India: LCIA India unveils arbitration rules

Last Updated: 27 May 2010
Article by David Brynmor Thomas

Following the establishment of LCIA India as a centre for arbitration a year ago, on 17 April 2010, the much anticipated LCIA India Rules (the "Rules") were launched and published on LCIA India's website http://www.lcia-india.org . In this bulletin we analyse the main points of interest in the Rules and we look at their impact on the attractiveness of India as a seat of arbitration for India-related commercial disputes. Since the Rules envisage that many LCIA India arbitrations will, in fact, have their seat outside India, we also examine the attractiveness for investors in India, or indeed for parties across South Asia, in bringing a dispute under the Rules but with a seat elsewhere.

These are only the third set of LCIA Rules in existence – the second being the DIFC-LCIA Rules which are closely modelled on the LCIA Rules for use in Dubai – and their arrival has been greeted with great enthusiasm. It will provide security and comfort to parties to bring a dispute to an institution with 116 years of experience in London, as well as a particular focus on this jurisdiction. The development will build on the existing popularity of the LCIA amongst Indian parties. Further, the Rules will provide a boost to the development of arbitration in India, particularly as it is already well placed given its thriving economy, widespread use of English and highly educated and respected legal profession.

It is envisaged that the ever increasing numbers of foreign investors in India as well as Indian companies involved in domestic disputes may prefer LCIA India to their current dispute resolution options, namely:

  • the Indian court system, which is well-known to be a lengthy process;
  • ad hoc arbitration in India, also subject to delays, expense and excessive judicial intervention;
  • notably LCIA, ICC and SIAC in Singapore.

In order to avail themselves of the Rules, parties will need to agree to insert a specific LCIA India arbitration clause in their contract (and Model clauses are provided at the end of the Rules) or agree to use them once a dispute has arisen.

Key innovations

This briefing highlights the key innovations introduced by the Rules. Whilst they are based heavily on the original LCIA Rules (the "Original Rules"), the drafters have undertaken a thorough analysis of the Original Rules and made numerous improvements and clarifications, so much so that the Rules are being considered a template for a future revision of the Original Rules.

Some of the points of clarification include:

  • specifying that the number of arbitrators shall not be an even number (Art 1.1(d));
  • commencement of the arbitration when the fee as well as the Request for Arbitration are received (Art 1.2);
  • designating the nationality of a corporate entity (for the purposes of fairly determining the nationality of the Tribunal) according to the nationality of its principal or controlling shareholders (Art 6.2);
  • making it easier to apply for interim or conservatory measures, after the formation of the Arbitral Tribunal, by reducing the threshold from 'exceptional' to 'appropriate' circumstances (Article 25.3).

Various India-specific adjustments have also been made. These focus primarily on the expedition of proceedings (eg. Article 14 which is referred to repeatedly in the Rules) and provide sanctions for delay by obstructive parties. The expedited formation of the Tribunal which has proved so popular under the Original Rules has also been replicated here (Article 9).

One key feature is the role of the LCIA in appointing the Chair of the Tribunal. In giving itself more control over the constitution of the Tribunal, the LCIA Court aims to ensure both that the Tribunal is appropriately balanced and that the Chair has the skills and approach necessary to manage an arbitration and resolve a dispute. It is thought that this change may even be adopted in any future amendment to the Original Rules.

Some of the key substantive changes are as follows:

Article

Change and its impact

5.3(b)

An arbitrator must "confirm his ability to devote sufficient time to ensure the expeditious conduct of the arbitration". This usefully echoes the new ICC Statement of Acceptance, Availability and Independence and aims to ensure that proceedings are conducted without undue delay.

5.6/5.7

The LCIA Court has the sole power to appoint the Chair, even where the parties have agreed otherwise.

10.3

The LCIA Court is empowered to remove arbitrators for the additional reason that he "does not possess the qualifications agreed by the parties".

14.2

As well as the Tribunal's duties, parties are given corresponding duties to ensure proceedings are conducted expeditiously and to comply "without delay with any determination of the Arbitral Tribunal and the LCIA Court as to procedural or evidential matters, or with any order or directions of the Arbitral Tribunal and the LCIA Court".

16.1

There is no longer a default seat of arbitration in the absence of party agreement (being London in the Original Rules). Rather, "the seat of arbitration shall be determined by the LCIA Court in view of all the circumstances, and taking into account the written statements made by the parties" (see below).

20.4

The onus is placed upon the parties to produce a witness at a hearing, with potential costs implications for a recalcitrant party.

22.2

Where the governing law is not selected by the parties, the Tribunal can decide "in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction". This provides helpful guidance to the Tribunal.

28.4 (b)

Costs will be set not only according to the result of the arbitration but taking into account "conduct and cooperation [of the parties] during the arbitration and any undue delays or unnecessary expense caused by or attributable to a party or its representatives" (see below).

32.6

Where the seat of arbitration is outside India, Part 1 of the Act (which confers powers on the Indian courts to order interim measures, appoint and remove arbitrators and hear challenges to awards) is expressly excluded. Therefore, there is no longer a need to stipulate as such in an arbitration agreement. The exclusion, however, does not apply where the place of arbitration is in India.

Cost of LCIA India arbitration

The Rules replicate the Original Rules in providing for an hourly rate for arbitrators and the institution, albeit that they provide their own benchmark figures (capped for arbitrators at INR 20,000, apart from in "exceptional cases"). Some have remarked that this will provide a disincentive to the speedy resolution of the dispute. However, hourly rates (as opposed to a fixed advance on costs based on the amount in dispute) are commonly seen as a benefit of LCIA arbitration, particularly for the less complex cases where sums in dispute may still be substantial. Arbitrators in ad hoc arbitration in India are presently paid on an hourly basis, or per hearing, at a higher rate than this. It is, of course, welcome that costs can now be minimised by the parties' own conduct.

Notes for Arbitrators

Alongside the Rules, LCIA India has published its Notes for Arbitrators, setting out the standards that the LCIA expects of those that manage its arbitrations. Topics addressed include independence and impartiality, confidentiality and the conduct of the arbitration. The document not only provides useful guidance for arbitrators but will also be of interest to users of arbitration who will be keen to ensure that LCIA India arbitrations reflect international norms.

India as a seat of arbitration

Whilst the Rules undoubtedly provide a more efficient means of resolving India-related disputes, not all such disputes will be resolved in India itself. Given the background of judicial interference in arbitrations seated in India, LCIA India has refrained from making New Delhi the default seat. Rather, the choice of seat will always be a deliberate one. It is expected that parties will often select a seat outside of India, thereby choosing the courts of another jurisdiction to support their arbitration insofar as they need them. Nonetheless, for convenience, hearings could still take place in India.

Despite the attractiveness of this option, it is possible (and not without precedent) that the Indian judiciary may still involve itself in a dispute outside India where an Indian party is involved. In any event, there are signs that the attitude of the judiciary itself may be evolving and the Ministry of Law and Justice has, on 9 April 2010, produced a consultation paper on changes to the 1996 Indian Arbitration Act. This development in addition to the Rules certainly provides much cause for optimism.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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