The Prague Rules and the IBA Rules on Taking of Evidence in International Arbitration: Friends or Foes?

I. Background

Historically, arbitration has been regarded as a flexible, efficient and cost-effective means to resolve international disputes.[1] However, the White & Case and Queen Mary University of London 2018 International Arbitration Survey concluded that high cost and lack of speed now rank as the first and fourth worst characteristics, respectively, of international arbitration. [2] Thus, while international arbitration was once renowned for swift proceedings at low costs, which made arbitration the most viable alternative to litigation before state courts, these features have now become arbitration’s main disadvantages. [3]

Improving the evidence taking and procedure control of international arbitration will be crucial to increase its efficiency. Traditionally, the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) [4] have gained wide acceptance within the international arbitration community as a mechanism to bridge the gap between the common law and civil law traditions of taking evidence. Nonetheless, a rival to the IBA rules has recently arisen in the form of the Rules on the Efficient Conduct of Proceedings in International Arbitration (the “Prague Rules”) [5], which has incited much controversy.

The working group of the Prague Rules has criticized the fact that the IBA Rules are still closer to common law traditions for taking evidence and follow a more adversarial approach regarding document production, fact witnesses, party-appointed experts and cross-examination, which causes inefficiency. The Prague Rules intend to create an inquisitorial model of procedure and facilitate more active role of arbitral tribunals to increase the efficiency of international arbitration. [6] Furthermore, they provide alternative techniques to enhance efficiency and embrace flexibility, while bestowing arbitrators with strong case management powers to heal due process paranoia. [7] However, some practitioners argue that the causes of inefficiency do not arise from common law features, but rather from the lack of robust case management. Therefore, the active role of arbitral tribunals in the Prague Rules is unlikely to increase the speed or decrease the cost of arbitration, and will, most likely, result in a lower quality of arbitral awards. [8]

“The Prague Rules are the newcomers in arbitration; and they entered the ballroom with noise.”[9] Before coming to any premature conclusion on the influence of the Prague Rules on the usage of the IBA Rules and international arbitration practice, it will be necessary to identify where precisely the rules differ.

II. The Major Comparisons between the Prague Rules and the IBA Rules

Article 2 of the Prague Rules specifies that the arbitral tribunal’s role in case management conferences will be more proactive. Its responsibilities will include clarifying with the parties disputed and undisputed facts, the legal grounds, and the burden of proof, and sharing preliminary views with the parties.By contrast, the consultation process in article 2 of the IBA Rules focuses more on evidentiary matters, including witness statements, expert reports, oral testimony and the production of documents. Article 2 of the IBA Rules also emphasizes the importance of efficiency and encourages the arbitral tribunal to identify any issues that it considers relevant to the case and material to the outcome.[10]

Regarding documentary evidence, article 3 and article 4 of the Prague Rules set up the default rule that the arbitral tribunal has the power to request parties to produce documentary evidence, and the extensive production of documents should be avoided, including any form of e-discovery. [11] Still, the articles reserve any party’s right to request arbitral tribunals to order another party to produce specific documents. However, the article 3 of the IBA Rules specifies that any party may submit a request to produce directly to the other party and the arbitral tribunal. If the other party has an objection, the arbitral tribunal has the final say to resolve that dispute. Article 3.10 of the IBA rules also gives arbitral tribunals the power to request parties to produce documents.

With respect to fact witnesses, article 5 of the Prague Rules states that arbitral tribunal has the power to decide which witness is to be called for examination, and it may decide not to call the witness for examination if it considers the testimony of the witness to be unnecessary for the resolution of the dispute, or if the witness statement has already been submitted. Article 5 also does not stipulate an unconditional cross-examination approach for fact witnesses. Instead, the examination is subject to the direction of the arbitral tribunal. On the contrary, article 4 of the IBA rules requires the fact witness to appear for testimony at the evidence hearing. Otherwise, such witness’s statement shall be the disregard if such witness has no valid reason for absence.

For experts, article 6 of the Prague Rules formulates the default rule that arbitral tribunal will first appoint the expert, but the appointment will not preclude a party from submitting reports by its own appointed expert. Without mentioning the priority, Article 5 and article 6 of the IBA Rules state that both party-appointed experts and tribunal-appointed experts are permissible. [12]

Article 7 of the Prague Rules contains a noteworthy principle called Iura novit curia, which allows the arbitral tribunal to apply legal provisions not pleaded by the parties if it finds it necessary, including but not limited to public policy rules. In so doing, the arbitral tribunal shall seek the parties’ views on the legal provisions it intends to apply. The IBA Rules do not have any such principle.

Regarding hearings, article 8 of the Prague Rules encourages the arbitral tribunal to resolve the dispute on a document-only basis and organize the hearing in the most cost-efficient manner. Conversely, article 8 of the IBA Rules specifies that the witness requested should appear for testimony as well as for the direct and cross-examination process, unless the arbitral tribunal allows the use of videoconferencing or similar technology. Also, article 8.2 of the IBA Rules emphasizes that arbitral tribunal shall have complete control over the hearing. In addition, article 9 of the Prague Rules encourages the arbitral tribunal to assist in amicable settlement of dispute at any stage of the proceedings, including by acting as a mediator. This is not stipulated in the IBA Rules.

Notwithstanding the above comparisons, there are many similarities between the Prague Rules and the IBA Rules. [13] However, significant differences still exist. The mindset of the Prague Rules is to strengthen the proactive role and general power of the arbitral tribunal throughout the proceedings in a more inquisitorial manner[14], such as (1) control case management conference generally; (2) request production of documents and avoid extensive production of documents; (3) decide which witness is to be called for examination and subject the examination to the direction of arbitral tribunal rather than regular cross-examination; (4) apply legal provisions not pleaded by the parties under certain conditions; (5) first appoint the expert; (6) resolve the dispute on a document-only basis; (7) assist in amicable settlement of dispute.

Although the IBA rules reserve many characteristics of common law system, they still embrace some approaches of civil law system and emphasize the arbitral tribunal’s complete control over the hearing. The rules and procedures that commonly apply today in international arbitration reflect a mixture of common law and civil law norms; nonetheless, the system appears to be evolving more in a common law direction.[15] Actually, the reason for such circumstance is not due to the IBA Rules themselves, but the practitioners who use the IBA Rules in a more common law approach. This has become the mainstream approach in proceeding with international arbitration, given the fact that the world’s largest law firms engaged in representing parties in international arbitration proceedings tend to be Anglo-American law firms that follow the common law tradition. [16]

However, international arbitration may suffer if arbitrators become overly cautious to allow parties unlimited opportunities to present their cases, instead of trying to proactively manage the cases from the beginning. This reluctance may decrease efficiency. [17] Therefore, the controversy between the Prague Rules and the IBA Rules is not just about the competition between the common law and civil law system, or the inquisitorial and adversarial approach. The controversy also involves striking a balance between party autonomy and the arbitral tribunal’s power to enhance the efficiency of international arbitration. This efficiency issue depends on how the arbitrators choose to apply above rules and how they otherwise conduct the proceedings. [18]

III. The Influence of the Prague Rules on the Usage of the IBA Rules and International Arbitration Practice

The advent of Prague Rules is meaningful. It reminds the parties that there are different ways to structure their arbitration and there is no golden standard of one-size-fits-all kind of approach. [19] The Prague Rules have also compelled arbitration practitioners and academics to reflect on whether their usage of the IBA Rules has fallen into the trap of the common law adversarial approach, characterized by passive arbitral tribunals and due process paranoia. Thus, arbitration practitioners should avoid assuming that particular procedures under IBA Rules should be applied to all cases regardless of the individual circumstances. [20] Although party autonomy is the cornerstone of arbitration, the arbitral tribunal must not become a captive of the parties’ will and accept every bargain that it is presented with. [21] By choosing the arbitration, the parties have chosen to yield their powers to the arbitral tribunal, and they have authorized it to resolve their dispute as appropriate.

The Prague Rules provide some inspirations for international arbitration practice. When the arbitral tribunal first decides which document is necessary and requests parties to submit relevant evidence, no time-consuming and expensive pre-trial investigation and document production is needed.[22] When arbitral tribunal rather than parties examine the witnesses, the costs and time of preparation and coaching of witnesses would be saved. If the arbitral tribunal first appoints the expert, as long as neither party shows objections to the qualification of the expert, the arbitral tribunal can follow the expert opinion and no time and cost related to party-appointed expert will occur. [23] Finally, if the parties can amicably settle the dispute through a process such as mediation, this would substantially enhance efficiency for international arbitration.  

Granted, the Prague Rules will not be appropriate for every case. Their application should depend on specific factors, such as the amount in dispute and complexity of the case. Meanwhile, it sets a high standard for arbitrators to get familiar with the case materials as soon as possible and the tribunal’s front-load costs for parties may increase due to tribunal’s more devotion to proceedings. [24] The Prague Rules would adopt a more paternalistic or authoritarian approach with which the drafters, most of them from Central and Eastern Europe may be comfortable, but others may not. [25]

Whether the proactivity of the arbitral tribunal would violate party autonomy and affect the quality of arbitral award is also a cause of concern. Some practitioners may refuse to accept that under the Prague Rules the arbitral tribunal is allowed to not to call the witness for examination during the hearing but only rely on written witness statements, without giving the other party the opportunity to question the witness during examination. [26] In addition, the Prague Rules allow the arbitral tribunal to apply legal provisions not pleaded by the parties under certain conditions, which is controversial. Although many countries recognize that arbitral tribunals have the inherent power to investigate and apply legal provisions not invoked by the parties, some national courts may annul such award. [27] Furthermore, when the arbitrators disregard an express choice of law clause, it is possible that courts may set aside or refuse recognition of the award. [28]

IV. Conclusion

The Prague Rules are not the foes of the IBA Rules and they are not intended to replace the IBA rules but to supplement them. [29] The Prague Rules play a fundamental role in giving the parties more options with a tailor-made process to fit their interests and needs. More options in international arbitration is, of course, a way to promote its use. [30] The Prague Rules were formally released on 14 December 2018. It remains to be seen to what extent they will become popular. [31]

The Prague Rules are also thought-provoking. Should the current international arbitration practice under IBA Rules be a standard approach for all cases? Does the civil law approach represented by the Prague Rules contribute to the efficiency? Where to strike the balance between party autonomy and the arbitral tribunal’s power? These questions deserve serious reflections from each arbitration practitioner and academic. Also, “there is much to gain from a joint effort of arbitration practitioners and academics from different cultural and legal backgrounds, as long as their shared goal is to put all their might at the service of a more reliable, legitimate and cost-effective international arbitration.”[32]

Charles Tian

Charles Tian is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at the NYU School of Law. Before coming to NYU, Charles had practiced law in Shanghai for almost four years, focusing on domestic and foreign-related arbitration and litigation.

[1] Inka Hanefeld & Aaron de Jong, Inherent Powers to Streamline the Proceedings, in INHERENT POWER OF ARBITRATORS 247, 247 (Franco Ferrari & Friedrich RosenfeldInka, eds., 2018).

[2] White & Case LLP and Queen Mary University of London 2018 International Arbitration Survey: The Evolution of International Arbitration (9 May 2018), https://www.whitecase.com/sites/whitecase/files/files/download/publications/qmul-international-arbitration-survey-2018-18.pdf.

[3] Klaus Peter Berger & J. Ole Jensen, Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators, 32 Arbitration International 415, 415–416 (2016).

[4] Rules on the Taking of Evidence in International Arbitration (29 May 2010),
https://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx.

[5] Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules)(Draft, 1 September 2018), http://praguerules.com/upload/medialibrary/b2e/b2e26123ac310b644b26d4cd11dc67d8.pdf. (Official, 14 December 2018), https://praguerules.com/upload/medialibrary/9dc/9dc31ba7799e26473d92961d926948c9.pdf.

[6] Id.

[7] See Andrey Panov, Why the Prague Rules may be needed?, Practical Law Arbitration Blog (11 October 2018), http://arbitrationblog.practicallaw.com/why-the-prague-rules-may-be-needed/.

[8] See Michal Kocur, Why Lawyers from Civil Law Jurisdictions Do Not Need the Prague Rules, Kluwer Arbitration Blog (19 August 2018), http://arbitrationblog.kluwerarbitration.com/2018/08/19/why-lawyers-from-civil-law-jurisdictions-do-not-need-the-prague-rules/.

[9] Paula Costa e Silva, Arbitration, Jurisdiction and Culture: Apropos the Rules of Prague, Kluwer Arbitration Blog (16 July 2018), http://arbitrationblog.kluwerarbitration.com/2018/07/16/arbitration-jurisdiction-culture-apropos-rules-prague-part/.

[10] See Guilherme Rizzo Amaral, Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills, Kluwer Arbitration Blog (5 July 2018),
http:///2018/07/06/prague-rules-v-iba-rules-taking-evidence-international-arbitration-tilting-windmills-part-ii/.

[11] Id.

[12] Id.

[13] Id.

[14] See Duarte G. Henriques, The Prague Rules: Competitor, Alternative or Addition to the IBA Rules on the Taking of Evidence in International Arbitration? 36 ASA Bulletin 351, 354 (2018).

[15] Javier Rubinstein, Reflections at the Crossroads of the Common Law and Civil Law Traditions, 5 Chicago Journal of International Law 303, 303 (2004).

[16] Andreas Respondek, How Civil Law Principles Could Help to Make International Arbitration Proceedings More Time and Cost Effective, Singapore Law Gazette (February 2017),
http://www.praguerules.com/upload/iblock/af3/af3352da3709e3340951a38dfe8d7f61.pdf.

[17] See Alexandre Khrapoutski & Andrey Panov, The Prague Rules – an alternative way of conducting international arbitration? (September 2018), http://praguerules.com/upload/iblock/142/142ae6cc924c6a2ac7959fa335ca7ad1.pdf.

[18] Michael McIlwrath, The Prague Rules: The Real Cultural War Isn’t Over Civil vs Common Law, Kluwer Arbitration Blog (12 December 2018), http://arbitrationblog.kluwerarbitration.com/2018/12/12/the-prague-rules-the-real-cultural-war-isnt-over-civil-vs-common-law/.

[19]  Khrapoutski & Panov, supra note 17.

[20] Peter Rees QC, Arbitration, elastic or arthritic? Asian Dispute Review (July 2017), https://www.harbourlitigationfunding.com/wp-content/uploads/2017/07/Peter-Rees-ADR_July2017.pdf.

[21] Henriques, supra note 14, at 353.

[22] Respondek, supra note 16.

[23] Respondek, supra note 16.

[24] Craig Tevendale, Are the Prague rules the answer?, Global Arbitration Review (7 January 2019), https://globalarbitrationreview.com/article/1178803/are-the-prague-rules-the-answer.

[25] Lawrence W. Newman & David Zaslowsky, The Russians Are Coming, and They Want to Change How We Conduct International Arbitration, New York Law Journal (23 May 2018), https://www.law.com/newyorklawjournal/2018/05/23/the-russians-are-coming-and-they-want-to-change-how-we-conduct-international-arbitration/.

[26] Kocur, supra note 8.

[27] Henriques, supra note 14, at 359.

[28] Linda Silberman & Franco Ferrari, Getting to the Law Applicable to the Merits in International Arbitration and the Consequences of Getting it Wrong, in CONFLICT OF LAWS IN INTERNATIONAL COMMERCIAL ARBITRATION 257, 312 (Franco Ferrari & Stefan Kröll, eds., 2019).

[29] Vladimir Khvalei, The Prague rules – dispelling misconceptions, Global Arbitration Review (22 November 2018), https://globalarbitrationreview.com/article/1177181/the-prague-rules-%E2%80%93-dispelling-misconceptions.

[30] Henriques, supra note 14, at 355.

[31] Khrapoutski & Panov, supra note 17.

[32] Amaral, supra note 10.

The Center for Transnational Litigation and Commercial Law aims at the advancement of the study and practice of international business transactions and the way to solve related disputes either through litigation or arbitration. As commercial transactions become increasingly international, it is vital to the legal and business communities to understand and analyze the practices and legal principles that govern relationships between firms and between firms and consumers in the international arena