Should parties provide in their arbitration clause for application of rules of an arbitral institution without corresponding oversight by that institution? In an Emerging Issues Analysis, international arbitrator and business lawyer Paul E. Mason discusses this emerging trend and its potential pitfalls for parties who are seeking to arbitrate their disputes. The author writes:

 

Recently, some parties to business agreements have been contracting for, or petitioning courts for, application of one arbitral institutions set of rules to their arbitration without requesting corresponding oversight by that same arbitral institution. A related scenario has also emerged where parties originally contracting for ad hoc (non-administered) arbitrations are seeking application of the UNCITRAL Rules (http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1976Arbitration_rules.html) along with administration by one of the arbitral institutions.

While sometimes tempting as a way to reduce expenses, experience has shown that this mixing and matching usually winds up costing the client much more in the way of delaying the proceedings, complicating the issues, and running up expenses. This is because issues concerning the proper application of particular arbitral rules, which would normally be resolved by case administrators or internal review bodies of the institutions which issued those rules, wind up being reviewed and decided by courts or other arbitral institutions as a matter of first impression. While these problems can occur in both domestic and international cases, there seem to be more international occurrences, possibly because of the variety of arbitral institution and rule combinations available and the desire to sometimes have national neutrality in the international arena.

Development of Mixing and Matching Trend: Arbitral Institutions Open Door to Administering Arbitrations Under UNCITRAL Rules

Several years ago, in an effort to provide more options for parties and increase their caseloads, some major arbitral institutions took the step of opening their doors to administer cases heard under the UNCITRAL Rules. These Rules were actually designed for ad hoc arbitrations. This helped begin the mixing and matching trend, whereby arbitral institutions found themselves in a position of administering arbitrations using rules other than the ones issued by their own organization. It became clear that certain problems can arise, and delay is likely to result where an arbitral institution is asked to apply and interpret rules which it did not originally create because parties have requested its involvement solely for the purpose of administering the arbitration.

For example, this author participated as counsel in an arbitration over offshore oil exploration between Brazilian and Scandinavian parties which was administered by the London Court of International Arbitration (LCIA), using the UNCITRAL Rules, a standard practice reflected in arbitration clauses in certain oil industry contracts.

That case had a number of thorny administrative matters to be resolved prior to commencement of the arbitration hearings. The most important of these was a challenge to one of the arbitrators based on alleged conflict of interest. The UNCITRAL Rules are quite general and open-ended in nature, leaving large gaps in dealing with these kinds of situations clearly a drawback for parties who engage in non-administered arbitrations should a disagreement of this nature arise. As a result, the LCIA was asked to decide on the challenge during various stages of the proceedings, which delayed the arbitration for over one year due to repeated party motions and objections.

After the door was opened, a number of scenarios arose where parties, either at the time of contract negotiation or subsequently, have adopted a mixing and matching approach to the arbitration of their disputes. Some of these parties have taken it one step further by requesting the application of another institutions rules (as opposed to the UNCITRAL Rules) to the arbitration with administration to be provided by a separate institution.

 

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