New International Evidence Rules Advance Arbitration Process

by Terry F. Peppard

rbitration daily assumes an ever larger role in resolving legal disputes the world over. The trend is driven by concerns over economic and temporal costs, and by considerations of privacy, informality, and flexibility, and, particularly in the context of valuable business relationships, the desire, where possible, to maintain them.

The London-based International Bar Association (IBA) recently took a significant step toward making disparate legal cultures more hospitable to businesses and their legal advisers by revising, for the first time since their initial release in 1983, its rules of evidence for international commercial arbitration. The IBA is the world's largest membership-based legal organization, with nearly 175 member bar associations and legal societies and about 18,000 individual members.

The new rules, called the "IBA Rules on the Taking of Evidence in International Commercial Arbitration," address the collection and presentation of evidence in international arbitration proceedings. As importantly, they reflect the way arbitration is practiced today¹ and promise to pave the way for further efforts toward harmonizing differing legal regimes and "delocalizing"² business-based legal proceedings worldwide.

This article discusses the new rules' important implications for Wisconsin business lawyers, litigators, international law practitioners, and arbitrators.

Avoiding the Home Court Advantage

The appeal of arbitration in international settings is enhanced by the perception that it's almost always best for a party from one country not to take a dispute with a business partner from another country into the latter's national court system. The fear is that each country's courts exhibit their own cultural and legal biases, so that the foreign party who submits to such a system risks falling victim to a "home court advantage."

The solution for international businesses and their legal advisers has long been to write a predispute arbitration clause into contracts with foreign business partners. This tendency has become so strong that perhaps 80 percent of all international business agreements in force today contain such a clause.

Answering One Question, Raising Others

Of course, choosing arbitration does not answer all questions. Indeed it raises others, including selection of the rules by which the arbitral proceedings will be conducted. This question has been addressed most often either by resort to an institutional approach to arbitral administration under systems sponsored by such organizations as the American Arbitration Association,³ or instead by reliance on a set of ad hoc rules like those sanctioned by the United Nations Commission on International Trade Law (the UNCITRAL Rules).

Whichever of these paths is chosen, however, it remains a challenge for lawyers involved in the arbitration of international commercial disputes to reconcile the methods and perspectives of diverse legal cultures at the point of collecting and presenting evidence for a trial-type hearing, a domain largely left open in the most frequently employed institutional and ad hoc systems.⁴

A Clash of Legal Cultures

The clash of arbitral legal cultures has been played out most prominently between the common law practices of jurisdictions like the United States and the United Kingdom, on the one hand, and the civil code approaches of France and most other countries on the European continent.

The issues thus exposed range across the spectrum of pre-hearing and hearing procedure. Among them: What is the role of the parties' pleadings? May discovery depositions be taken? Should witnesses testify under oath? May witnesses be crossexamined by counsel? Perhaps not surprisingly, the common law and civil code disciplines have long had separate answers to these and other fundamental questions of arbitration practice.

For civil code adherents, the emphasis has been on detailed written submissions rather than the spare notice pleadings and extensive oral presentations prevalent in common law regimes. Likewise, civil code proceedings have been characterized by the relative absence of American-style discovery. And advocates in civil code settings have shied away from the swearing of witnesses and been uncomfortable with the aggressive cross-examination prevalent in common law jurisdictions.

An Early Solution: The 1983 IBA Rules

Realizing the difficulties presented by this clash of cultures, the IBA sought in 1983 to bridge the gap between them with its publication of "Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration."⁵

Perhaps consistent with their status as a first effort at "harmonization" of international arbitration practice methods, the 1983 rules were very brief, containing only seven short articles. They also were quite general in their terms, leaving to the discretion of the appointed arbitrator(s) some of the most troubling issues that might arise either before or at a hearing on the merits.

Nonetheless, the 1983 rules broke ground. Among other things, they opted for extensive speaking pleadings over their notice counterparts.⁶ They also limited discovery to the production of documents relied upon by each party and the unsworn written statements of each side's own witnesses.⁷ Moreover, they did not require witnesses at hearing to be sworn.⁸ These were important concessions to the civil code tradition.

Balancing these provisions, the 1983 rules permitted cross-examination of witnesses essentially on the common law model.⁹ They also provided that a party might be heard in support of his own case,¹⁰ a practice not permitted in some civil code traditions. And, in a concession to American practice, they allowed pre-hearing interviews of witnesses,¹¹ a procedure not then followed in Britain.

To encourage the widest possible acceptance of the 1983 rules, the rules allowed the parties to an international commercial arbitration to adopt them in whole or in part, or with modifications, to meet the peculiar needs of any case.¹²

Working Party Revisions

The 1983 IBA rules have been used and cited only sparingly over the 16 years since their adoption. In the meanwhile, much has happened in the world of dispute resolution, and especially in international commercial arbitration. So it was not surprising that the IBA, working through its Business Law Section and the section's Committee on Arbitration and ADR, recently commissioned a "working party" to recommend revisions to the rules to reflect current practice. The membership of the working party was drawn from the committee's approximately 1,500 members in 115 countries.¹³

The working party, composed of 16 section members, represented nine almost exclusively European legal systems. France, with four members of the working party, had particularly strong representation. The common law tradition was represented by one member from the U.S. and two from the U.K. Only one member of the working party, one from formerly British Hong Kong, arguably represented a non-European tradition.¹⁴

Still the working party has been credited with producing in the new rules "a reliable guide to international norms of procedural fairness."¹⁵

Coming of Age: The New IBA Rules

The 1999 rules, which may be identified simply as the "IBA Rules of Evidence," are intended to replace entirely their 1983 predecessors.¹⁶ And, like the 1983 rules, the new rules are designed to be used in conjunction with either institutional or ad hoc rules of arbitration procedure, and may be employed in whole or in part or with modifications.¹⁷ The new rules were adopted, in nine detailed articles, by resolution of the IBA Council at its meeting in Boston on June 1, 1999.

Arbitration Pleadings Under the New Rules

Unlike the 1983 rules, the new rules are silent on the topic of arbitration pleadings. The IBA thus has left this subject to be governed by the institutional and ad hoc rules that the evidence rules are intended to supplement.¹⁸ One implication of this choice is that the longstanding importance of detailed pleadings and of full documentation of arbitration claims at the point of pleadings is intended to remain.

Limits of Discovery

As regards pre-hearing discovery, the Preamble to the 1999 rules recites that an underlying premise of the drafters is that:

"The taking of evidence shall be conducted on the principle that each Party shall be entitled to know, reasonably in advance of any Evidentiary Hearing, the evidence on which the other Party relies."¹⁹

Because no mention is made in this proviso of evidence on which an inquiring party might wish to rely, it stands as an implicit rejection of the expansive American approach to pre-hearing discovery, a carryover from the 1983 rules.²⁰

However, in a bow to the common law discovery tradition, the new rules contain an expanded mechanism for the disposition of requests by a party for the production of documents in the possession of an opposing party, whether or not such documents are intended to be relied upon by the possessing opponent. ²¹ Any such request is required to be presented to the presiding arbitrators rather than directly to the opponent,²² and such requests are to be judged by the arbitrators by the extent to which the requested documents are both "relevant and material to the outcome of the case."²³ Moreover, the rules prescribe that the arbitrators may grant a request for document production only if the tribunal first determines that none of the grounds of objection to production enumerated in the rules is applicable.²⁴

This approach gives the arbitrators considerable power over the pre-hearing development of the case and foreshadows greater arbitrator involvement in pre-hearing activities. And, because a requesting party must demonstrate the materiality of the evidence sought, not just its relevance, it also significantly restricts the scope of documentary discovery.

The new rules set out seven possible grounds of objection to requested document production. Included among them are largely undefined categories of "special political or institutional sensitivity" and "considerations of fairness or equality" that the panel finds to be "compelling."²⁵

These new provisions promise to occupy the attention and test the skills of arbitration counsel and arbitrators alike. They also suggest that business people will continue to have sound reasons for ensuring that every detail of their international transactions is fully documented, including relations with third parties, and that the documentation is faithfully collected and retained so that the risk of reliance upon documents in the hands only of potential opponents in arbitration is minimized.

The Use of Witnesses

As to the treatment of witnesses, the new rules retain the principle that any person may be a witness in arbitration, including a party,²⁶ and they provide implicitly that witness statements need not be sworn.²⁷ But, in another bow to the concerns of common law practitioners, such statements, including reports submitted by or for expert witnesses, must contain "an affirmation of the truth of" the statement.²⁸

Consistent with the increasing importance of expert witnesses in arbitration, the new rules' provisions on the participation of experts are more precise and detailed than were their 1983 counterparts. The arbitrators are specifically empowered under the new rules to order party-appointed experts to confer and report on points of disagreement,²⁹ and tribunal-appointed experts are given the same authority as are the presiding arbitrators to compel production of relevant and material evidence.³⁰ Provision also is made in the new rules for "on site inspection" of pertinent goods, machinery, or facilities, either by the arbitral tribunal itself or its designated expert.³¹

With respect to the testimony of witnesses, the 1999 rules track closely the practice in common law regimes. There is a new provision, reflective of increasingly popular practice in international settings, permitting the arbitral tribunal to require witnesses offered by different parties to appear together for presentation of their testimony.³² The rationale of this provision is that differences in the evidence of opposing witnesses can best be explored when they appear simultaneously. This innovation can be expected to be employed most often in the case of expert witnesses, but the rule does not limit it to that context.

Balancing the Civil Code and Common Law Systems

Taken as a whole, the new rules favor neither the common law nor the civil code tradition.³³ Instead they favor the common law approach to the treatment of witnesses while preferring the civil code treatment of documents, including at the pleading stage, and, in so doing, they strike a genuine balance between the two systems.

The Challenge Ahead: Accommodating Other Legal Cultures

While the IBA's 1983 evidence rules were a ground-breaking advance in international commercial arbitration practice, their 1999 offspring, which now are available on the Internet,³⁴ offer several significant improvements on the original. Despite this, they almost certainly will remain a work in progress as dispute resolution worldwide evolves at an ever faster pace.

In addition, although developed by a truly global body, the new rules represent the product of a working party composed almost entirely of representatives from Europe and the United States. At the start of the new millennium, therefore, one of the challenges facing the IBA and the international arbitration community will be to demonstrate to people from still other legal cultures that the evolving rules and institutions of arbitration can and will be accommodated to their needs and interests as well.

Implications for Domestic Arbitration Practice

The IBA's new evidence rules derive from a distinguished source. Thus they can be expected to impact arbitration not only internationally, but within U.S. domestic practice, including here in Wisconsin. Among developments to watch will be the following:

Speaking pleadings. We can anticipate a trend away from notice pleadings and in the direction of speaking pleadings in domestic arbitration practice. This trend will be bolstered by an appreciation among practitioners that arbitrators, unlike judges, most often come to their task on short notice, and so without a significant opportunity prior to hearing on the merits to become acquainted with the parties or the issues. The use of Spartan notice pleadings in arbitration thus represents a lost opportunity to inform the decision-makers.

Direct examination by affidavit. The new rules have captured an international trend, especially in large and complex cases, away from live direct examination of witnesses and in favor of the substitution of affidavits for direct testimony, with only cross-examination and redirect allowed of the live witness. This technique was employed in the recent bench trial of the Microsoft antitrust case, with the result that the examination of witnesses was confined to a period of days instead of months. Appreciating that time is money, arbitrators and parties can be expected to adopt this approach.

Joint appearances of expert witnesses. The new rules allow arbitrators in international cases to require opposing witnesses to appear before the tribunal for joint examination. This technique allows the arbitrators to make instant comparisons of contending views. It also encourages the witnesses to explain themselves to their collegial peers and to make concessions of uncontested matters, thus to sharpen the issues to be decided. Although it raises some delicate procedural challenges, arbitrators find it ever more appealing, so we can expect the method of joint witness appearances, especially of experts, to catch on in both international and domestic practice.

Endnotes

¹ Karrer, Pierre A., Alexander Lecture 1998, Is Arbitration a Window to the Future?, reprinted in 65 Arbitration 3, the Journal of the Chartered Institute of Arbitrators, at 170, 172 (Aug. 1999).

² Id.

³ Other leading international arbitral institutions include the International Court of Arbitration of the International Chamber of Commerce, the London Court of International Arbitration, the World Intellectual Property Organization, and the Inter-American Commercial Arbitration Commission.

⁴ See, e.g., Articles 16, 19 and 20 of the International Arbitration Rules (1997) of the American Arbitration Association; Articles 4 and 5 of the Rules of Arbitration of the International Chamber of Commerce (1998); and Articles 18-20 and 22 of the United Nations Commission on International Trade Law Arbitration Rules (1976).

⁵ Although the title suggests that the rules were limited in scope to the "presentation and reception of evidence," the 1983 IBA Rules also addressed the pleading process and pre-hearing discovery. See, e.g., Article 3 - Introductory Submissions and Article 4 - Production of Documents.

⁶ See the expansive definition of "Introductory Submissions" in 1983 Rules, Article 2, and the provisions of Article 3 - Introductory Submissions: "The Introductory Submissions made by any party shall contain (inter alia) the means by which the facts relevant to the dispute are intended to be proved by that party, including, for each of such facts, the names of witnesses and reference to documents."

⁷ 1983 Rules, Article 4, section 1, and Article 5 - Witnesses.

⁸ 1983 Rules, Article 5.

⁹ 1983 Rules, Article 5, section 9.

¹⁰ 1983 Rules, Article 5, section 8.

¹¹ Id.

¹² 1983 Rules, Article 1 - Scope of Application, section 1.

¹³ The working party was chaired by its sole American member, David Rivkin, of Debevoise & Plimpton, New York, who also serves as chair of the IBA's Committee on Arbitration and ADR.

¹⁴ Peter S. Caldwell, member.

¹⁵ Goldstein, Marc J., "International Commercial Arbitration," 33 Int'l Law. 2, at 389, 402 (Summer 1999).

¹⁶ Forward, the 1999 IBA Rules, ¶ 2.

¹⁷ Id., ¶ 4.

¹⁸ See, e.g., American Arbitration Association International Arbitration Rules (1997), Articles 2-4.

¹⁹ 1999 Rules, Preamble, section 4.

²⁰ 1983 Rules, Article 4 - Production of Documents, section 1.

²¹ 1999 Rules, Article 3 (Documents).

²² Id., section 2.

²³ Id., section 6.

²⁴ Id.

²⁵ 1999 Rules, Article 9 (Admissibility and Assessment of Evidence), section 2.

²⁶ 1999 Rules, Article 4 (Witnesses of Fact), section 2.

²⁷ Id., section 5(d).

²⁸ Id., section 5(c).

²⁹ 1999 Rules, Article 5 (Party-Appointed Experts), section 3.

³⁰ Id., Article 6 (Tribunal-Appointed Experts), section 3.

³¹ Id., Article 7 (On Site Inspection).

³² Id., Article 8 (Evidentiary Hearing), section 2.

³³ David Rivkin, chair of the IBA's Committee on Arbitration and ADR and of the drafting working party, reports that the 1999 rules "are already being used by many practitioners." Email to the author, Nov. 8, 1999.

³⁴ The International Bar Association's homepage can be found online.

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