MEETING OF UNCITRAL WORKING GROUP ON ARBITRATION - REVISION

UNCLAS SECTION 01 OF 02 UNVIE VIENNA 000455

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 ARIBITRATION RULES

REF: USUN 0194


1. 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. 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. Three principal issues were resolved by the WG in this session.


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

UNVIE VIEN 00000455 002 OF 002


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. Nevertheless, a number of issues discussed during this session
remain unresolved.


8. 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. 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. 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. 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. 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