popularity as a result of the changes; but the new rules may well find a niche as a perceived safe option for companies entering into agreements that carry a heightened risk of future arbitration involving parties from jurisdictions with developing legal regulatory frameworks and uncertain standards of professional conduct.

 

This article was supplied by Sheila Ahuja and Oliver Gregory, Allen & Overy

 

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