Prague Rules Launched, But Jury Still Out On Usability

Guilherme Amaral
Law360
18/01/2019

The Prague Rules provide a procedural framework to help parties and arbitrators more efficiently conduct proceedings in international arbitration, but the civil law flavor of the rules has raised some eyebrows.

Here, Law360 takes a closer look at some of the Prague Rules’ more controversial provisions.

Following nearly four years of work, the Prague Rules were launched during a ceremony in Prague in December and are now available for parties and arbitral tribunals to incorporate into arbitrations.

The goal of the Prague Rules is to offer parties a way to increase the efficiency of arbitration by encouraging tribunals to take a more active role in managing the proceedings — a practice that’s traditionally followed in many civil law countries. It’s intended to offer a more civil law-oriented alternative to the International Bar Association’s Rules on the Taking of Evidence in International Arbitration, a commonly used set of rules that is sometimes criticized for being more oriented toward the common law tradition, which can tend to make proceedings lengthier.

“The idea behind this was to provide the parties with more options,” said Andrey Panov, a senior associate with Norton Rose Fulbright and member of the Prague Rules working group, who helped to draft and finalize the rules.

Arbitrations conducted under a common law style may incorporate more extensive document production in the discovery phase. Hearings in those proceedings, too, are often more lengthy than an arbitration conducted closer to a civil law style.

The effect of having a more common law-oriented proceeding is that arbitrations can become prolonged and expensive affairs. Civil law is practiced in numerous countries across the globe, while common law is practiced in the U.S., most of Canada and the U.K., Australia and a smattering of other countries.

Still, whether the Prague Rules will ever become as popular as the IBA Rules on the Taking of Evidence remains to be seen.

“The problem with the Prague Rules is this original sin — their conception is based on a revolt of civil law against common law,” said Guilherme Amaral of Souto Correa Cesa Lummertz & Amaral Advogados, noting that the goal of international arbitration is to act as a universal language of dispute resolution. “If you want rules inspired by the civil law tradition, you don’t need soft law. You need civil law arbitrators.”

Soft law refers to quasi-legal instruments that do not have a binding effect.

And, indeed, the civil law flavor of the Prague Rules has raised some eyebrows among those whose legal backgrounds more closely align with the common law tradition. Here’s an overview of the rules and a rundown of several of its more controversial provisions.

Overview

The Prague Rules can be adopted as a binding document or as guidelines to all or any part of an arbitration, and parties can opt to exclude the application of any part of the Prague Rules if they choose. Provisions within the rules can also be modified to account for particular circumstances, according to the rules’ preamble.

In general, the Prague Rules are meant to give the tribunal the tools to take a more hands-on approach to a proceeding at an early stage, and to allow the arbitrators to closely consider from the outset of a proceeding whether they can give directions that will make it cheaper and easier for everyone involved to reach an outcome.

That can be advantageous for less experienced tribunals that might be inclined to take a more passive role, according to Osborne Clarke LLP’s Artem Doudko, a member of the Prague Rules working group.

“Having the Prague Rules will enable arbitrators who are not as effective on their own to be more proactive,” he said. “A weaker tribunal may be hesitant to express its views unless it has a piece of soft law to refer to, such as the Prague Rules.”

For example, in Article 3, the rules state that the tribunal is “entitled and encouraged” to take a proactive role in establishing the facts of the case that it considers relevant to resolving the dispute — meaning that the tribunal can appoint its own experts and request that the parties submit certain relevant documentary evidence or make witnesses available for testimony.

Document Production

The rules allow the tribunal to limit document production, and, somewhat drastically, they encourage both the tribunal and the parties to avoid any form of document production, though they do allow parties to request certain documents if necessary.

“I think that’s a radical approach which many will not have seen, and it takes a bit of getting used to,” said Herbert Smith Freehills LLP’s Craig Tevendale, who heads the firm’s international arbitration group in London. “It’s not going to be appropriate in every case.”

The provision stands in contrast to the approach taken in the IBA Rules, which start with a presumption that some form of document production will take place and remain silent on the possibility of no document production, according to Doudko.

The Prague Rules approach to document production reflects the more civil law-oriented approach, which generally limits document production by requiring parties to be quite specific in their requests. In the Prague Rules, parties may tell the tribunal at the outset of a proceeding that they intend to request certain documents from the other party, but they’d need to convince the tribunal of the need to do so.

“The downside is that the case can generally develop as it goes on, and if you ask for documents before the case is really set out … the risk is that you are not really asking for what is important,” Tevendale said.

Separately, the rules also urge the tribunal and the parties to try to resolve the dispute on a documents-only basis, without a hearing. It’s an approach that’s likewise attracted criticism, since it’s often only at the hearing that weaknesses regarding a party’s arguments are exposed and it’s possible to form a clear view that one version of what’s happened is more compelling than the rival version, according to Tevendale.

Arbitrators as Mediators

The Prague Rules include a provision stating that, unless one party objects, the tribunal may help the parties to reach an amicable settlement of their dispute at any stage of the arbitration. More particularly, the rules allow any member of the tribunal to take the role of a mediator.

If the mediation is unsuccessful, that tribunal member can then either reassume his or her role as an arbitrator, as long as both parties consent, or step down from the tribunal.

It’s an approach familiar to those in places outside of the Western arbitration tradition. But there are problems with either scenario that stem from the key differences between arbitration and mediation, according to Doudko. Since the mediator’s role is to actively try to foster an agreement between the parties, he or she is likely going to become privy to certain confidential information they would probably not have learned as an arbitrator.

“Potentially the mediator has confidential information from both sides that he or she has been asked not to share with the other party. Then he or she is asked to participate as an arbitrator — how does [that person] switch off the knowledge that he or she has obtained as a mediator?” he said.

And even if the arbitrator does step down after acting as a mediator, the problem then becomes what happens in the arbitration. If it was originally a tribunal of three arbitrators, that could potentially leave only the other two arbitrators to continue on their own, or another arbitrator would have to be brought on.

If it was a solo arbitrator, meanwhile, a new arbitrator would have to be brought on, costing the parties time in finding a suitable replacement, according to Doudko.

Other Controversial Provisions

The Prague Rules include a provision stipulating that the tribunal decides which witnesses will be called after hearing from the parties — meaning the tribunal can nix the appearance of witnesses whose testimony it finds will be immaterial or duplicative.

That’s controversial among those trained in the common law tradition, who are accustomed to calling any witnesses they want, but the idea behind the rule was to try to limit procedural abuse, such as when a party brings in 10 witnesses to testify on the same issue, according to Panov.

“We wanted to give tribunals a weapon to fight against those abuses,” he said.

The rules also allow the tribunal to apply legal provisions not raised by the parties, a premise generally rejected within common law systems. But Panov explained that the provision also stipulates that the tribunal “shall seek the parties’ views on the legal provisions it intends to apply,” and won’t be able to make a decision on the basis of provisions not raised by the parties without giving them a chance to respond.