The LCIA updates its arbitration rules: a good fit for the energy and resources sectors?

This article summarises those updates below before providing a more detailed analysis of the changes with a focus on what these mean for clients in the energy and resources sectors.

The 2020 Rules in summary: what should energy and resources clients look out for?

1. Multi-party and multi-contract disputes: the updated rules provide more power and increased flexibility to the LCIA Court and the tribunal to consolidate arbitrations where they are brought under compatible arbitration agreements arising from the same transaction or series of related transactions. This is particularly welcome in the energy and resources sectors where projects often involve multiple parties and complex contractual structures.
2. Early Determination: claims or defences which are manifestly outside the jurisdiction of the tribunal, are inadmissible or are manifestly without merit may be subject to early disposal by the tribunal. This power – akin to summary judgment in litigation – may discourage parties who arbitrate hopeless cases merely to buy time and can provide relief for parties who might be the subject of vexatious or frivolous claims.
3. Greater efficiency: the changes include explicit powers for the tribunal to limit the length of submissions, promote the use of technology, and adopt particular issues for early resolution.  The LCIA must also appoint the tribunal more quickly, and an early case management conference is mandatory.  The tribunal must endeavour to produce its award within 3 months of the final submissions.
4. Increased use of technology, virtual hearings and electronic communications: the updated rules expressly provide that hearings can be heard virtually, either in part or in full.  The amendments make it harder for a party to delay an arbitration by insisting on a physical hearing, and should also make arbitrations cheaper and easier to schedule efficiently. The updates promote the use of technology throughout, expressly stating that tribunals can use technology to enhance the efficiency and expeditious conduct of the arbitration.
5. Data protection and confidentiality: the updates broaden the scope of confidentiality to participating non-parties; require the tribunal to consider any specific information security and personal data measures appropriate at an early stage; and specifically address applicable data protection legislation. This is particularly welcome in the energy and resources sectors where commercially sensitive data and information must be protected.

Applicability

The 2020 Rules apply to all LCIA arbitrations commenced on or after 1 October 2020, regardless of when the contract was entered into (absent any agreement between the parties to the contrary). 

Promoting efficiency and flexibility

A principal focus of the 2020 Rules is on streamlining the process of LCIA arbitration, and reducing the scope for delay and excessive costs.  

Early determination of proceedings (Articles 14.6(vi) and 22.1(viii))

An update contained in Articles 14.6(vi) and 22.1(viii) brings the LCIA Rules in line with other institutions, such as the SIAC, by allowing the tribunal discretion to declare that a claim or defence is manifestly outside the jurisdiction of the tribunal, is inadmissible, or is manifestly without merit and, where appropriate, to issue an order or award to that effect, defined in the updated rules as an "Early Determination".¹   

This power is akin to a strike-out or summary judgment in litigation and, therefore, remedies a perceived shortcoming in arbitration when compared to litigation. The update is welcome for parties concerned about frivolous claims; however, it remains to be seen how inclined tribunals will be to dispose of issues early, given the historical reluctance of arbitrators to do this, for fear of facing challenges to their awards.

Interim relief, Emergency arbitrator (Articles 9.12, 9.13 and 25.3)

The updates make minor changes to the emergency arbitrator provisions (adding in a new Article 9.12 and clarifying the language of Article 9.13), and amend Article 25.3 to confirm the availability of court-ordered interim relief to parties to an arbitration in certain circumstances.  

These changes seek to address the findings of Leggatt J in the 2016 case of Gerald Metals SA -v- The Trustees of the Timis Trust and others [2016] EWHC 2327 (Ch).  There, the court determined that the test for urgency under section 44(3) of the English Arbitration Act 1996 would not be satisfied unless the matter was so urgent that the time taken to appoint an emergency arbitrator would be too long, or the powers of an emergency arbitrator as well as a tribunal constituted in the ordinary manner would be insufficient to grant relief.  It gave rise to the concern that selecting arbitral rules containing emergency arbitrator provisions would preclude a party from seeking urgent injunctive relief from a court.  

The relatively minor updates show that there is only so much the LCIA can do to meet the challenges raised by this case, as the interpretation of the Arbitration Act is ultimately a matter for the court.  However, the changes should strengthen the position of the party seeking urgent relief from the court, rather than an emergency arbitrator.

Broader case management powers (Articles 14 and 15)

A number of changes to the 2020 Rules aim to strengthen a tribunal's case management powers. For example, Article 14.5 provides that a tribunal can make "any procedural order that it considers appropriate with regard to the fair, efficient and expeditious conduct of the arbitration". Article 14.6 goes on to say that this power includes making any procedural order with a view to expediting the procedure to be adopted by: limiting the length of content of written submissions (or dispensing with them altogether); limiting the written or oral testimony of any witness; dispensing with hearings; and abridging time limits.²   In our experience, these case management techniques can prove highly effective, and the amendments should assist in preventing costly and time-consuming "satellite" disputes concerning the scope of the tribunal's powers.

Mandatory case management conference (Article 14.3)

Continuing the focus on improved efficiency, it is now mandatory for parties and the tribunal to "make contact" as soon as practicable and within 21 days from formation of the tribunal³  (previously this requirement was merely "encouraged").  An early case management conference can be beneficial both in terms of deciding the best procedure to adopt in the arbitration and also by providing the parties with an opportunity to give early consideration to the merits of their case. 

Pleadings to attach all relevant documents (Articles 15.2, 15.3 and 15.4)

The 2020 Rules require all pleadings to be filed along with "all documents relied upon",⁴  rather than only "essential" documents (as was previously the case).⁵   This allows the other side to assess the merits of its case earlier rather than later and is akin to the initial disclosure requirements of the English High Court. 

Shorter time frames (Articles 5.6 and 15.10)

Shorter time frames in arbitration are usually welcomed by parties and a revised Article 15.10 provides that the tribunal must endeavour to deliver its final award no later than 3 months after the final submissions from the parties.⁶  This is a stricter time frame than in the previous rules, which provided that the final award would be delivered as soon as reasonably possible. Through the use of the word "endeavour", a degree of flexibility has been maintained with this updated timeline; however, as for more complex disputes, it might be desirable for the tribunal to deliberate over a longer period than 3 months.  A further amended timeline is seen with respect to the appointment of the tribunal by the LCIA, which must now occur within 28 days of the Commencement Date rather than 35 days.⁷

Tribunal secretaries  (Articles 14.8 to 14.15)

Amendments to Article 14 have formalised the guidance on tribunal secretaries in the LCIA Notes for Arbitrators, and have clarified the role of the tribunal secretary by making it clear that a tribunal may use a tribunal secretary, provided that the secretary has been approved by all parties to the arbitration.⁸  Tribunal secretaries are also required to sign a statement of impartiality or independence⁹  and, importantly, the 2020 Rules expressly provide that under no circumstances may a tribunal "delegate its decision-making function" to a tribunal secretary.  This update addresses the concern by some in the arbitration community that tribunal secretaries might wield too much influence over proceedings.¹⁰

Use of technology and the "new normal"

A number of the updates address the increased use of technology in arbitration and recent good practices adopted by the international arbitration community in response to COVID-19.  Reference to virtual meetings and technology are scattered throughout the updates and, in particular, Article 14.6(iii) provides that tribunals can use "technology to enhance the efficiently and expeditious conduct of the arbitration (including any hearing)".

Virtual hearings (Article 19)

The update to Article 19.2 makes clear that the tribunal "shall have the fullest authority" with respect to the conduct of the hearing, and that a hearing may take place in person, virtually, or in a combined form.  Virtual hearings are also expressly allowed in the context of an Emergency Arbitration and for the initial case management conference.¹¹

Interestingly, the update also provides that several part-hearings may take place, with Article 19.1 stating that any party has the right to a hearing before the tribunal prior to any ruling of the tribunal on its jurisdiction or any award on the merits.

This is a welcome development, particularly in the energy and resources sector where it is often the case that multiple parties need to travel for in-person hearings.  Virtual hearings can improve the efficiency of an arbitration by reducing travel time and costs.  Ashurst's tips and guidance on the conduct of virtual hearings can be found here.

Paperless proceedings (Article 26.2)

The new default position under the 2020 Rules is that pleadings and other written communications are to be made electronically, "either by email or other electronic means including via any electronic filing system operated by the LCIA".¹²   Article 26.2 also allows for signature of awards electronically and in counterparts, unless the parties agree otherwise (current practice is that an award is signed in hard copy and sent to the parties). This reflects recent practice among many arbitration institutions in the light of COVID-19, which have provided for the electronic submission of materials.¹³  The increased use of electronic documents also promotes efficiencies in arbitration as it helps facilitate automated document management, reduces printing and overall costs, and potentially makes the process cheaper for parties and tribunals. 

Greater flexibility for multi-party and multi-contract disputes

The LCIA has made a number of small but fundamental changes to the rules relevant to multi-party and multi-contract disputes. These changes particularly benefit users in the energy and resources sectors, where projects tend to give rise to a large number of contracts between different counterparties.

Composite Requests 

The updated rules allow a claimant wishing to commence multiple arbitrations (i.e. against multiple parties or under multiple arbitration agreements) to do so through a single composite Request for Arbitration.¹⁴   A respondent may also serve a composite Response to a composite Request.¹⁵   This is in contrast to the previous position whereby a claimant would have to issue multiple Requests for Arbitration even if the dispute was eligible for consolidation. 

This change brings the LCIA into line with other major arbitration institutions (such as the ICC, the SIAC and the HKIAC), which have permitted composite requests for some time.  It also addresses the English High Court's decision in A -v- B [2017] EWHC 3417 (Comm), where the Court found that the 2014 Rules, unusually, did not permit a party to commence either a single arbitration in respect of multiple contracts, or multiple arbitrations through a single Request.

The effect of filing a composite request is that it commences multiple arbitrations.  These multiple arbitrations remain subject to the approval of the LCIA Court or the tribunal before they may be consolidated, if appropriate.

Consolidation

The LCIA has introduced significant flexibility into its consolidation mechanisms, which previously were quite restrictive.  In particular, the new Article 22.7(ii) makes it clear that the tribunal can consolidate arbitrations commenced under "compatible arbitration agreements" arising out of "the same transaction or series of related transactions". This is significant for energy and resources clients with multi-party and multi-contract projects, as previously the LCIA Rules restricted consolidation to instances where all parties consented or where the arbitrations were commenced between the same parties only. The same power is made available to the LCIA Court prior to the formation of the tribunal.¹⁶

Furthermore, Article 22.7(iii) confirms the power of a tribunal to order that two or more arbitrations might be run concurrently if commenced under compatible arbitration agreements or between the same parties, or arising out of the same transaction or related transactions together, provided that the same tribunal is appointed in respect of each arbitration. 

Data protection and security

Data protection and security is vital in arbitration in an increasingly digitised world, and the updates to the 2020 Rules reflect this.  

Early consideration of data protection concerns (Article 30.5)

While the transition to online arbitration is a positive development, the speed at which it has progressed due to COVID-19 has increased existing concerns with respect to cybersecurity in arbitration.  (We consider those risks more in this article. Together with other leading firms, we also recently launched a consultation on a proposed protocol on online case management in international arbitration: see here.)

The new Article 30.5 requires the tribunal and the parties (and where appropriate the LCIA) to consider at an early stage of the arbitration whether it is appropriate to adopt any specific information security measures to protect information shared in the arbitration, and any means to address the processing of personal data produced or exchanged in the arbitration.  Each of the LCIA and the tribunal has the power to issue directions addressing these concerns, which directions bind the parties and the tribunal (where issued by the LCIA).¹⁷   

Article 30.5 is not prescriptive as to what the parties must do or how they can achieve such compliance.  The parties can agree protocols or the tribunal could include provisions in Procedural Order One, by drawing on existing guidance.¹⁸

Confidentiality (Articles 30.1 and 30.2)

The amendments to Articles 30.1 and 30.2 extend confidentiality obligations in respect of the proceedings beyond the parties to the tribunal, any authorised representative, witness of fact, expert or service provider (this list is not exhaustive).  These amendments reflect that there can be a variety of different participants in the arbitration, all of whom should be bound by confidentiality obligations.  The amendments will be particularly attractive to those in the energy and resources sectors, where projects often involve commercially sensitive information. 

Other key developments

Bribery and corruption (Article 24A)

The new Article 24A provides that dealings between a party and the LCIA will be subject to any requirements applicable to that party or the LCIA in relation to bribery, corruption, terrorist financing, fraud, tax evasion, money laundering and/or economic or trade sanctions.  The inclusion of this new provision reflects the recent focus on sanctions and bribery issues in arbitration.¹⁹

Nationality (Article 6.2)

Additional guidance has been provided in respect of the meaning of "nationality", in the light of the LCIA's requirement that a sole or presiding arbitrator cannot have the same nationality as a party to the arbitration (absent agreement to the contrary of the parties who are not of the same nationality).²⁰   This further clarity is sensible in the light of the significance of arbitral appointments to the parties, and will assist in avoiding satellite disputes involving the appointment of the tribunal, which are notorious for delaying proceedings. 

Challenges (Article 10.5)

Additional detail is given on the procedure which needs to be followed to challenge an arbitral appointment.21   Clarity in this area is welcomed and will hopefully provide for greater efficiencies.

Revised schedule of costs

The LCIA has also revised its Schedule of Arbitration Costs and has increased the maximum hourly rate for arbitrators from £450 per hour to £500 per hour. 

Authors: Tom Cummins, Partner; Myfanwy Wood, Senior Associate; Lucy McKenzie, Associate; Matthew Harnett, Associate

1. 2020 Rules, Articles 22.1(vii) and (viii).

2. 2020 Rules, Articles 14.6 and 15.7.

3. 2020 Rules, Article 14.3.

4. 2020 Rules, Articles 15.2, 15.3 and 15.4.

5. 2014 Rules, Articles 15.2, 15.3 and 15.4.

 6. 2020 Rules, Article 15.10.

7. 2020 Rules, Article 5.6.

8. 2020 Rules, Articles 14.8 and 14.10.

9. 2020 Rules, Article 14.9.

10. See, for example, Constantine Partasides, "The Fourth Arbitrator? The Role of Secretaries to Tribunals in International Arbitration" (2002) 18(2) Arbitration International 147-163; P -v- Q and others [2017] EWHC 194 (Comm), which involved an application to remove an entire tribunal on the grounds that it had effectively delegated its decision-making functions to a tribunal secretary.

11. 2020 Rules, Articles 9.7 and 14.3.

12. 2020 Rules, Article 4.1.  See also 2020 Rules, Articles 1.3, 2.3, 4.1, 4.2, 9.2 and 9.5.

13. See the SCC's Case management platform for arbitration;
CIArb Guidance Note on Remote Dispute Resolution Proceedings;
ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic.

14. 2020 Rules, Article 1.2.

15. 2020 Rules, Article 2.2.

16. 2020 Rules, Article 22.8(ii)

17. 2020 Rules, Article 30.6.

18. Such as the ICCA-IBA Roadmap to Data Protection in International Arbitration. 

19. See e.g. http://arbitrationblog.practicallaw.com/implications-of-economic-sanctions-on-international-arbitration/; https://www.ciarb.org/news/corruption-in-international-arbitration/ 

20. 2020 Rules, Article 6.2

21. 2020 Rules, Article 10.5.