The Prague Rules and the IBA Rules: Different Sides, Same Coin
Reported by Rafael Roman T. Cruz, Quisumbing Torres
On 14 December 2018, after 4 years of drafting, the Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) were officially signed in the Martinic Palace in Prague's Old City. During the signing, the speakers, including Vladimir Khvalei, Chairman of the Board of the Russian Arbitration Association, heralded the Prague Rules as the answer of civil law jurisdictions to the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules), which have come under scrutiny for supposedly unduly increasing the complexity and costs associated with arbitration. The purpose of the Prague Rules is apparent from its title: the efficient conduct of proceedings.
The Tribunal is the focus of the Prague Rules. Reflecting the civil law approach, the Prague Rules envision an inquisitorial Tribunal playing a more active role in the conduct of the proceedings. To achieve its aim, the Prague Rules reduce the express limits to or alternatively, increase the powers of the Tribunal in relation to the production of evidence and settling factual issues in the case. In contrast with the IBA Rules, the Prague Rules give the Tribunal more freedom to conduct the proceedings as they see fit and thus seek to eliminate procedures, which contribute to inefficiencies. This article will discuss the differences in the two sets of Rules and the aspects that the parties may consider in making a choice between the two.
Salient Provisions of the Prague Rules vis-à-vis IBA Rules
Case Management Conference
Under Article 3, Prague Rules, the Tribunal is encouraged to take a more proactive role in establishing the facts of the case. Articles 2.1 and 2.2 mandate the Tribunal to hold the case management conference "without any unjustified delay" and in the same, clarify with the parties the reliefs sought and the facts which are disputed and undisputed, and the legal grounds on which the parties base their positions.
Article 2.4, Prague Rules further gives the Tribunal power to be proactive. The Tribunal is allowed to indicate to the parties the facts which it considers undisputed, the evidence which it considers appropriate, and its understanding of the legal positions of the parties. This comes with the caveat that these preliminary views shall not by themselves be considered evidence of impartiality and cannot constitute grounds of disqualification.
That said, these powers are not dissimilar from those provided for under the IBA Rules. Article 2.2, IBA Rules also authorizes the Tribunal to identify issues which it deems relevant to the case and material to its outcome. Whilst not expressly providing this, in identifying the issues pursuant to Article 2.2, the Tribunal may, in a similar manner, indicate to the parties the facts which it considers undisputed and its understanding of the legal positions of the parties including in the way they frame the issues which they regard as relevant and material. Notably, the IBA Rules lack the caveat in the Prague Rules, that such preliminary indications should not be construed as signs of impartiality. That said, the powers which the Tribunal may exercise under the Prague Rules seem to be similarly permissible under the IBA Rules.
Document Production and Discovery
Document production was identified by the Working Group as a factor which can contribute to inefficiency in arbitral proceedings. However, the Prague Rules stop short of proscribing document production. In Article 4.2, the Tribunal is simply encouraged to avoid any form of document production. On the other hand, under Article 3.2, the Tribunal may, after having heard the parties, request any party to submit relevant documentary evidence on its own initiative at any stage of the arbitration. It seems that document production should be encouraged if the Tribunal is satisfied that a document is relevant to the case.
The main difference between the Prague Rules and the IBA Rules is how objections are dealt with. In Articles 3.5-3.7, the IBA Rules list the procedures by which objections are to be dealt with. Further, Article 9 lists the nature of objections that either party may make to the admissibility of documents. In contrast, the Prague Rules do not provide for such a list of the nature of objections, which, when made, may require resolution and delay the proceedings. Thus, rather than disposing of document production altogether, the Prague Rules seem to be aimed at streamlining the process.
Of the four problem or inefficiency areas noted by the Working Group, three relate to witness examination, namely, to fact witnesses, party appointed experts, and the entitlement to cross-examine witnesses. Again, rather than disposing of these altogether, the Prague Rules leave it to the Tribunal to decide on the necessity and weight to be ascribed to witnesses and witness statements.
Under Articles 5.1-5.3, Prague Rules, after hearing from the parties, the Tribunal may take its decision on the witnesses to be called for examination during the hearing. In a similar manner to document production, the Prague Rules grant a wider discretion to the Tribunal to decide matters relating to fact witnesses. The Prague Rules are further less prescriptive in that they do not provide for the required content of witness statements as does Article 4.5, IBA Rules. Further, the Prague Rules do not provide for the possibility of submitting additional or revised witness statements as does Article 4.6, IBA Rules.
The Prague Rules do not prevent a party from cross-examining its opponent's witnesses. Under Article 5.7, Prague Rules, if a party insists on calling the other party’s witness, the Tribunal should call him or her unless there are good reasons not to do so. This is a similar approach to Article 8.1, IBA Rules, where a witness may be requested to appear for purposes of cross-examination. Hence, whilst identified as a possible problem area, whether cross-examination is required is left to the direction and control of the Tribunal.
The Prague Rules also provide for a less extensively regulated procedure for expert witnesses. Article 6.5, Prague Rules shows a preference for Tribunal-appointed experts rather than party-appointed experts. The Tribunal may appoint experts on its own initiative without need of consultation with the Parties. The Prague Rules also do not regulate the contents of expert reports as the IBA Rules do.
Iura Novit Curia ("The Court knows the law")
Amongst the most notable provisions of the Prague Rules is the principle of Iura Novit Curia ("The Court knows the law"). Under Article 7, the Tribunal can apply legal provisions not pleaded by the parties if it finds it necessary, but shall seek the parties' views on these legal provisions. The principle of Iura Novit Curia is a characteristic of civil law systems. There is no similar provision in the IBA Rules.
Balancing Due Process with Efficiency
According to the 2018 Queen Mary International Arbitration Survey, "Due Process Paranoia, the perceived reluctance by tribunals to act decisively in certain situations for fear of the award being challenged on the basis of a party not having had the chance to present its case fully," remains an issue preventing arbitral proceedings from being more efficient. The Prague Rules have sought to address this concern by granting the Tribunal more free rein in conducting the proceedings as it sees fit.
However, there is a need to strike a balance between the rights of the parties and the obligation to bring the proceedings to an end within an expedient and efficient period of time. While the complexity of the IBA Rules has been considered inefficient, the Prague Rules may be applied to deprive the parties of their right to due process.
The Prague Rules make the Tribunal responsible for making decisions related to the conduct of the proceedings. Thus, whether the Prague Rules will achieve its objective of making arbitral proceedings more effective will depend on the ability of the arbitrators to manage the proceedings, rather than the Prague Rules themselves. The Tribunal is left with the task of delicately balancing the desire for expediency with the parties' due process rights. This is especially true in Model Law countries, where Article 19 safeguards due process.
That being said, due process originated in the English common law system. Perhaps, in deference to the civil law tradition, the Prague Rules choose to place more importance on efficiency. There may be a risk that in choosing to apply the Prague Rules, the parties may lose bases to make due process objections.
It may be argued that Iura Novit Curia may jeopardize the award, as the Tribunal will be considering issues that were not presented by the parties. However, in choosing the Prague Rules, the Parties may be considered to have authorized the Tribunal to decide issues not presented to them.
Appetite for Uncertainty
The most important factor in choosing whether to apply the Prague Rules or the IBA Rules will be the parties' appetite for perhaps more uncertainty. Whilst similar in many respects, the Prague Rules grant more power to the Tribunal by limiting the rules that apply to their decisions as discussed above. Hence, parties choosing to arbitrate under the Prague Rules may need to trust the Tribunal's discretion more than parties arbitrating under the IBA Rules.
Further, whilst advocating for minimal disclosure, in removing limitations on the evidence that may be presented, parties may, in fact, be more exposed under the Prague Rules. As a concrete example, the removal of the rules on admissibility in Article 9, IBA Rules means that parties do not have such an express basis to invoke arguments of confidentiality or legal impediment. It is these risks that the parties must balance in choosing whether to apply the Prague Rules or IBA Rules.
At the end of the day, it remains to be seen how efficient the Prague Rules will be. Efficiency, especially from the perspective of dispute resolution, is not easy to measure. Further, efficiency should not be achieved by the complete abdication of due process. Thus it remains to be seen how well Tribunals will manage to balance between these two seemingly conflicting principles.
These being said, neither of the two sets of rules expressly forbid what the other allows. Only the procedures and power of the decision maker are different. In this regard, the two sets of rules may be considered separate sides of the same coin. Due to the international nature of arbitration, it will be interesting to see how the two sets of rules will evolve in practice.