Is the Parties’ Freedom to Establish the Rules of Procedure before the Arbitration Court Limited in Time?

We have taken as the subject of our comments the issue of the temporal scope of the parties’ freedom to establish the rules for an arbitration proceeding. The issue is significant enough in arbitration practice that we deemed it suitable to dedicate this essay to the Court of Arbitration at the Polish Chamber of Commerce on its 60^th anniversary.

The current arbitration law in Poland,¹ set forth in Part Five of the Civil Procedure Code, is largely based on the approach adopted in the UNCITRAL Model Law on International Commercial Arbitration.² The pattern for the Polish lawmakers included Art. 18 and 19 of the Model Law, regarded as the heart of the Model Law and sometimes referred to as the “Magna Carta of arbitral procedure.”³ Art. 18 states the principle of equal treatment of the parties and the principle of the right of each party to present its position fully,⁴ while Art. 19 states the principle that the parties are free to agree on the procedure to be followed by the arbitrators.⁵ This principle, which is one of the foundations of international commercial arbitration, is also reflected in the New York Convention⁶ (Art. V(1)(d)), the European Convention⁷ (Art. IV(1)(b)(iii)), the clear majority of national laws,⁸ and the rules of most of the leading arbitration institutions.⁹ Model Law Art. 19(2) authorizes the arbitration court to determine the procedure if the parties have not done so, providing that it may, subject to the Model Law, conduct the arbitration in such manner as it considers appropriate. The authority of the arbitration court is limited only to issues not governed by the Model Law—either by provisions of mandatory application or which the parties may contract around. This differentiates the objective authority of the arbitrators and the parties in establishing the procedure, as the parties are bound only by provisions of the arbitration law that are of mandatory application.

The parties may agree on the arbitration procedure by specifying their own rules of procedure in the arbitration clause or in an additional agreement, or, most often, by reference to a standard set of rules for ad hoc arbitration (e.g. the UNCITRAL Arbitration Rules) or the rules of a permanent arbitration court. The possibility of referring to the national procedure in force before the state courts should also be mentioned, although that choice could cause serious problems in adapting the procedure to the needs of arbitration, particularly international arbitration.¹⁰ The parties need not refer to only one set of rules, or define the rules for procedure in a comprehensive way. As part of the freedom to establish these rules, the parties may go only as far as deciding on some procedural issues, e.g. evidentiary procedure, or rules for specific actions. In practice, evidence rules are often agreed by reference to the IBA Rules on the Taking of Evidence in International Arbitration.¹¹

Art. 1184 of the Polish Civil Procedure Code essentially reflects the wording of Art. 19 of the Model Law, providing in §1 that if not otherwise provided by statute, the parties to an arbitration proceeding may themselves establish the rules and manner of proceeding before the arbitration court. It should be pointed out that the Polish Parliament divided arbitration procedure into two categories, one for “rules” and one for “manner of proceeding,” where the Model Law refers only to “procedure.” This distinction should not be given great weight, however, because the lawmakers do not indicate any difference between these categories or do not derive any effects from them, and thus “rules” and “manner of proceeding” should be treated uniformly as one set of procedural rules, which we may refer to hereinafter as “rules of procedure” or simply “procedure.” What may give rise to doubts, however, is that in Art. 1184 §2, when recognizing the power of the arbitration court to determine the procedure in the absence of agreement by the parties, the Parliament refers not to “rules” but only to the “manner” of proceeding (“the arbitral tribunal may … conduct the arbitration in such manner as it considers appropriate”). It nonetheless appears that this difference in wording of the two sections does not lead to any conclusion that there is a substantive difference between what may be determined by the parties and what may be determined by the arbitrators if the parties fail to agree. The difference in wording of the two sections may simply result from the fact that while the first sentence of Art. 1184 §2 is a faithful translation of the first sentence of Model Law Art. 19(2), in Art. 1184 §1 the parliament did not use the uniform concept corresponding to the term “procedure” as used in Model Art. 19(1), but for unclear reasons resorted to two different terms whose meanings are hard to reconcile against the background of Part Five of the Civil Procedure Code.

However, the actual distinction in the manner of determining the competence of the parties and the arbitrators with respect to procedure, in both the Model Law and the Civil Procedure Code, is justified, because in the two instances the authority to establish the procedure is carried out is differently. While the parties “agree” on the procedure, and the rules they agree on are addressed primarily to the arbitrators, the arbitrators determine the procedure primarily during the course of the proceeding—by conducting the arbitration in such manner as they consider appropriate.¹²

This leads us to the conclusion that the provisions of concern to us in the Civil Procedure Code do correspond to the provisions of the Model Law, which makes the Model Law itself, as well as commentary in the legal literature concerning the Model Law and other national laws based on the Model Law in the legal literature, relevant sources for interpretation of Civil Procedure Code Art. 1184.

The finding that there is extensive freedom of the parties to determine the procedure before the arbitration court raises the question of the scope and limits of such freedom. This issue becomes particularly significant in the context of the grounds for a petition to set aside an arbitration award and the grounds for denial of recognition of a foreign award.¹³ Here we consider only the issue of any limitation in time on this right of the parties.

The code does not provide a direct response to the question of the time frame in which the parties may independently determine the procedure. It appears that an answer should be sought firstly in the wording of the first sentence of Art. 1184 §2: “If not otherwise agreed by the parties, the arbitral tribunal may, subject to the provisions of the act, conduct the arbitration in such manner as it considers appropriate.” It follows from the literal wording of this provision that if the parties do not exercise their rights in this respect, then the arbitrators become empowered within the scope not regulated by the parties. However, the time through which the parties hold this right and from which point the arbitrators are empowered to decide on the procedure, or whether such a boundary may be laid down at all, does not appear from this provision.

The question then arises whether the parties’ authority is unlimited in time, and thus lasts up until the end of the proceeding,¹⁴ or if any boundary exists and if so what. Some commentators refer to this doubt in the recent literature, particularly in the context of the difference in wording of the current regulation from the wording of Civil Procedure Code Art. 705 in force prior to the amendments.¹⁵

According to R. Morek,¹⁶ it follows from Civil Procedure Code Art. 1184, unlike the former Art. 705, that the precedence of the intent of the parties in establishing the procedure is unlimited in time, and the parties may also establish or modify the procedure during the course of the arbitration proceeding.¹⁷ This view is generally shared by Ł. Błaszczak and M. Ludwik,¹⁸ although they also indicate a need, in consideration of the efficiency of the proceedings, for the parties to establish the rules up until the time the proceeding begins. According to T. Ereciński and K. Weitz,¹⁹ the view that the parties may agree on the rules of procedure at any time is doubtful, but they do indicate arguments in favour of the view that there is no limitation in time on this right of the parties.

Both Art. 494 of the former Civil Procedure Code²⁰ and former Art. 705 of the current code contained an express limitation in time on the parties’ right to independently determine the procedure before the arbitration court. The difference between these regulations is that under Art. 494 §2 of the former code, the right to determine the procedure passed to the arbitrators when they assumed their duties, while under former Art. 705 §1 of the current code the cut-off point for the parties’ determination of the procedure was the commencement of the proceeding. This state of law remained in force through 16 October 2005.

The limitation on the parties’ right to freely establish the procedure under those provisions generally did not give rise to any disputes or doubts. It was justified by the need for the arbitrators to be aware when taking up their duties of the rules according to which they were to resolve the dispute, so that later they would not be constrained by rules that might have inclined them to refuse to accept the function if they knew of them earlier.²¹ R. Kuratowski²² said rather that although the former Civil Procedure Code directly stated in Art. 501 (originally Art. 494) that the parties themselves could determine the procedure before the arbitration court until the arbitrators take up their duties, the phrase “prior to assumption of their duties by the arbitrators” could be omitted, because it was obvious that the parties could establish the rules of procedure only until the arbitrators assume office; after that, without the consent of the arbitrators, additional conditions could not be imposed on them that they would have to comply with when resolving the dispute, unless they had approved such conditions. In the literature under Art. 494 of the former code, however, the time when assumption of their duties by the arbitrators occurred was discussed. According to Z. Fenichel,²³ the parties themselves could determine the procedure only in the arbitration clause, and later actions in this respect were not binding on the arbitration court. M. Allerhand²⁴ stated that since assumption of their duties by specific arbitrators typically did not occur at the same time, “the reference in this instance is to the time of commencement of exercise of office by the court as such.” According to L. Peiper,²⁵ this meant the time at which “the last judge took office.” A different position, which in our view was correct in light of the law at that time and the purpose behind it, was taken by I. Wajsfater,²⁶ who stated that the time in question was when the first arbitrator accepted the appointment. Like R. Kuratowski, however, other authors as well indicated that a subsequent change in the rules of procedure by the parties was possible if it occurred with the consent of the arbitrators.

In the literature under former Art. 705 §1 of the current Civil Procedure Code, however, difficulties in defining the time that could be regarded as commencement of the proceeding were indicated. Such doubts were presented by S. Dalka.²⁷

The foregoing raises the question of what conclusions if any may be drawn from the legislative change that was made in Civil Procedure Code Art. 1184 compared to the prior regulation. Should the lack of any indication in this provision of a time restriction on the parties’ rights be deemed sufficient to accept that this authority is not limited, but continues for the duration of the entire arbitration proceeding? Or is the view presented by R. Kuratowski still valid that it is obvious, because it follows from the very nature of the relations between the arbitrators and the parties, that after the arbitrators take office additional new conditions may not be imposed on them which they must apply when resolving the dispute?

Answers to these questions are provided in part by an analysis of the drafting of the Model Law.²⁸ The Working Group²⁹ drafting the Model Law was devoted from the beginning to the goal of leaving to the parties the most extensive freedom in selecting and shaping the rules of procedure. The issue of whether autonomy of the parties in shaping the procedure should be limited in time was considered during the work on the draft.³⁰ U.S. delegate H.M. Holtzmann presented the opinion that realization of the parties’ autonomy in defining the arbitration procedure is not limited in time only to the period prior to commencement of the proceeding, but extends through the entire proceeding. A different position was presented by the Italian delegate, who stated that starting from the commencement of the proceeding, the parties’ agreements concerning the procedure require the consent of the arbitrators. Each of these positions received significant support among the other delegates.

In justifying the Italian position during work on the Model Law, M.J. Bonell stated that the parties’ right to determine the procedure ends upon commencement of the proceeding (appointment of the arbitrators) unless the arbitrators agree to subsequent modifications. The arbitrators should not be required to accept a completely different procedure than that on the basis of which they previously agreed to resolve the dispute. Starting from this assumption, Bonell proposed adding a provision to the draft that such change requires the consent of the arbitrators.³¹ The Italian proposal was not adopted, however. It was pointed out in the debate that arbitrators may resign if they are unwilling to conduct the proceeding under new rules agreed by the parties, and also that the parties may agree in consultation with the arbitrators on the permissible deadline for changing the procedure in force during the proceeding.³² Thus, even though the Model Law does not include the U.S. proposal to provide expressly in Art. 19 that the parties’ right to agree on the procedure continues through the course of the proceeding, the Working Group, followed by UNCITRAL itself, took the position that the existing wording provides for a right of the parties to regulate the arbitration procedure that is unlimited in time.³³ This position was also reflected in the commentary to the draft Model Law which UNCITRAL instructed the secretariat to draw up at its 17^th session in 1984.³⁴

Nonetheless, both positions continue to be presented in the international arbitration literature under Model Law Art. 19, although the clearly predominant view is that the parties’ autonomy to select and shape the rules of procedure is unlimited,³⁵ and thus the parties may establish such rules also after appointment of the arbitration panel, throughout the course of the proceeding, until it is completed with issuance of the final award. However, some national laws do provide express time limits on the parties’ right to establish the procedure. Examples include the laws of Italy,³⁶ Portugal³⁷ and Indonesia,³⁸ but none of these countries is listed among “UNCITRAL Model Law countries.”

In our view, under Polish arbitration law as well it should be accepted that the parties’ right to govern the procedure continues for the duration of the arbitration proceeding. It is of course hard to dispute the validity of the arguments that arbitrators should not be surprised by new procedural rules during the course of the proceeding, and the legal relationship existing between the parties and the arbitrators is formed when they assume office and should already be defined at that time. Nor should the argument be ignored that the lack of a clear time limit after which the right to determine the rules of procedure passes to the arbitrators renders the arbitrators’ authority illusory, since in reality it is always preceded by the parties’ authority in this respect. In our view, however, the crowning argument in favour of accepting that the parties’ right to determine the procedure lasts throughout the duration of the proceeding is that arbitration should serve the parties, not the arbitrators.³⁹ The provisions of arbitration law, including Polish Civil Procedure Code Art. 1184, serve to protect the interests of the parties, and not the arbitrators, and thus the argument against “surprising” the arbitrators with new procedural solutions is clearly of a secondary nature. In a situation where an arbitrator does not agree with an arrangement by the parties which is unreasonable or harmful for the proceeding, it should be deemed to be valid grounds for the arbitrator to step down. This argument was also raised during the drafting of the Model law.

In practice, particularly in Polish domestic arbitration, during the course of the proceeding the parties are rarely willing to cooperate on their own initiative in agreeing on rules for conducting the arbitration. When they do, it is usually because they have been urged to do so by arbitrators. The parties typically expect the arbitrators to take the initiative in establishing the rules appropriate for the specific proceeding, but if they are presented with reasonable proposals that help make the proceeding more efficient, they are willing to accept them even when they continue to be in bitter dispute. Such initiatives by arbitrators are invaluable. While arbitrators are not required to consult the parties on procedural solutions in the absence of the parties’ own agreement in this respect (which includes the provisions of the arbitration rules selected by the parties), T. Wiśniewski and M. Hauser-Morel⁴⁰ correctly point to the need for the arbitrators to show restraint in exercising their power to unilaterally impose solutions where there are gaps in the procedure, first attempting to bring the parties to agreement in this respect.

Even rarer are instances where the parties agree on measures that would impose their own procedural solutions on the arbitrators. But in this case as well, as long as the parties’ proposal does not violate mandatory provisions of arbitration law, there is little reason it would be opposed by the arbitrators. If, however, the arbitrators view the proposal as counterproductive or otherwise out of place, the proposal should be discussed with a view to accepting a solution that encourages efficient conduct of the proceeding. Because of the arbitrators’ qualifications and authority (which is why they were chosen by the parties in the first place to resolve the dispute), they have considerable ability to influence the parties and their approach to the procedure. Clearly, however, the arbitrators should not go so far as to impose their order on the parties’ mutual position and conduct the proceeding in a manner that is contrary to the parties’ position. Arbitration is hardly the place to take such authoritarian measures, which is after all what distinguishes it from proceedings before a state court. Moreover, if the parties are in a position to develop the procedure jointly, despite being in dispute, they are also in a position to dismiss an arbitrator who opposes them. Thus only the parties’ insistence on a procedure that is irrational or contrary to law would make it necessary for the arbitrator to resign.

This last issue, the inconsistency with law, or more precisely, mandatory provisions of arbitration law, of the parties’ agreement concerning procedure, raises another obvious question: What is the arbitrator’s proper response to such an agreement? Should the arbitrator ignore the unlawful agreement and conduct the proceeding in this respect in accordance with the arbitrator’s own conscience (or in accordance with applicable provisions of arbitration law, if any)? Or should the arbitrator respect the parties’ will, or resign if he or she does not agree with the solution adopted by the parties and they refuse to change it? This issue goes beyond the scope of this article, as this issue may arise regardless of when the parties agree on the procedure. It appears, however, that if the parties’ agreement violates fundamental principles such as equal treatment of the parties or the right of each party to present its case, the arbitrators should ignore the defective agreement and conduct the proceeding in a manner that respects such principles. The parties cannot agree, in a manner that is binding on the arbitrators, on procedures that violate these principles. This limitation follows from Art. 1084 §1, however, since the parties’ autonomy is limited by the words “unless otherwise provided by statute.” Therefore the arbitrators are not bound by procedures established by the parties (regardless of when) that violate mandatory provisions, and in this respect shall conduct the proceeding in accordance with the rules laid down by the arbitrators. Situations may nonetheless arise in which this solution will not be obvious, e.g. where the arbitration law applicable to a given arbitration proceeding provides for rules of procedure as mandatorily binding that are unusual or depart from the canon provided for in the Model Law.

The issue of a temporal limitation (or lack thereof) on the parties’ right to determine the procedure also raises the question of whether it is possible to exercise this right in a situation where the arbitrators have already established the procedure in the absence of the parties’ agreement. Obviously this does not have to do with a change in the rules with respect to actions already conducted, and thus the portion of the proceeding that the arbitrators have already conducted in the manner they considered appropriate (in the words of the law), but instances in which the arbitrators have established the procedure prospectively. Some authors go so far as to state that the parties may mutually agree to amend or set aside a procedural order already issued by the arbitrators.⁴¹ This position raises objections, however: if even the arbitrators’ exercise of their authority to establish the rules of procedure does not exclude the parties from determining the rules themselves, the arbitrators’ authority to establish the procedure is rendered illusory. It should be admitted, however, that the position that it is permissible for the parties to amend procedural orders (or, more precisely, the procedural rules arising under procedural orders, since the parties clearly may not amend or set aside orders as such) is supported by the literal wording of Civil Procedure Code Art. 1184 §2 and Model Law Art. 19(2). Literally speaking, the panel’s authority is to “conduct the arbitration in such manner as it considers appropriate” in the absence of agreement by the parties. So long as a given action has not yet occurred in the proceeding, it should thus be recognized that the parties have the right to determine the manner in which it will be conducted, even if previously the arbitrators indicated in a procedural order the manner in which they intend to conduct a given action or portion of the proceeding. In other words, adopting this position, the arbitrators’ authority set forth in Civil Procedure Code Art. 1184 §2 and Model Law Art. 19(2) is not realized until they conduct a given action within the proceeding (with respect to that action), but a procedural order is a preliminary action, a declaration by the arbitrators of the manner in which they intend to conduct a particular action—a declaration that the arbitrators obviously should comply with themselves, which follows from the fundamental principles of procedure before the arbitration court.

The international arbitration literature indicates the non-mandatory nature of Model Law Art. 19 and the arbitration regulations based thereon in countries that have adopted the Model Law.⁴² It was stressed during drafting of the Model Law that the parties may contractually limit their right to make later stipulations (or modifications) with respect to the procedure.⁴³ In practice such a limitation arises in a situation where the parties incorporate a set of arbitration rules into their arbitration agreement by reference. In this respect as well, however, the models adopted in specific sets of arbitration rules vary.

At one extreme is the ICC Rules of Arbitration, which provide in Art. 15, “The proceedings before the Arbitral Tribunal shall be governed by these Rules and, where these Rules are silent, by any rules which the parties or, failing them, the Arbitral Tribunal may settle on.”⁴⁴ Thus the ICC rules modify the rule of the complete freedom of the parties to establishment or amend the procedure, by providing that this is only possible where the given issue has not yet been determined by the rules, or in the many cases where a specific provision of the rules gives precedence to the intent of the parties.⁴⁵

The Arbitration Rules of the Chamber of Arbitration of Milan⁴⁶ provides in Art. 2 for the following hierarchy of procedural rules: (1) the chamber’s rules, (2) the rules agreed by the parties up to the constitution of the arbitral tribunal,⁴⁷ if consistent with the chamber’s rules, (3) in default, the rules set by the arbitral tribunal.

The Commercial Arbitration Rules of the American Arbitration Association provide (R‑1(a)) that the parties are deemed to incorporate the rules into their arbitration agreement. The parties may, however, agree in writing to vary the procedures provided in the rules (or, obviously, matters not governed by the rules). However: “After appointment of the arbitrator, such modifications may be made only with the consent of the arbitrator.” This means that the parties’ freedom to change the procedures provided in the rules is limited to the period prior to appointment of the arbitrators, and after that they must consent to the change.

Similarly, the Japan Commercial Arbitration Association provides in Rule 3 of its Commercial Arbitration Rules, “If the parties have entered into an arbitration agreement, these Rules shall be deemed incorporated into such agreement; provided that the parties may agree differently from the provisions of these Rules subject to the consent of the arbitral tribunal.”⁴⁸ It appears that in the case of the Japanese rules, modification of the procedure specified in the rules always requires consent of the arbitrators, regardless of whether the change is made before or after the arbitrators are appointed.

The UNCITRAL Arbitration Rules (as revised in 2010) provide in Art. 1(1) that where the parties have agreed that disputes are to be settled under the UNCITRAL rules, “then such disputes shall be settled in accordance with these Rules subject to such modification as the parties may agree.” This is supplemented by Art. 17(1), which provides that subject to the rules (which, under Art. 1(1), may be modified by the parties), “the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and … each party is given a reasonable opportunity of presenting its case” and subject to certain other restrictions.⁴⁹

At the other extreme is the LCIA Arbitration Rules, Art. 14.1 of which not only confirms that the parties may agree on the conduct of their arbitral proceedings at any time, but also states that they are encouraged to do so.⁵⁰ Under Art. 14.2, unless otherwise agreed by the parties under Art. 14.1, the arbitral tribunal has the “widest discretion” to discharge its duties as it sees fit, subject to the general duties set forth in Art. 14.1. Obviously, an arbitration clause made by the parties calling for arbitration according to the LCIA Arbitration Rules makes the rules an element of the parties’ agreement with respect to procedure, but some provisions of the rules expressly provide that they are applicable only as a third resort—when not otherwise agreed by the parties or determined by the arbitrators (e.g. Art. 15.1). The LCIA Arbitration Rules thus give precedence to the intent of the parties to the broadest extent⁵¹ while also vesting great discretion in the arbitral tribunal to establish the procedure if not otherwise agreed by the parties.

The Rules of the Court of Arbitration at the Polish Chamber of Commerce⁵² not only do not limit or exclude application of the rule of the autonomy of the parties to establish the procedure that is unlimited in time, but confirm application of such rule throughout the arbitration proceeding, providing in §6(1): “In any event … the Arbitral Tribunal, in applying the provisions of the Rules, shall take into account the provisions of the arbitration agreement (arbitration clause) and the principles and manner of conduct before the Court, as agreed by the parties.” Thus, not only in matters not governed by the Rules, but also with respect to provisions set forth in the Rules, it is not the arbitrator’s opinion but the mutual intent of the parties that shall decide on the binding procedure, regardless of whether such intent is expressed before or after appointment of the arbitrators. The Rules of the Court of Arbitration at the Polish Chamber of Commerce thus fall within the group of arbitration rules that respect the autonomy of the parties to establish the arbitration procedure to the greatest degree.

In conclusion, it should be mentioned once again that arbitration is there to serve the parties, not the arbitrators. V.V. Veeder⁵³ compared the arbitrator to the captain of a ship sailing through a storm with the owners onboard. The ship belongs to them, they decided on a hazardous excursion, and they bear the risk of loss of the cargo. The captain provides them a service for a fee, and they may release him at any time. But there is no other sailor or navigator quite so wise, experienced and skilled as he—which is why they chose him in the first place. That is also why they give him their full trust and listen to his recommendations even under the most difficult conditions.

Our wish for the Polish Chamber of Commerce on its 60^th anniversary is that in every arbitration case considered here, the parties will be confident that their ship is sailing in the right direction and will safely reach port.