On 1 June 2021, two sets of rules respectively applicable to investment and commercial arbitration proceedings conducted under the auspices of the Vienna International Arbitration Centre (“VIAC”), came into force.
Firstly, the VIAC Rules of Investment Arbitration and Mediation (the "Investment Rules"); and secondly the 2021 update to the VIAC’s Rules of Arbitration and Mediation (the "2021 Vienna Rules"), which will supersede the 2018 edition of therules (the "2018 Vienna Rules"). Both the Investment Rules and the 2021 Vienna Rules apply to proceedings commenced after 30 June 2021. These developments may be of particular relevance to disputes with a link to Russia as the VIAC is one of only a handful of foreign institutions granted the right to operate as permanent arbitration institutions in Russia.
Each set of rules can be accessed below:
The Investment Rules
The Investment Rules are a standalone set of rules tailored to the specific requirements of investment disputes. By launching the Investment Rules, the VIAC is joining a growing number of institutions offering bespoke regulations for investment arbitrations. For example, the SIAC Investment Rules 2017; the SCC Arbitration Rules 2017, which has an appendix (Appendix III) entirely dedicated to investment arbitration proceedings; and the ICC Arbitration Rules 2021, which contain provisions specific to investment arbitration (an overview of these is set out in our blog post summarising the ICC’s 2021 Arbitration Rules).
Key aspects of the Investment Rules are summarised in the section below and all article references therein are to these rules.
i. Scope of Application
Art. 1(1) provides that an agreement to apply the Investment Rules may take the form of "a contract, treaty, statute or other instrument", including any offer contained in one of these documents, which the other party subsequently accepts by any means, including by commencing arbitration proceedings. The result that is likely intended by introducing a mechanism, which ultimately foresees that the parties decide on the suitability of the Investment Rules to their dispute, is to reduce the time and resources expended on jurisdictional skirmishes.
Art. 4 provides that the agreement to apply the Investment Rules is deemed to include a waiver of immunity from jurisdiction regarding proceedings relating to that arbitration. However, a waiver of immunity relating to the enforcement of an arbitral award must be expressed separately.
Counterclaims are provided for in Art. 9. A counterclaim may be remitted to be addressed in separate proceedings if: (i) the parties are not identical; or (ii) a counterclaim submitted after the answer to the statement of claim would result in a substantial delay in the main proceedings (Art. 9(3)). One concern that these provisions appear to be addressing is the use of counterclaims as a delay tactic.
iii. Third-Party Funding
The Investment Rules require parties to disclose both the existence of funding and the identity of the funder in the statement of claim, in the answer to the statement of claim, or immediately upon concluding a third-party funding agreement (Art. 13a(1)).
The tribunal also has the discretion to order the disclosure of "specific details of the third-party funding arrangement and/or the third-party funder’s interest in the outcome" as well as whether the funder has undertaken to cover any adverse costs liability (Art. 13a(3)).
‘Third-party funding’ is defined as: "any agreement entered into with a natural or legal person who is not a party to the proceedings or a party representative (Article 13), to fund or provide any other material support to a party, directly or indirectly financing part or all of the costs of the proceedings either through a donation or a grant, or in exchange for remuneration or reimbursement that is wholly or partially dependent upon the outcome of the proceedings or in return for any premium payment" (Art. 6(1)). This definition does not capture funding received from the party’s counsel, such as contingency fee arrangements. Similarly, commercial lending appears to be excluded.
The above requirements for third-party funding to be disclosed early and the tribunal’s power to order the disclosure of certain aspects of the funding arrangement, appear directly to address comments made by States in the context of the UNCITRAL Working Group III, which particularly emphasised potential conflicts of interest for arbitrators and implications for security for costs. However, the risk of being compelled to disclose parts of confidential funding arrangements may prove to be a deterrent for potential funders.
iv. Amicus Curiae/Joinder
In disputes arising out of a treaty or statute, a tribunal may respectively allow submissions from a non-disputing party or non-disputing treaty party on (i) a factual or legal issue and (ii) questions of interpretation of the applicable treaty (Art. 14(a)).
Conversely, in disputes arising out of contracts, the tribunal may join a third party to the proceedings upon the request of a party or a third party (after hearing the parties, including the third party to be joined) and assessing all relevant circumstances (Art. 14(1)). Likewise, two or more proceedings administered by the VIAC with the same seat may be consolidated if: (i) the parties agree to the consolidation; or (ii) the same arbitrator(s) was/were nominated or appointed (Art. 15(1)). Notably, there is no provision that claims which are to be consolidated must fall within one pre-set category, such as claims arising from a breach of contract, a treaty, or another legal instrument. Similarly, there is no bar to consolidating claims if they do not involve the same parties or the same arbitration agreement. This lack of prescription is aimed at creating greater latitude for arbitration users and tribunals to make the required case management decisions in the specific circumstances of individual disputes.
v. Duration of Proceedings
The Investment Rules contain provisions aimed at controlling the duration of proceedings in three separate phases of an arbitration. Managing the length of investment arbitrations was specifically highlighted as one of the guiding principles underpinning the Investment Rules (See a statement from Claudia Annacker, who led the working group that drafted the Investment Rules).
First, the Investment Rules provide that an award shall be rendered no later than the later of six months after the last hearing or filing of the last authorised submission related to the matters to be decided in the award (Art. 32). The Secretary General may extend the time limit pursuant to a reasoned request from the tribunal or on its own initiative.
Second, a party may apply to the tribunal for early dismissal. For such an application to succeed, the claim, counterclaim or defence in question must be manifestly: (i) outside the jurisdiction of the arbitral tribunal; (ii) inadmissible; or (iii) without legal merit (Art. 24a(1)).
Third, the parties may agree to expedited proceedings no later than when the answer to the statement of claim is submitted (Art. 45(1)). Under Art. 45, an expedited arbitration is streamlined, among others, in the following ways:
- the arbitration is heard by a sole arbitrator (subject to the parties agreeing to a panel);
- counterclaims or set-offs are admissible only until the expiry of the time limit for submission of the answer to the statement of claim; and
- the final award is to be rendered within six months of transmission of the file (subject to premature termination of the proceedings).
In order to allow for an award to be rendered within six months of transmission of the file, the following will generally apply, subject to the tribunal making a contrary determination (Art. 45(9)): (i) after the statement of claim and the answer to the statement of claim are submitted, the parties will only exchange one further set of written submissions; (ii) all factual arguments will be made in the parties’ written submissions, to which all written evidence should be attached; (iii) to the extent requested or deemed necessary, the tribunal shall hold only one oral hearing; and (iv) no written submissions shall be filed after that hearing.
vi. Challenges to Arbitrators and Tribunal-appointed Experts
Aside from the common requirements of independence and impartiality, Art. 17(8) provides that arbitrators must generally not have the same nationalities as the parties to the dispute (subject to the parties agreeing to opt out of this requirement). The permitted grounds for challenging arbitrators are justifiable doubts as to their independence or impartiality (or the failure to meet any additional qualifications agreed by the parties) as set out in Art. 20(1). Whilst a challenge is ongoing, the tribunal, including the challenged arbitrator, may continue the arbitration, however, it may not issue an award until the VIAC Board has ruled on the challenge (Art. 20(4)).
Tribunal appointed experts may also be challenged. The grounds for arbitrator challenges are applicable to expert challenges by analogy (Art. 23).
One of the VIAC’s standout characteristics vis-à-vis some other arbitral institutions is the comparatively low cost associated with using it. For example, the VIAC’s cost calculator indicates that the total amount payable (comprising the arbitrators’ fees, administrative costs, and a registration fee) for an investment dispute of EUR 20 million decided by three arbitrators would range from EUR 302,650 to EUR 406,750. With a view to providing users with additional tools in relation to costs, Art. 33(6) permits VIAC tribunals to order security for costs if it is shown that "the recoverability of a potential claim for costs is, with a sufficient degree of probability at risk". Practitioners with experience of litigating before the English courts may recognise some similarity with the English law requirements for a security for costs order, for example, under CPR25.13(2)(c).
The Investment Rules reflect a concerted effort to create a specialised set of rules for investment disputes, which address the most common concerns expressed both by States and investors with experience in such proceedings: controlling the cost and length of arbitration. The VIAC also continues to compete with other arbitral intuitions on price and appears to be particularly attractive for small to medium-sized disputes. Whether this segment of the investment arbitration market is deep enough for the Investment Rules to become a success, remains to be seen.
The 2021 Vienna Rules
The revisions contained in the 2021 Vienna Rules align with wider trends in the international arbitration space, as reflected in other major institutional rules and practices. The key updates can be grouped into the following categories. Unless indicated otherwise, any article or annex references below are to the 2021 Vienna Rules.
i. Remote Hearings and Electronic Documents
In response to the rapid rise of remote hearings, Art. 30(1) expressly provides that hearings may be held in person "or by other means". Similarly, expressly addressing the increased use of soft copy documents, Art. 36(5) provides that the final award may be transmitted in electronic form rather than hard copy.
These provisions form part of the VIAC’s wider push towards greater digitisation, as illustrated by the introduction of its online case management platform in March, earlier this year. The platform can be used for file sharing and communication between the parties and the institution in all VIAC-administered proceedings.
ii. The Tribunal’s Powers and Obligations
Art. 28(3) sets out that the tribunal is entitled to facilitate the parties’ endeavours to reach a settlement. An identical provision is also contained in Art. 28(3) of the Investment Rules. However, these revisions are not intended to effectively turn arbitrators into mediators. The tribunal may also make interim decisions as to costs at any time during the proceedings (Art. 38(3)).
Under Art. 32(2), the tribunal shall now render its award no later than the later of three months (as opposed to the six months provided for in the 2018 Vienna Rules) after the last hearing concerning matters to be decided in the award or the filing of the last authorised submission concerning such matters.
iii. Cost Advances and Third-Party Funding
Like the 2018 Vienna Rules, the 2021 Vienna Rules generally require the parties to pay an advance on their costs. However, the revised Art. 42 of the 2021 Vienna Rules now allows for a more modulated approach as separate costs advances may be fixed for claims, counterclaims, claims raised by way of set-off, and joinder requests.
The provision in the Investment Rules whereby parties are required to disclose both the existence of funding and the identity of the funder in the statement of claim, in the answer to the statement of claim, or immediately upon concluding a third-party funding agreement, has been adopted in Art. 13a(1) of the 2021 Vienna Rules.
iv. Jurisdiction of the VIAC and wider Functions
Further mirroring the Investment Rules, Art. 46(2) of the 2021 Vienna Rules provides that the agreement to apply the 2021 Vienna Rules is deemed to include a waiver of immunity from jurisdiction regarding proceedings relating to that arbitration.
Annexes 4 and 5 now set out the rules for cases in which the VIAC acts as appointing or administering authority, respectively.
Finally, continuing from the expansion of the VIAC’s jurisdiction to include domestic Austrian arbitrations introduced in the 2018 Vienna Rules, the new Annex 6 introduced in the 2021 Vienna Rules sets out supplementary rules for disputes relating to succession, which may now also be administered by the VIAC. Annex 6 applies pursuant to the parties’ agreement or if the relevant application has been foreseen by the deceased in a disposition of property upon death.
Based on the statistics published by the VIAC, the largest claim value in a dispute filed with the institution since 2019 is EUR 50,000,000. These figures suggest that, at least in recent years, the VIAC has been particularly popular with small to medium-sized disputes, likely due to its comparatively low cost.
Against this backdrop, the revisions contained in the 2021 Vienna Rules codify some of the VIAC’s established practices and ensure that the institution remains in lockstep with developments in the wider arbitration space, whilst the introduction of the Investment Rules makes the VIAC one of the first arbitral institutions to publish a separate, dedicated set of procedural rules governing investment arbitration. It remains to be seen whether these changes further increase the VIAC’s appeal to arbitration users looking for an institution with dedicated expertise in both investment and commercial arbitrations, at a potentially more competitive price point than the larger institutions in the market.
For more information, please contact Evgeniya Rubinina.