As international transactions have become larger and increasingly complex, more time, effort and costs are needed to resolve related disputes. There have been continued discussions among international arbitration practitioners on a global level to effectively streamline the time, effort and costs of arbitration. In addition, some believe that it is necessary to prepare alternative measures of dispute resolution. In this aspect, important improvements have recently been made to address complex international transaction disputes: a legal and institutional development has been the introduction of (i) the Prague Rules, seeking to promote procedural efficiency in international arbitration, and (ii) the Singapore Convention on international mediation. For practical assistance for international dispute resolution, (iii) the use of third party funding has been increasing.
1. The Prague Rules
The Prague Rules refer to the “Rules on the Efficient Conduct of Proceedings in International Arbitration,” which were adopted at the inaugural conference held in Prague on December 14, 2018. The purpose of the Prague Rules is to supplement an existing arbitration agreement between the parties or the existing arbitration rules of the arbitral institution chosen by the parties, rather than to replace the existing arbitration agreement or institutional rules. The Prague Rules serve a similar function as the International Bar Association Rules on the Taking of Evidence in International Arbitration (the “IBA Rules on Evidence”), which have been used for numerous international arbitration proceedings over the years since it was announced by the IBA as a guideline. Unlike the IBA Rules on Evidence which feature more characteristics found in “common law” systems than in “civil law” systems, the opposite is the case in the Prague Rules.
The Prague Rules are characterized as granting more authority and a more significant role to the arbitral tribunal with respect to arbitration proceedings, similarly to litigation practice in civil law systems wherein the court is given more authority and undertakes a leading role in fact-finding. Specifically, unlike the existing practice of international arbitration which is based on the principle of pleadings where a judgment is made based on the facts pleaded by the parties concerned, the Prague Rules allow an inquisitorial system which gives more discretion to the arbitral tribunal to find facts even if they have not been pleaded by the parties. The Prague Rules also suggest allowing the arbitral tribunal to take the lead in case management, for example, by providing the tribunal authority to appoint neutral experts. Also, unlike the IBA Rules of Evidence where document requests will be made typically to seek categories of documents from the other party, which incur significant time and costs, the Prague Rules propose a method simplifying these document production procedures, to request specific documents directly to the arbitral tribunal, instead of the other party, as necessary. Under the existing practice of international arbitration, the arbitral tribunal’s involvement in the case is limited and minimal until the hearing, which is the last stage of the arbitration, while the parties lead development of the case until the date of the hearing. The Prague Rules recommend that the arbitral tribunal actively engage with the parties before the hearing to develop the case and discuss with the parties in the preceding stages to address and narrow the gap of the key issues.
The Prague Rules suggest ways to streamline the arbitration process by giving more authority to the arbitral tribunal in areas where significant time and costs had been incurred during the arbitration process. Hence, the Prague Rules are expected to be widely used by those seeking to increase efficiency in arbitration procedures. Furthermore, the Prague Rules, being based on civil law, may be preferred in disputes between civil law countries like Korea for whom the rules would naturally be more familiar.
2. The Singapore Convention
The Singapore Convention refers to the “United Nations Convention on International Settlement Agreements Resulting from Mediation” adopted on August 7, 2019. The purpose of the Singapore Convention is to facilitate the international enforcement of mediated settlements of disputes between international parties. While similar to the “New York Convention” (or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards), the Singapore Convention allows the international enforcement of mediations despite simpler proceedings compared to arbitration.
Under the Singapore Convention, the parties may seek enforcement of their mediation in a court of a ratifying country, enabling an agreement of the parties through mediation to have the same effect as a court decision or arbitral award. As of the end of 2019, 51 countries, including Korea and the US, have signed the Singapore Convention. Accordingly, commercial disputes arising in any of the ratifying countries can be settled more easily through mediation, and the mediated settlements are enforceable in the ratifying countries pursuant to the convention. The distinguishing feature of mediation—namely that it shall not be effective unless the parties reach a final agreement—still holds, and thus its uniqueness as the preceding stage to, rather than a substitute for, litigation or arbitration remains unchanged. Nevertheless, we expect a broader use of mediation as a system that reduces the time and costs in cross-border dispute resolution as a result of the increasing enforceability of mediated settlements across jurisdictions.
3. Third party funding
Third party funding means any funding provided by a party who is not a party to the dispute, a third party, in order to finance the costs of a party to the dispute in exchange for remuneration when a favorable ruling is rendered to the party. As arbitration cases are becoming larger and more complex, the costs of arbitration have continued to increase as well, and there are active discussions in the arbitration community regarding third party funding to finance costs and diversify risks.
In line with these trends, Singapore and Hong Kong have recently enacted laws expressly permitting third party funding in arbitration proceedings. In Korea, discussions are underway to determine whether third party funding should be permitted and what laws need to be in place for third party funding. Some argue that third party funding would constitute a violation of the Attorney-at-Law Act which prohibits sharing of profits earned through legal services, which may be provided only by licensed attorneys, with any person who is not a licensed attorney-at-law. On the other hand, some argue that third party funding can be implemented by controlling the authority of fund providers and their involvement in the procedures. Considering that active discussions are taking place in Korea following the global trend towards third party funding, we expect that third party funding will likely be available for complex arbitration cases in the near future.
