Published in Law360 on February 25, 2021. Reprinted here with permission.

On Feb. 15, the International Bar Association released the long-awaited update, adopted by the IBA Council on Dec. 17, 2020, to the IBA Rules on the Taking of Evidence in International Arbitration.[1]

First formalized in 1999, the IBA rules have become the most widely accepted set of guidelines for international arbitration proceedings. Known for their flexibility, practicality, and blend of common law and civil law practices, the IBA rules are commonly used to fill in the procedural gaps left by arbitral rules and represent basic norms that parties have come to expect from international arbitration.

The 2020 update to the IBA rules marks the first time since May 29, 2010, and only the second time since the IBA rules were first published in 1999, that the IBA rules have been revised. As a result, it is no stretch to expect that the 2020 update to the IBA rules will greatly influence the practice of international arbitration over the next decade.

Notwithstanding the above, the 2020 update reflects a relatively modest refinement, rather than a complete overhaul, of the rules. Most of the modifications reflect an effort by the drafters to clarify nuanced issues of international arbitration practice rather than incorporate fundamental changes in approach or focus.

However, as emphasized by the drafters’ commentary,[2] the 2020 update to the IBA rules made three significant changes related to (1) the need to account for cybersecurity and data protection in initial procedural conferences, Article 2; (2) the adoption of rules concerning the use of remote hearings, Article 8.2; and (3) the incorporation of a new ground to exclude illegally obtained evidence, Article 9.3.

While these modifications may seem innocuous at first glance, as explained below, they are a recognition of how technology has altered, and continues to alter, the practice of international arbitration.

Article 2.2(e): Cybersecurity and Data Protection

Consistent with the 2010 version of the IBA rules, the 2020 update requires the arbitral tribunal to consult with the parties at the earliest appropriate time to determine an “economical and fair process.”[3]

As part of this initial consultation, the IBA rules set out a series of topics that tribunals and parties should consider, including, for example, the preparation and submission of witness statements and expert reports; the taking of oral testimony at the hearing; and the requirements, procedure and format of document production.[4]

The 2020 update has included “the treatment of any issues of cybersecurity and data protection” as new topics of consideration during the initial consultation between the parties and arbitral tribunal.[5] The inclusion of these additional considerations reflects the increasing significance cybersecurity and data protection have played in international arbitration since the 2010 revision of the IBA rules.

First, cybersecurity has been at the forefront of international arbitration for several years after the Permanent Court of Arbitration was the victim of a cybersecurity breach in connection with a contentious China-Philippines maritime boundary dispute in 2015.[6]

Since that time, arbitral institutions, arbitrators, law firms and users have reflected on the need to develop advanced protocols to protect against cybersecurity threats given the sensitive nature of many international arbitration proceedings.

Now, with the increasing use of videoconferencing software to conduct remote hearings in the age of COVID-19, cybersecurity is likely to remain at the forefront of international arbitration proceedings for the foreseeable future.

The inclusion of cybersecurity considerations in Article 2.2(e) of the IBA rules is a recognition that parties and arbitrators must remind themselves of the risks posed by cybersecurity threats and the need to approach this issue with care.

Second, and not to be overlooked, Article 2.2(e) is also a reminder that tribunals and parties must consider data protection regulations developed since the 2010 edition of the IBA rules, such as the European Union’s General Data Protection Regulation.

Indeed, although the IBA rules were designed to allow parties to request documents without the need to heavily rely on electronic discovery practices that may be more common to U.S. litigation, international arbitration is not free from the rigors of national data protection and privacy laws.

Article 2.2(e) is a reminder that parties must consider the implications of data protection and privacy regulations when developing a document disclosure process.

Article 8.2: Remote Hearings

The 2020 IBA rules include a new Article 8.2 that addresses the use of remote hearings in international arbitration.[7] As practitioners in the field of international arbitration are well aware, the COVID-19 pandemic has dramatically altered the ability for parties to conduct in-person hearings.

As a result, remote or virtual hearings have become commonplace. While many practitioners and arbitrators look forward to the return of in-person hearings, most accept that, given their logistical ease and cost advantages, remote hearings will continue to be used long after the COVID-19 pandemic has passed.

Recognizing the present and long-term expectations for the use of remote hearings, Article 8.2 sets out a very practical and useful approach.

First, Article 8.2 establishes that “[a]t the request of a Party or on its own motion, the Arbitral Tribunal may, after consultation with the Parties, order that the Evidentiary Hearing be conducted as a Remote Hearing.”[8]

In doing so, Article 8.2 seemingly puts to rest any doubt that an arbitral tribunal has the authority to compel the use of remote hearing technology in lieu of an in-person hearing even in the face of a party objection.

Second, Article 8.2 calls for the tribunal and parties to develop a remote hearing protocol that addresses five very basic considerations: (1) the specific technology to be used; (2) the need for advance testing of the technology; (3) the start and end times of hearings — in light of conflicts arising from parties in different time zones; (4) how documents are presented to witnesses during the hearing; and (5) how parties can ensure that witnesses provide their testimony without being inappropriately influenced.[9]

To practitioners and tribunals that have been involved in remote arbitration hearings, these five considerations should be relatively uncontroversial. Yet, notwithstanding their simplicity, these five items are the core practical issues that parties and tribunals must consider before embarking on a remote hearing.

In this vein, the drafters of the 2020 update to the IBA rules deserve credit. Recognizing that practice associated with remote hearings remains varied, the 2020 update refrained from providing a detailed and prescriptive set of rules for remote hearings.

Instead, consistent with the IBA rules’ overarching effort to prioritize flexibility and party autonomy, the 2020 IBA rules incorporated a series of very basic items that parties and tribunals must address before electing to use remote hearings.

The core issues identified in Article 8.2 will serve as a helpful checklist for tribunals and parties to look to when developing an approach to remote arbitration hearings.

Article 9.3: Illegally Obtained Evidence

Finally, the 2020 IBA rules have incorporated the entirely new Article 9.3 providing that arbitral tribunals “may, at the request of a Party or on its own motion, exclude evidence obtained illegally.”[10]

Although the commentary to the IBA rules uses the example of nonconsensual audio recording as a potential type of illegally obtained piece of evidence,[11] the new rule appears to be in response, at least in part, to cybersecurity concerns and whether hacked or improperly leaked information can be used in an international arbitration proceeding.

The drafters of the 2020 update intentionally kept the language of Article 9.3 broad and refrained from capturing specific circumstances because national laws vary widely on the issue of whether illegally obtained evidence should be excluded from criminal and civil court proceedings.

As a result, the question of whether illegally obtained evidence can be presented in an arbitration will hinge, in large part, on the applicable law as well as the discretion of the arbitral tribunal itself, taking account of the totality of the circumstances.

In practice, it is not entirely clear how Article 9.3 will affect international arbitration proceedings apart from highlighting a potentially complex area of debate. However, as disputes captured by Article 9.3 arise, one potential area of focus should be on whether arbitral tribunals apply a flexible standard for assessing whether to exclude illegally obtained evidence or the more standardized doctrinal rules of evidence, such as the fruit of the poisonous tree doctrine in the U.S.

Conclusion

The 2020 update to the IBA rules reflects a careful attempt by the drafters to ensure these widely accepted guidelines account for the modern-day challenges presented in international arbitration proceedings. To that end, the drafters deserve credit for resisting the temptation to incorporate far more prescriptive requirements aimed at promoting certain best practices.

In doing so, the 2020 update to the IBA rules ensures that the rules will remain the same flexible and practical set of guidelines for international arbitration proceedings for the foreseeable future.

[1] During the intervening period, the 2020 IBA Rules of Evidence Review Task Force updated the accompanying Commentary on the revised text of the 2020 IBA Rules on the Taking of Evidence in International Arbitration.

[2] IBA Task Force for the Revision of the IBA Rules on the Taking of Evidence in International Arbitration, Commentary on the revised text of the 2020 IBA Rules on the Taking of Evidence in International Arbitration at 3 (Jan. 2021).

[3] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 2.

[4] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 2.

[5] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 2.

[6] Jason Healey & Anni Piiparinen, Did China Just Hack the International Court Adjudicating Its South China Sea Territorial Claims?, DIPLOMAT (Oct. 27, 2015), http://thediplomat.com/2015/10/did-china-just-hack-the-international-court-adjudicating-itssouth-china-sea-territorial-claims/.

[7] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 8.2.

[8] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 8.2.

[9] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 8.2.

[10] IBA Rules on the Taking of Evidence in International Arbitration, dated 17 December 2020, Art. 9.2.

[11] IBA Task Force for the Revision of the IBA Rules on the Taking of Evidence in International Arbitration, Commentary on the revised text of the 2020 IBA Rules on the Taking of Evidence in International Arbitration at 30 (Jan. 2021).

Albert Bates and Zachary Torres-Fowler were quoted in a Q&A for Mealey’s International Arbitration Report titled, “International Arbitration Experts Discuss the New LCIA Rules.”

Bates and Torres-Fowler: The latest update to the LCIA Arbitration Rules reflects a broader trend among arbitral centers, including the ICC, SIAC, and ICDR, to bring the procedures in line with global practices and developments. These updates included, to name a few, revisions concerning the acceptance of virtual hearings (especially in light of the COVID-19 pandemic), improvements to the LCIA’s consolidation rules, and new cybersecurity measures. These updates have been broadly welcomed by the arbitral community; however, most are unlikely to dramatically alter the way in which LCIA arbitration proceedings currently operate.

The one potential exception, and most interesting update in our view, is the LCIA’s adoption of an express procedure that enables tribunals to render “Early Determinations” on certain claims prior to the arbitration hearing that are “manifestly without merit.” Specifically, Article 22.1(viii) of the updated LCIA Rules empower tribunals:

[T]o determine that any claim, defense, counterclaim, cross-claim, defense to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect (an “Early Determination.”)

This authority is significant because, unlike U.S. and U.K. court proceedings which afford the parties the right to seek pre-trial dismissals (e.g., motions to dismiss and summary judgment), the early dismissal of claims in arbitration proceedings, as a matter of common practice, remains relatively uncommon. As a result, users sometimes complain that time and effort is wasted by forcing parties to defend against claims that clearly lack merit.

This is not, however, to suggest that LCIA Article 22.1(viii) is necessarily novel among arbitration rules. The ICDR, HKIAC, SIAC, SCC, and ICSID rules all afford arbitrators the right to dismiss claims prior to an arbitration hearing. Further, in 2017, the ICC issued a practice note that outlined arbitrators’ authority to issue early determinations pursuant to their broader case management powers. Nevertheless, the LCIA’s adoption of the “manifestly without merit” standard further cements the practice among the leading international arbitration centers and will inevitably cause parties to reexamine this often underutilized mechanism.

What remains to be seen is how narrowly tribunals will interpret the “manifestly without merit” standard and how often tribunals will exercise this authority. Arbitral tribunals have strong incentives to ensure they expeditiously and efficiently manage arbitration proceedings. However, arbitrators are also keen to protect their awards from challenge. Because the summary dismissal of a claim prior to a merits hearing may raise a question of whether a party was denied the ability to “present his case” (see Art. V(b) of New York Convention), arbitrators tend to be reluctant to grant summary dismissal. Nevertheless, the LCIA’s express inclusion of the “manifestly without merit” standard aims to affirm the authority of the tribunal to make an Early Determination and may alter perceptions among arbitrators toward a greater acceptance of summary dismissal procedures in appropriate cases.

The Army Corps of Engineers denied a construction permit for Alaska’s Pebble Mine project to proceed in accordance with the Clean Water Act (CWA).[1] Excavation of Pebble Mine — a sprawling depository of gold, copper, and molybdenum — would discharge fill material and dredge into U.S. waterways.

The project’s developers applied for a permit under the CWA, requiring the Army Corps to assess the project’s potential impact on nearby bodies of water. When project-produced dredge and fill threaten unavoidable adverse impacts on waterways, projects may not proceed without appropriate mitigation measures. Continue Reading Another Major Project Halted Under the Clean Water Act

Mealey’s International Arbitration Report – Nov. 2020
[Editor’s Note: Copyright # 2020, LexisNexis. All rights reserved.]
Commentary by Troutman Pepper Partner Albert Bates, Jr.

Mealey’s International Arbitration Report recently asked industry experts and leaders for their thoughts on what events had an impact on global economy that have led to an increase in filings. We would like to thank the following individuals for sharing their thoughts on this important issue.

  • Sarah Reynolds, Partner, Mayer Brown, Chicago
  • Peter A. Halprin, Partner, Pasich LLP, New York
  • Helen Conybeare Williams, Counsel & Solici­tor Advocate, Haynes and Boone LLP, London
  • Sandra Smith Thayer, Partner, Pasich LLP, Los Angeles
  • Lisa Houssiere, Principal, McKool Smith, Houston
  • Gene Burd, Partner, FisherBroyles, Washington
  • Albert Bates Jr., Partner, Troutman Pepper, Pittsburgh
  • Charlie Lightfoot, Co-chair of International Arbitration Practices and Managing Partner, Jenner & Block, London
  • Thomas Wingfield, Associate, Jenner & Block, London. Continue Reading International Arbitration Experts Discuss The Impact On The Global Economy

As published in Dispute Resolution Magazine, Volume 26, Issue 3, September 2020.

Imagine a complicated engineering and construction project that has lasted years and has already cost hundreds of millions of dollars. During the project, the contractor submitted dozens of claims for additional time and money – all of which the project’s owner has rejected. Amid mounting costs, claims from various subcontractors and suppliers boiling to the surface, and the threat of liquidated damages or even termination of the project, the contractor proceeds without receiving any relief from the owner. Although the parties have tried to resolve their disputes through negotiation and even mediation, they have not been able to reach an acceptable settlement. The contractor says it has incurred significant costs to perform the work and feels it is essentially funding the owner’s changes to the project. The owner, however, says the disputed issues are the contractor’s, not the owner’s risk. Accordingly, without a dispute resolution mechanism in place to resolve these disputes in real time, the costs continue to mount, and the prospect of a lengthy, expensive, and protracted arbitration or litigation looms. Continue Reading Dispute Boards: An Approach to the Efficient Resolution of Disputes in the Construction Sector

Gov. Wolf’s businesses closure orders and the business waiver process recently came under fire from the Western District of Pennsylvania Federal Court and the Pennsylvania Auditor General Eugene DePasquale. Gov. Wolf’s prior orders forced nearly all activities of the construction industry to cease in-person operations. Continue Reading Governor Wolf’s Life-Sustaining Business Orders and Waiver Process Under Fire

Updated October 27, 2020

On August 6, President Trump issued an executive order banning WeChat, a Chinese app developed by parent company Tencent Holdings Ltd. that combines the capabilities of other social media, ride sharing, and payment apps. The ban could potentially affect all forms of businesses, including global construction, manufacturers, and equipment suppliers performing business in China and the U.S. WeChat, with its over one billion users, is indispensable to some businesses, especially to those in China because mobile payment apps like WeChat reign supreme over other payment forms, and WeChat is now used as a primary means to communicate. Continue Reading The WeChat Ban: Where We Are Now and How May It Impact International Construction, Manufacturers, and Equipment Suppliers

On September 14, the U.S. Court of Appeals for the Third Circuit addressed the perennially thorny issue of whether the courts or arbitrators retain the authority to resolve questions involving the enforceability of arbitration agreements. In MZM Construction Company, Inc. v. New Jersey Building Laborers Statewide Benefits Funds,[1] the Third Circuit held that the courts must decide questions of arbitrability in cases where a party challenges the validity of the underlying contract that contains the arbitration agreement — even when the putative arbitration agreement refers these questions to the arbitrators. The court’s decision highlights the complexities associated with the enforcement of arbitration clauses and the limits to a party’s ability to compel arbitration. Continue Reading Not So Severable After All: Third Circuit Lets Courts Determine Arbitration Agreement Existence When Underlying Contract’s Validity Is Challenged

When is it going to return to “normal”? We all have been asking that question. Well, for the construction industry, it may never return to “normal.” COVID-19 may have permanently changed the landscape of the construction industry in many ways. Depending on your perspective, many changes could be for the better. We may have to alter how we do business to address some new issues and business concerns. Here are just a few issues that the pandemic has brought to the forefront of our industry. Continue Reading Subtle (and Not So Subtle) Effects of COVID-19 on the Construction Industry

Albert Bates and R. Zachary Torres-Fowler were published in gar insight with their article, “GAR Know How Construction Arbitration.”

This chapter summarizes issues commonly raised during international construction arbitrations seated in the United States or governed by U.S. laws. This chapter should be a useful resource for those seeking to better understand the interplay between U.S. laws and international construction arbitration.