The new LCIA rules

The London Court of International Arbitration ("LCIA") Court has unveiled its new arbitration rules (the "2014 Rules"), which come into force on 1 October 2014 and are to apply to any arbitration commenced after that date.  

Overview of the changes

The LCIA has retained the distinctive character of the institution and rules, whilst modernising its provisions to meet user demand.

Like the revisions to the UNCITRAL Arbitration Rules (in 2010), ICC Arbitration Rules (in 2012) and HKIAC Administered Arbitration Rules (in 2013), the most substantial changes to the current LCIA Rules are those intended to make the LCIA arbitration process less costly and more efficient, for example including an emergency arbitrator provision, whilst other revisions are designed to improve the handling of complex multi-party disputes. A key innovation is an annex of general guidelines on the conduct of party representatives and a power for the arbitral tribunal to impose sanctions for breach of those guidelines. There have been some changes to terminology to modernise the rules (for example, the "chairman" of the arbitral tribunal is now called the "presiding arbitrator").

Further details of the key changes are provided below. We will shortly hold a webinar discussing the implications of the changes to the LCIA Rules on drafting of arbitration clauses.

For further information, please contact Paula Hodges QC, Partner, Vanessa Naish, Professional Support Lawyer, Hannah Ambrose, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

1. Promoting efficient conduct by legal representatives

The most innovative change in the 2014 Rules is the introduction of new powers afforded to the tribunal to sanction legal representatives for poor conduct. Such provisions are not dissimilar to the IBA Guidelines on Party Representation approved in May 2013. Whilst the ICDR Rules which took effect on 1 June 2014 contain a provision which accepts that the ICDR may develop its own conduct rules, the LCIA is the first international arbitration institution to empower the arbitral tribunal to take action against inappropriate counsel conduct by virtue of its procedural rules.

The conduct of the parties' legal representatives is dealt with in an Annex of General Guidelines and Article 18. The Annex is intended to promote the good and equal conduct of the parties' legal representatives within the arbitration proceedings. The tribunal has the power, in the event of a complaint by another party or on its own initiative, to decide (after consulting the parties and granting that legal representative a reasonable opportunity to answer the complaint), to determine that a legal representative has violated these general guidelines and to impose sanctions accordingly. These sanctions are: a written reprimand, a written caution as to future conduct in the arbitration; and "any other measure necessary to maintain the general duties of the arbitral tribunal under Article 14.4(i) and (ii)". Article 14.4(i) and (ii) essentially enshrines the tribunal's duties to act fairly and impartially and to adopt procedures suitable to the circumstances, avoiding delay and expense so as to provide a fair, efficient and expeditious means for the resolution of the dispute.

By virtue of Article 18(5), the parties must ensure that their legal representatives appearing by name before the tribunal have agreed to comply with the Annex as a condition of such representation.

The parties' conduct may also be taken into account in apportioning costs (Article 28.4).

2. Promoting efficient conduct by arbitrators

The 2014 Rules require arbitrators to undertake their duties in a timely, efficient and expeditious manner. The relevant provisions include:

• Arbitrator appointment (Article 5.4).A candidate's initial written declaration must include whether he or she is "ready, willing and able to devote sufficient time, diligence and industry to ensure the expeditious and efficient conduct of the arbitration".
• Revocation of an arbitrator's appointment (Article 10).The basis on which the LCIA Court may revoke an arbitrator's appointment has been expanded: arbitrators must conduct or participate in arbitrations not only with reasonable diligence, but also with reasonable efficiency and industry. In addition, the LCIA Court may now revoke an appointment upon its own initiative, as well as on the application of a party.
• Making of the final award (Article 15.10). The tribunal is to make its final award as soon as reasonably possible following the last submission from the parties, and must set aside adequate time for deliberations as soon as possible after the anticipated date of the last submission. The tribunal is required to notify the parties and the registrar of the timetable for the making of the award and notify the parties of the time is has set aside for its deliberations. However, the 2014 Rules do not empower the LCIA Court to penalise the tribunal for failure to meet its duties under this provision (for example, by way of reducing the fees of the tribunal) – the ultimate sanction would be removal of the tribunal. It is yet to be seen whether the fees of the tribunal may be affected by failure to meet its requirements under Article 15.10 by virtue of the LCIA's assessment of the Arbitration Costs in accordance with the Schedule of Costs.

3. Saving time and costs in LCIA arbitration

The 2014 Rules contain several key procedural changes intended to improve the speed and cost-effectiveness of LCIA arbitration proceedings, in line with the expectations of modern commercial parties. Examples include:

• Shorter timeframes. The time limits in the Rules have generally been brought forward, starting with the Response, which is to be delivered to the Registrar within 28 days of the date of receipt by the Registrar of the Request (newly defined as the "Commencement Date").
• Electronic delivery (Article 4.3). Parties are no longer required to provide paper copies of their filings, provided that the address used for the electronic delivery has been agreed or designated by the receiving party or ordered by the tribunal. It should however be noted that the parties are also required to provide the LCIA with documentary proof of actual delivery.
• Formation of the tribunal not to be impeded by controversy as to the sufficiency of the Request or Response (Article 5.1). The LCIA has clarified that it will not be impeded in forming the tribunal notwithstanding any dispute between the parties as to the sufficiency of the Request or the Response. Formation will allow any such issue to be determined by the tribunal as quickly as possible.
• Making contact after formation of tribunal (Article 14.1). A new provision encourages the parties and the tribunal to make contact as soon as practicable and no later than 21 days from receipt of the Registrar's written notification of the formation of the tribunal.
• Communicating directly with the tribunal (Article 13.1). Following the formation of the tribunal, the new default position is that communications shall take place directly between the tribunal and the parties (copying the Registrar), rather than through the Registrar.
• Electing to have the Response as Statement of Defence (Article 15.3). This option may be attractive to a Respondent in a relatively simple claim in which the Respondent is effectively in a position to serve its Statement of Defence and (if applicable) "Cross-claim" (as explained below) within 28 days of the Commencement Date and wishes to expedite the proceedings as much as possible.
• Expedited appointment of a replacement arbitrator (Article 9C). In addition to the provisions for expedited formation of the tribunal, a corresponding provision has been included to avoid delay in replacing an arbitrator.

4. Dealing with the growing complexity and diversity of disputes

The LCIA's 1998 Rules already contained some mechanisms for dealing with multi-party disputes. In particular, they included rules on equal treatment in connection with the appointment of the tribunal in multi-party disputes and a provision for the joinder of third parties. However, there are revisions to further address the difficult procedural issues that can arise when there are multiple parties to a dispute and/or multiple contracts. Thesedeal with:

• Cross-claims. The 2014 Rules introduce the concept of "cross-claims", which cover not only counter-claims by a respondent against a claimant, but also cross-claims brought between respondents. In particular, a party's statements in its Response must now cover not only any counter-claims against any claimant but also any cross-claims against any respondent.
• Additional directions regarding the submission of written statements (Article 15.6). Although the 2014 Rules cover expressly only the submission of the Statement of Case, the Statement of Defence and the Statement of Reply, the tribunal may provide additional directions as to the written stage of the arbitration, in particular where there are multiple claimants or respondents and where any cross-claim is made between two or more respondents or between two or more claimants.
• Consolidation (Article 22.1(ix) and (x), and Article 22.6). The 2014 Rules contain new provisions enabling consolidation of two or more arbitrations into a single arbitration.
  • The tribunal may order, with the approval of the LCIA Court, the consolidation of the arbitration with one or more other arbitrations where:

(i) all the relevant parties agree in writing; or

(ii) no arbitral tribunal has been formed for the other arbitration(s) (except where any such tribunal is composed of the same arbitrators), and the arbitrations have been commenced under the same or compatible arbitration agreement(s) between the same disputing parties.

• Provided that no arbitral tribunal has been formed, the LCIA Court may determine, after giving the parties a reasonable opportunity to state their views, that two or more arbitrations subject to the LCIA Rules and commenced under the same arbitration agreement between the same disputing parties, are to be consolidated.

5. A new "Emergency Arbitrator" process.

Emergency arbitrator (Article 9B). At any time prior to the formation or expedited formation of the tribunal, a party may apply for the appointment of a temporary sole arbitrator by the LCIA Court to conduct emergency proceedings pending formation of the tribunal. The application is subject to a Special Fee subject to the terms of the LCIA's Schedule of Costs, which Special Fee shall form part of the Arbitration Costs.

On a successful application, the Emergency Arbitrator will be appointed by the LCIA Court within three days (or as soon as possible thereafter) and shall endeavour to decide the claim for emergency relief no later than 14 days following the appointment. Any order or award of the Emergency Arbitrator (apart from any order adjourning to the tribunal, when formed, any part of the claim for emergency relief) may be confirmed, varied, discharged or revoked, in whole or in part, by order or award made by the tribunal upon application by any party or upon its own initiative.

As such an application can only be made after the Request (in the case of an application by the Claimant) or the Response (in the case of an application by the Respondent) has been filed, and must be made on notice, parties may nonetheless be expected to remain reliant on interim relief granted by the courts in certain circumstances – for example, where notice may lead the respondent party to take action to counter the measure sought. The parties' rights to apply to a state court for interim or conservatory relief are preserved in Article 9.12 and Article 25.3. However, any such application made during emergency proceedings must be notified to the Emergency Arbitrator and the other parties.

6. Provisions reflecting aspects of international arbitration practice and other legal developments

The LCIA has taken the opportunity to clarify whether certain steps of international practice are permitted under the rules.

• Consultation with parties on selecting presiding arbitrator (Article 13.5). It is now clear from Article 13.5 that, prior to the tribunal's formation, unless the parties agree otherwise in writing, any arbitrator, candidate or nominee who is required by the arbitration agreement to participate in the selection of the "presiding arbitrator" may consult any party to obtain its views on suitability of any candidate or nominee, provided this consultation is notified to the Registrar. This brings some degree of clarification on the extent to which parties may discuss the characteristics for the presiding arbitrator with their party-appointee. However, there is likely to be some divergence between how different arbitrators approach this provision in practice – for example, it is not clear from the 2014 Rules whether the Registrar would inform the other parties about the consultation, or request a copy of those communications, and if so, whether the Registrar would pass those communications on to other parties.
• The interviewing of witnesses (Article 20.5). The 2014 Rules contain amendments which potentially limit the right of a party or its legal representative to interview a potential witness. Article 20.5 makes such a right subject to "any mandatory provisions of applicable law, rules of law and any order of the tribunal
• Further, the LCIA has addressed an issue which has come before the English courts in recent years – the governing law of the arbitration agreement (Article 16.4). To address the uncertainty where the parties have not agreed the law applicable to the arbitration agreement, Article 16,4 provides that the default law of the arbitration agreement will be the law applicable at the seat of arbitration. This is a significant addition to the rules which may have considerable practical implications for parties.

7. And finally, what they do not contain...

The 2014 Rules do not contain a provision equivalent to Article 6(2) of the ICC Rules 2012, which provides that the parties have accepted that their arbitration shall be administered by the ICC Court.

There is nothing to indicate which of the LCIA Rules is mandatory and whether the parties are able to contract out of any parts thereof.

The 2014 Rules do not expand the potential for joinder of parties, nor do they allow for disputes under multiple related documents containing compatible arbitration agreements to be brought in a single arbitration from the outset.

Conclusion

In summary, the 2014 Rules include many revisions aimed to help cut costs and delays in LCIA arbitration proceedings which should be welcomed by the international business community and accordingly help ensure that the LCIA maintains its position as a popular centre for the resolution of complex international arbitration disputes. The rules on party representation are unique to the LCIA, which is the only major institution to date to give the tribunal power with respect to the conduct of party representatives. The extent to which arbitrators will utilise their powers to sanction counsel remain to be seen.