Using fast track arbitration for resolving commercial disputes

Global Publication March 2018

International arbitration, which initially developed as an efficient and flexible form of dispute resolution, is no longer considered to be a faster and cheaper alternative to court proceedings. Paradoxically, according to a recent PWC survey, almost a quarter of their respondents (22 per cent) across all industry sectors stated that arbitration was more costly than other methods of dispute resolution and almost a fifth of respondents (17 per cent) found that the arbitration often took longer than the available alternatives.

There are many reasons for cost and delay in arbitration. One view is that arbitration has fallen victim to its own success. Common reasons quoted as causing delays in arbitration include the parties’ tendency to recreate the procedural steps typical for court proceedings (including disclosure, post-hearing briefs, separate cost submissions) and the compensation scheme for arbitrators which encourages a more thorough approach by arbitral tribunals.

To address the need for time and cost-efficient dispute resolution, most arbitral institutions have adopted a fast track option in their arbitration rules. The first expedited arbitration procedure was introduced in 1992 by the Geneva Chamber of Commerce in its Arbitration Rules (which are now a part of the Swiss Arbitration Rules). Since then, many other international arbitration institutions have followed suit including the American Arbitration Association (AAA), Stockholm Chamber of Commerce (SCC), Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC)) and most recently, the International Chamber of Commerce (ICC), which introduced an expedited procedure in January 2017.

The London Court of International Arbitration (LCIA) does not have separate rules for fast track arbitration. The LCIA Rules can be easily adapted to achieve an expedited process but this is rarely done in practice.

Expedited procedure under various arbitration rules

The main difference between the different sets of rules for expedited procedure is the monetary threshold to qualify a dispute for fast track schemes and whether expedited procedure rules apply automatically or by election of the parties.

Expedited procedure is normally reserved to small value claims. However, the understanding of what constitutes a small claim and the corresponding monetary threshold vary significantly from institution to institution. Under the ICC Rules, expedited procedural rules automatically apply to disputes worth US$2 million or less if the arbitration agreement was made after March 1, 2017 and the parties did not specifically opt out of the expedited procedure in their agreement. For claims under the ICC Rules which are higher than US$2 million, parties have an option to adopt the expedited procedure. In that respect, the mandatory nature of the ICC expedited procedure is unique, as under most other institutional rules the expedited procedure can be implemented only upon the parties’ agreement, which normally forms part of the arbitration clause.

In HKIAC and SIAC cases the threshold for fast track is higher – US$3 million at HKIAC and US$4 million at SIAC. In contrast, the threshold for expedited procedure is much lower under the Rules of the International Centre for Dispute Resolution (ICDR), being just US$250,000.

In expedited arbitrations speed is achieved principally by simplifying the procedure and imposing strict deadlines on the parties and tribunal. The parties normally have to limit their submissions and forgo certain stages in the process. In the SCC expedited procedure, for example, the request for arbitration must also be the statement of claim and the answer has to constitute the defence. In the ICC expedited procedure, the arbitrator has discretion to decide the case on documents only without examination of witnesses and experts and without an oral hearing.

Fast track cases are usually decided by a sole arbitrator. This helps to save cost and avoid delays, which are often associated with taking collegiate decisions. The SIAC Rules, for instance, vest the Court President with the power to appoint a sole arbitrator if the case is subject to the expedited procedure rules. The ICDR Rules specifically require a case to be referred to a sole arbitrator when the expedited procedure applies. In claims which automatically qualify for an expedited procedure under the ICC rules, the parties’ agreement to use three arbitrators will not be valid and the case will be referred to a sole arbitrator if the parties specifically did not opt out of expedited procedure route.

Since it is often very time-consuming for a tribunal to draft, approve and submit an award, the whole process is streamlined to ensure that the final award is issued within a strict timeframe. Under the ICC expedited procedure rules, the final award should be made within six months of the case management conference – and the intention is to adhere to this deadline (it has to be noted, however, that under the ICC Rules, regular and almost automatic extensions of time by the ICC Secretariat for issuance of the final award are fairly common). Similar deadlines apply under the HKIAC and SIAC expedited procedures, where the final award must be issued within six months after the tribunal is constituted (SIAC) or after the tribunal received the file (HKIAC). The SCC and ICDR impose even more stringent cut-off dates – the final award must be rendered three months after the case was referred to the arbitrator (SCC) or 30 days after the oral hearing (ICDR).

Advantages of fast track arbitration

Clearly, one of the main advantages of fast track arbitration is resolving the dispute and getting the final award within months rather than years.

Rendering an award within three to six months from the beginning of the proceedings is in sharp contrast to the duration of arbitration under standard procedural rules where a typical dispute lasts about 12-18 months from commencement to the final hearing. When both parties are cooperative, it is possible to achieve results even faster. We know of fast track cases where the award was made within two and a half months from the request for arbitration and two and a half weeks of the formation of an arbitral tribunal.

Another advantage attributed to arbitration under expedited procedure rules is lower cost. The absence of oral hearings, a more efficient procedure, shorter submissions and focusing on the key points in dispute supposedly lead to less expenditure from both parties. So far, however, there are no reliable statistics which would support this assumption.

Disadvantages of expedited procedure

Despite the seemingly obvious advantages offered by fast track arbitration, parties must consider carefully whether their case is suitable to be heard under expedited procedures and whether they want their dispute to be resolved under them.

In certain cases, it could be extremely challenging for the parties to present their case fully under the simplified procedure if certain stages in the process are omitted. The disposal of the claim without actual hearing and with limited submissions can in certain cases (especially those where the facts are in dispute) be counterproductive. A hearing normally provides the opportunity for the tribunal to ask witnesses questions to clarify issues in dispute. If the arbitrator has to make her/his decision based on the documents alone or on the written witness statements, this may require more time and effort for the tribunal to accurately assess the facts and make an objective decision. Without a hearing, the parties are also deprived of the opportunity to test the accuracy of evidence through crossexamination of witnesses.

Due to the procedural limitations and stringent timeframes in fast track arbitration, there is a possible concern that arbitrators might be inclined to lower the required level of proof in pursuit of simplicity. Given the fact that in order to achieve speed in rendering an award, some arbitral institutions also allow tribunals not to provide reasons for their decision, it is very likely that the losing party may try to set aside the award by arguing that it was denied its fundamental right to present the case and there was a lack of due process. Such claims will not only add time and cost to the dispute resolution procedure but may also make the award unenforceable, especially if the seat is not arbitration friendly.

For the same reasons, parties need to think carefully before they decide to refer their case to a sole arbitrator.

The likelihood that the losing party will attempt to challenge the award in circumstances when a sole arbitrator rushed through the proceedings to determine factual and legal issues is high. In fact, statistics show that when parties are given a choice, they are less inclined to appoint a sole arbitrator. In 2016, in 63 per cent of LCIA cases, parties appointed three or two arbitrators which is probably indicative of the higher level of trust to collegiate decisions in arbitration.

The cost saving aspect of expedited procedures is rather complex. A fast track arbitration with short deadlines, entails very considerable preparation, whereby documents have to be collected and verified rapidly and witness statements drafted even before the commencement of proceedings. In expedited arbitration, legal counsel may need to be retained on a full-time basis for the whole duration of the case. The intense schedule of the arbitration procedure often also requires significant amounts of management. All of this may impact the parties’ legal costs.

When opting for expedited procedure, parties also have to consider the availability of arbitrators as expedited arbitration is quite intensive, whilst usually low-fee, and not all arbitrators will agree to take it on.

Practical recommendations

Arbitration clauses are crucial in determining procedural aspects of arbitration in case a dispute arises. Although at the drafting stage it is often impossible to foresee whether any dispute arising under the contract would be suitable for fast track arbitration or not, it is advisable to tailor arbitration clauses as much as possible to the specifics of each individual case rather than viewing them as a boiler plate clause.

Generally, fast track arbitration will not be suitable for complex disputes or multi-party proceedings. In order to assess the suitability of their dispute for expedited procedure, parties should be cautious about using the “small claim’ thresholds adopted by many arbitral institutions as a yardstick. A threshold set at US$2 million or even US$250,000 may be too high for small and medium companies and for parties whose business is based in the developing countries. Further, the value of the claim often may not reflect the complexity of the issues in dispute.

Expedited procedures would best suit those cases where the need to resolve disputes quickly outweighs the parties’ need to present their case in scrupulous detail, and there are no major factual disagreements. If determination of the factual issues requires an expert’s involvement or detailed witness statements, then fast track is best avoided. Amongst other areas, fast track arbitration may be an acceptable option for construction disputes, disputes concerning the termination of M&A contracts, and capital market disputes in relation to derivatives contracts.

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