Summary Disposal: Towards More Efficient Arbitration
On 22 September 2022, the Law Commission of England & Wales published a consultation paper as part of its ongoing review of the Arbitration Act 1996 (the “Act”).
Among other things, the Law Commission proposes to amend the Act expressly to empower arbitral tribunals to summarily dispose of unmeritorious claims so that all or part of a dispute can be decided at an early stage of the arbitration. The Law Commission’s consultation paper asks four questions which we consider in this article:
- Should the Act provide that, subject to the agreement of the parties, an arbitral tribunal may, on the application of a party, adopt a summary procedure to decide a claim or an issue?
- If so, should the summary procedure to be adopted be a matter for the arbitral tribunal, in the circumstances of the case, in consultation with the parties?
- Should the Act stipulate the threshold for success in any summary procedure?
- If so, should the threshold for success be that a claim, defence or issue may be decided following a summary procedure where it has no real prospect of success, and when there is no other compelling reason for it to continue to a full hearing?
The Law Commission’s interest in reform in this area is welcome, albeit unsurprising, given the arbitration community’s recent commitment to reduce time and costs through procedural efficiency.[1] The arbitration rules of most major arbitral institutions now contain summary procedures.[2] However, with few exceptions, other major international arbitration jurisdictions do not address summary disposal in their arbitration legislation.[3] In that sense, the Law Commission’s proposal in this area has the potential for pioneering reform.
Question 1: Should the Act provide that, subject to the agreement of the parties, an arbitral tribunal may, on the application of a party, adopt a summary procedure to decide a claim or an issue?
The Law Commission proposes that the Act should provide that, subject to the parties’ agreement, arbitral tribunals have the power to adopt summary procedures to decide a claim or an issue. We agree with the Law Commission for two reasons: (a) combatting due process paranoia, and (b) increased efficiency.
- While it is arguable that tribunals seated in England and Wales already have the power to adopt summary procedures under Sections 33 and 34 of the Act, it is likely that such procedures are still being used less often than they should.[4] This may be in part because the question of whether arbitral tribunals have the power to adopt summary procedures is not expressly addressed in the Act, and the English courts have not comprehensively addressed the issue. Moreover, if a tribunal fails to comply with the due process requirements of the Act, in particular Section 33, its award can potentially be set-aside under Section 68.[5]
- The adoption and use of clear and express summary disposal provisions have the potential to save substantial time and costs, particularly where one party raises unmeritorious claims or defences as a guerrilla tactic to delay or burden the proceedings. In addition, the greater availability of summary procedures may present two further advantages: (i) summary procedures are particularly useful in certain types of disputes, such as debt claims where counterparty liability is often clear; and (ii) certain types of dispute users, such as financial institutions, have traditionally preferred litigation over arbitration in part because of the availability of mechanisms such as strike out and summary judgment.
As to the proposed language:
- We agree that summary disposal should be available “subject to the agreement of the parties” (i.e., non-mandatory, along the lines of section 69) and that the tribunal only be permitted to adopt summary procedures “on the application of a party”. Parties should be able to opt out, for example, if they are concerned that summary disposal might threaten the enforcement of the Award in a foreign jurisdiction.
- We agree with the proposed reference to the summary disposal of a “claim or issue”. This language is sufficiently broad to give the tribunal flexibility to use targeted summary procedures, for example in relation to issues which, whilst not amounting to a claim in themselves, might be sufficient to dispose of a claim.
- We note that the Law Commission adopts the English litigation language of “summary” disposal, whereas most arbitral institutions prefer the term “early” determination or dismissal when incorporating such mechanisms into their rules. In our view, “early determination” is a better fit with wider international arbitration practice and avoids any potential confusion or negative connotations associated with ‘summary justice’.
Question 2: Should the summary procedure to be adopted be a matter for the arbitral tribunal, in the circumstances of the case, in consultation with the parties?
We agree that the form of the summary disposal procedure to be adopted in any arbitration should be a matter for the arbitral tribunal to decide in the circumstances of the case in consultation with the parties, as opposed to being a procedure rigidly prescribed in the Act.
This proposal strikes a balance between increased efficiency and maintaining flexibility by placing strong reliance on the tribunal’s judgment and the parties’ preferences. The particular summary procedure adopted in any particular case will depend on all the factors, including the complexity and significance of the issue(s) to be decided. A one-size-fits-all procedure is to be avoided.
In this regard, the Law Commission’s proposal is consistent with the approach taken by the LCIA Rules, which permit a wide discretion to the arbitrators to determine the most suitable procedure in each case.[6] By contrast, other major arbitral institutions have opted for more detailed provisions stating specific deadlines.[7]
Incorporating a detailed mechanism in the Act, in our view, risks inflexibility and being incompatible with existing mechanisms in arbitration rules and agreements. The Act should adopt broad language giving the tribunal a wide discretion to adopt summary procedures as it sees fit.
Questions 3 and 4: Should the Act stipulate the threshold for success in any summary procedure? If so, should the threshold for success be that a claim, defence or issue may be decided following a summary procedure where it has no real prospect of success, and when there is no other compelling reason for it to continue to a full hearing?
We agree that the Act should specify the applicable substantive threshold for a claim or issue to be dismissed on a summary basis. Specifying such a threshold would increase legal certainty and consistency of application. In turn, certainty, consistency and predictability may encourage more parties to apply for summary procedures and more tribunals to grant such applications.
The Law Commission considers both the “no real prospect of success and no other compelling reason for trial” test, which is commonly used in English litigation, and the “manifestly without merits” test, which is more prevalent in arbitration internationally, and provisionally recommends the former.
The arguments for and against each test are finely balanced and we do not express a strong view either way. On balance, for the reasons set out below, we have a marginal preference for the “manifestly without merit” test.
A benefit of adopting the “manifestly without merit” test is that the Act would align with wider international arbitration practice, including the rules and guidelines of major institutions such as the LCIA, ICC, SIAC, HKIAC, SCC and ICSID. By contrast, the inclusion of a different test in the Act may create uncertainty for London-seated arbitrations administrated under institutional rules that already contain a different test for summary disposal, unless it is understood that the parties, by choosing such institutional rules, have validly agreed a different threshold than that set out in the Act.
On its face, the “manifestly without merit” test could be interpreted as being more stringent and difficult to satisfy than the “no real prospect of success” test. A claim or issue that is without merit is likely to have no real prospect of success. By implication, characterising a claim or issue as manifestly without merit suggests a higher threshold. A higher threshold might undermine the attractiveness of a summary procedure, as it lessens the chance of successful applications, and in turn might discourage parties from applying for summary procedures in the first place.
That said, it may be desirable to have a higher threshold for summary disposal in arbitration (as opposed to litigation) given the absence of an appeal mechanism in the arbitration context. Therefore, while we recognise the Law Commission’s attraction to the established body of case law concerning the “no real prospect of success” test, our view is that the “manifestly without merit” test is marginally more suited to making London a truly global arbitral seat.
Whichever substantive test the Law Commission decides to recommend, we propose that it should be expressly made subject to the parties’ freedom to agree to a different test, for example through a bespoke arbitration agreement or the selection of institutional rules. The introduction of the words “unless otherwise agreed by the parties” in the new statutory provision would help to reduce uncertainty for London-seated arbitrations conducted under institutional rules and arbitration clauses that already contain a substantive test for summary disposal.
Conclusion
We welcome the Law Commission’s summary disposal proposal. Expressly empowering tribunals under the Act to summarily dispose of unmeritorious claims is likely to alleviate due process concerns that presently surround the use of such procedures.
The Commission’s light-touch proposal broadly strikes the right balance: it confirms the power of tribunals to summarily dispose of issues on a party’s request, whilst preserving party autonomy to decide on the particular mechanism to be used or to opt out of the provision altogether.
Since very few arbitration jurisdictions address summary disposal in their arbitration legislation, reform in this area could enhance England and Wales’ status as a progressive seat for international arbitration.
Footnotes
[1] The LCIA does not publish yearly figures on average costs and duration of its arbitrations, but a report published in 2018 states that an average LCIA arbitration lasts 16 months and costs US$ 97,000. More recent figures from other jurisdictions are similar. For example, in 2021, HKIAC reported that an average arbitration administered by HKIAC lasts around 13 months and involves arbitration costs averaging US$ 64,606, with that figure increasing to an average of US$ 256,969 for cases where the amount in dispute exceeds US$ 100 million.
[2] See, for example, ICSID Rule 41, SIAC Rule 29, LCIA Article 22(viii), SCC Rules 12 and 39, HKIAC Article 43, and ICC Article 22 (as clarified by the ICC guidance note dated 1 January 2021). While the current UNCITRAL Arbitration Rules do not contain an early dismissal mechanism, the UNCITRAL Working Group is currently reviewing proposals to incorporate provisions to that effect in the next draft of the Rules (uncitral.un.org).
[3] The Law Commission’s consultation paper states that “[t]his would be a world-leading development. Summary disposal is not a common feature of foreign arbitration legislation.” We agree: the arbitration legislation of major jurisdictions including France, New York, Hong Kong, Singapore, Switzerland and Sweden is silent on summary disposal. By contrast, in the United States, section 15(b) of the 2000 Revised Uniform Arbitration Act provides that “[a]n arbitrator may decide a request for summary disposition of a claim or particular issue.”
[4] Although available statistics on the use of these procedures are limited, in 2021, tribunals in LCIA arbitrations reportedly received 15 applications for summary disposal, seven of which were granted, two were rejected, one was superseded by the parties’ settlement of the case, and five were yet to be determined at the end of 2021. It is unconfirmed that these Early Determination applications were made in the context of English-seated arbitrations, although it is likely that at least some were in circumstances where 85% of LCIA arbitrations are seated in England.
[5] In addition, the overseas enforcement of an award from England and Wales could be resisted under Article V.1(b) of the New York Convention on the grounds that the other party was unable to present their case.
[6] LCIA Rules, Article 22.1 (viii).
[7] For example, the SIAC Rules contain a mechanism in SIAC Rule 29, whereby upon receiving an application for summary dismissal, the tribunal must first decide whether to allow it to proceed. If permission is granted, the other side must be heard, following which the tribunal has 60 days to issue a decision.
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