Meeting of UNCITRAL Working Group on Arbitration -Revision

UNCLAS SECTION 01 OF 02 UNVIE VIENNA 000454

DEPT FOR L/PIL, L/CID, L/EB
EMBASSIES FOR ECON/POL

SIPDIS

E.O. 12958: N/A
TAGS: AORC EINV ETRD UNCITRAL AU UN

SUBJECT: Meeting of UNCITRAL Working Group on Arbitration -Revision
of the UNCITRAL Arbitration Rules

Ref: USUN 0194


1. (U) Summary. The UN Commission on International Trade Law
(UNCITRAL) Working Group II (on Arbitration) continues its revision
of the 1976 UNCITRAL Arbitration Rules. The Working Group (WG),
which had completed a second reading of Articles 1-26 at prior
sessions, met in Vienna September 14-18, 2009, and continued the
second reading, reaching Article 40 (there are 41 articles in the
existing Rules),but unresolved issues remain. The WG agreed to
retain the majority rule for decision-making by three-arbitrator
tribunals. It also retained the characterization of awards as
"final and binding." It determined that accepting arbitration under
the Rules constitutes a waiver of rights of appeal, review or
recourse regarding an award except for applications for set-aside,
and, in this connection, the Report of the working session stated
that this provision would not implicate a party's right to raise
grounds for non-enforcement of an award pursuant to the New York
Convention. It was agreed that, where parties fail to designate the
applicable substantive law, the tribunal may apply the law that it
determines to be appropriate. Language remains to be worked out
relating to default (failure to submit a statement of claim); waiver
of the right to object to non-compliance with the Rules or the
arbitration agreement; and a new possibility of seeking an award
after issuance of a termination order. A number of unresolved
issues also remain relating to costs. The WG will convene again in
February with the goal of completing a text for referral to the
UNCITRAL Commission for consideration at its annual meeting next
summer. End summary.


2. (U) The WG was attended by representatives of UNCITRAL member
states and other UN member states as well as observers from a number
of governmental or private organizations. The U.S. delegation
included a representative of the Legal Adviser's Office and two
private advisers.

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Issues Resolved...
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3. (U) Three principal issues were resolved by the WG in this
session.


4. (U) Decision-making by the tribunal (Article 31): The issue was
whether to retain the existing rule, whereby when there are three
arbitrators, decisions must be made by a majority. The proposed
alternatives were variants of the rule that has been adopted by a
number of arbitral institutions (e.g., the ICC and LCIA),whereby if
the arbitrators cannot reach a majority, the decision shall be made
by the presiding arbitrator alone. Differing views were expressed
regarding the frequency with which such situations arise; the
incentives that either formula would provide to arbitrators to reach
agreement; the credibility of awards under each approach; and the
risk of a presiding arbitrator acting arbitrarily. There were
numerous proponents of the approach of providing for a decision by
the presiding arbitrator where there was no majority, but also
significant support (including from the U.S.) for keeping the
majority rule. As the Chair did not find general consensus in favor
of change, the existing rule was retained. It was emphasized,
however, that in cases where the arbitrators are having difficulty
reaching a majority, the parties have the ability to agree to give
the decision-making authority to the presiding arbitrator, or to
choose some other method of deciding.


5. (U) Form and effect of an award (Article 32): There were two
main issues here. The first was whether to retain language stating
that awards are "final and binding." It was suggested that the
meaning of "final" was ambiguous, and that different types of awards
(e.g., interim, partial) might not have the same "final and binding"
character. In response, it was observed that "final and binding"
was found in many arbitration rules and had not created problems in
practice. It was decided to retain that phrase, as the U.S.
delegation favored. The second issue concerned how to express the
concept that parties, in accepting arbitration under the Rules,
thereby waive certain rights of appeal, review or recourse regarding
an award. Language to that effect was agreed that expressly
excludes from the waiver applications for setting aside an award.
It was also understood in the WG that such waiver does not encompass
actions to resist recognition or enforcement of an award, for
example on the basis of the grounds set forth in the New York
Convention.


6. (U) Applicable law (Article 33): The question was what the
default choice of law rule should be for the tribunal to apply where

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the parties fail to designate the applicable law governing the
substance of the dispute: (1) the law with which the case has the
closest connection, or (2) the law that the tribunal determines to
be appropriate. There was broad support for the latter, as it was
seen as desirable to give the tribunal flexibility in this regard,
and the second alternative was adopted.

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...But Unresolved
Issues Remain
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7. (U) Nevertheless, a number of issues discussed during this
session remain unresolved.


8. (U) Default (Article 28): The current text under review provides
that, where a claimant has failed to communicate its statement of
claim, the tribunal shall issue an order for termination of the
proceedings unless the respondent has submitted a counterclaim.
Concerns were expressed that this was too limiting, and did not take
into account other circumstances in which issues in dispute - such
as a request for an award on costs - might still require a decision
by the tribunal. The Secretariat was asked to draft new language,
for review at the next session, to provide the tribunal with more
flexibility.


9. (U) Waiver of right to object (Article 30): The current text of
the Rules states that, where a party knows that any provision of the
Rules has not been complied with yet proceeds with the arbitration
without stating its objection without undue delay, it shall be
deemed to have waived its right to object. A number of delegations
said that proving actual knowledge was too difficult a standard to
meet, and suggested instead that the standard should be "knew or
should have known." Others were concerned that such a standard
might be difficult to apply in practice, as the circumstances could
vary widely in terms of, e.g., the sophistication of the parties or
their counsel. A majority of delegates provisionally favored a
standard such as that the failure to object was "justifiable" and
the Secretariat will seek to set forth a workable standard along
those lines in new language.


10. (U) Additional award (Article 37): The current text
contemplates a situation where a party, after receiving the initial
award, requests that the tribunal make an additional award as to
omitted claims. A concern was raised that situations may also arise
in which a party may feel that claims have been omitted (e.g., for
costs) after a termination order has been issued. There was general
support for applying Article 37 in those circumstances, but the best
means of doing so was not resolved. Bracketed alternatives will be
considered at the next WG meeting.


11. (U) Costs (Articles 38-40): These articles were discussed but a
number of unresolved issues remain. One question identified is how
the tribunal should communicate to the parties its fees and the
manner in which they were computed. Another is whether the
tribunal's statement of costs (the quantitative total, and not their
allocation between the parties) should be included in the award or
addressed separately. A remaining question not addressed at the
latest session is whether the tribunal should be permitted to charge
the parties for costs associated with issuing an interpretation to
an award, a correction to an award, or an additional award.

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Next Steps
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12. (U) The WG will next meet for a week in February 2010, with the
objective of completing a text that can then be submitted to the
UNCITRAL Commission for consideration at its annual meeting next
summer. In order to achieve this, the WG will need to work
efficiently; in addition to completing its second reading through
Article 41 and dealing with the pending issues identified above in
Articles 28-40, there remain a number of still unresolved issues in
earlier articles.

DAVIES