UNCLAS SECTION 01 OF 02 UNVIE VIENNA 000533

DEPT FOR IO/T, EB/IFT/ODF AND L/PIL
EMBASSIES FOR ECON/POL

SIPDIS

E.O. 12958: N/A
TAGS: ABUD AORC EAID EINV ETRD KCRM KUNR UNCITRAL AU UN
SUBJECT: WORKING GROUP REFORMS UNICTRAL MODEL ARBITRATION LAW

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SUMMARY
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1. (U) The United Nations Commission on International Trade Law
(UNCITRAL) Working Group II on Arbitration met September 15-19, 2008
in Vienna to continue discussing proposed reforms to the UNCITRAL
model arbitration law. The UNCITRAL Arbitration Rules are
considered one of the most successful UNCITRAL texts, having been
adopted by many arbitration centers and used in many different
instances, for example in investor-State disputes. At its fortieth
session, in 2007, the Commission noted that the UNCITRAL Arbitration
Rules had not been amended since their adoption in 1976 and the
Rules should be modernized to promote greater efficiency in arbitral
proceedings, without altering the original structure and spirit of
the text. The Commission expressed the hope, at its forty-first
session in 2008, that the Working Group would complete the second
reading of its revisions to the UNCITRAL rules and that the revised
rules would be adopted at the forty-second session of the Commission
in July 2009. The Commission also agreed at its last session that
the issue of transparency in investor state dispute resolution as a
desirable objective was a separate topic that should be considered
as a matter of priority after the adoption of the generic revisions
of the UNCITRAL rules. [Note: Further information on this
initiative is available through the UNCITRAL website, at
http://www.uncitral.org.] The U.S. delegation was led by Michael
Dennis from L/PIL.


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Role of Permanent Court of Arbitration
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2. (U) A key issue that arose during the Working Group session was
whether to expand the role of the Permanent Court of Arbitration
(PCA) in arbitrations conducted under the UNCITRAL Rules. Under
Articles 6 & 7 of the existing Rules, when any party fails to
appoint -- or the parties cannot agree upon appointment of -- an

arbitrator, this role is to be performed by an appointing authority,
which may be a person or institution chosen for this role by the
parties. If the parties cannot agree on an appointing authority,
any party may ask the Secretary-General of the PCA to designate one.
It has been said that this two-step procedure of having the PCA
designate an appointing authority that, in turn, appoints one or
more arbitrators is inefficient. Accordingly, at the Working
Session in February 2007, it was proposed that the Rules should
officially designate the Secretary-General of the PCA as the default
appointing authority in any arbitration under the Rules in which the
parties did not otherwise choose an appointing authority. There was
broad opposition to that proposal at the time, including by the U.S.
delegation, on several grounds. It was objected, inter alia, that
the UNCITRAL Rules were meant to be international in scope and this
was not compatible with designation of one institution in Europe to
be responsible for appointing arbitrators from every region in the
world, that the PCA did not have detailed knowledge of arbitrators
in every region (especially inasmuch as the Secretary-General is by
tradition a Dutch diplomat with no particular expertise in
arbitration), and that the delays in the current two-step process
had been minimized by increasing efficiency in the PCA's performance
of its designation role.


3. (U) A number of delegations remain dissatisfied with that result
and sought to revisit the issue during this Working Group session,
arguing that the previous debate had been cut short by time
constraints when discussion of a compromise approach was still under
way. In the debate during the current session, the U.S. opposed
reopening this issue, given that the record of the Working Group's
prior discussion was far more extensive than some delegates admitted
and because the severe time pressures on the Working Group to
complete its revision work by the end of the next Working Group
session in early 2009 left little time for reconsideration of issues
that had been resolved. However, several delegations stated that
they had reassessed their former opposition to expanding the role of
the PCA, and thus the session concluded with an understanding that,
time permitting, the issue could be re-examined at the next Working
Group meeting, once the second reading of the Rules had been
completed.

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Discretion of Appointing Authority to Appoint Substitute Arbitrator
or Establish Truncated Tribunal
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4. (U). Another unresolved issue concerns the discretion of the
appointing authority to appoint substitute arbitrators or establish

UNVIE VIEN 00000533 002 OF 002


a truncated tribunal. Some support was expressed for adopting a
generic approach granting the appointing authority broad discretion
in its decision whether to proceed itself with the replacement of
the arbitrator, or order a truncated tribunal subject to
clarification that such discretion would only exist in exceptional
circumstances. The prevailing view (generally supported by the
USDEL), however, was that a provision allowing an appointing
authority to proceed with the direct appointment of an arbitrator
should not extend beyond the cases of improper conduct and should
remain generic so as to cover all possible instances. It was
further agreed (again with the general support of the USDEL) that a
provision allowing the appointing authority to opt for a truncated
tribunal should include sufficient limitations so as to ensure that
it might only happen in exceptional circumstances, and taking
account of the stage of the proceedings.

5. (U). After extended debate, a number of states suggested that
the new rule might read:
"If, on the application of a party, the appointing authority
determines that the need for replacement of an arbitrator was caused
by improper conduct in circumstances that justify a party's not
having the right to appoint the substitute arbitrator, then the
appointing authority may, after giving an opportunity to the
parties, the arbitrators, and the arbitrator being replaced to
express their views: (a) proceed itself to make the appointment of
the substitute arbitrator; or (b) if the same occurs at the late
stage of the proceedings, authorize the other arbitrators to proceed
with the arbitration and make any decision or award."
The proposal received broad support, but delegations continued to
propose changes to the text. For example, some argued that the
general reference to improper conduct did not clarify whose conduct
was at stake (i.e. the arbitrators only or the parties as well).
Other delegations suggested that a general reference to "exceptional
circumstances" should be added to better qualify the conditions
under which the sanctions might be triggered. It was also stated
that the notion of a "late stage in the proceedings" was ambiguous
for establishing a truncated tribunal and should be replaced with
"closure of the proceedings," consistent with a parallel provision
in the International Chamber of Commerce Arbitration rules.

6. (U). At the close of the debate, the Working Group requested
that the Secretariat provide a revised draft of the proposal for
consideration at a later stage.
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Future Work
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7. (U) The next session of the Working Group will be held February
8-13 in New York. The Working Group will continue with its second
reading of the generic revisions to the UNCITRAL Arbitration Rules.
However, it is not clear that the Working Group will complete the
second reading of the revisions at the next working group session,
given the substantial amount of work that remains. Accordingly, it
is unclear whether the Commission will be in a position to adopt the
revisions to the Rules at its forty-second session.

SCHULTE