Expedited Arbitration Clause – Use Responsibly
24 May 2021
Authors: Markus Manninen, Pontus Ewerlöf and Minja Jantunen
Expedited arbitration is a tempting option for parties drafting commercial agreements. This is understandable: who would not want their dispute resolved quickly and on the cheap? However, experience shows that expedited arbitration clauses are sometimes used also in agreements that likely induce disputes involving significant monetary value, complex legal issues, or extensive evidence. These characteristics cause challenges in the expedited environment. The new combined arbitration clauses are worth trying.
1 Use of the Expedited Arbitration Clause
By provisions regarding expedited arbitration, arbitration institutes offer an even more efficient and low-cost arbitration compared to standard arbitration. It appears that the users have found the expedited proceedings attractive. According to the statistics of the ICC, 146 arbitrations had been or were being conducted under the ICC Expedited Procedure Provisions as of the end of 2019. According to the 2020 statistics of the Finland Arbitration Institute, 21% of the requests for arbitration were issued under the Rules for Expedited Arbitration. Between 2016 and 2019, the portion of expedited arbitrations varied from 3 to 10 per cent. In Sweden, the SCC has provided Rules for Expedited Arbitration since 1995. Since then, the rules have been amended several times, and the recent rules came into force in 2017. In the past years, the expedited proceedings have represented 25 to 30% of the total number of cases administrated by the SCC. In 2019, 52 out of the total number of 175 cases were handled under the SCC Rules for Expedited Arbitration.
However, the parties entering into an agreement and drafting an arbitration clause should always carefully consider whether expedited arbitration is suitable in the possible dispute arising out of their agreement. In case the parties have agreed on expedited arbitration and a complex dispute arises, the parties might not eventually be willing to follow the default rules on expedited arbitration. On the contrary, they frequently request procedural steps, for instance oral hearing, that belong to standard arbitration procedures but not to expedited arbitration. These additional steps cause more work and increase time and costs of arbitration. In the worst case scenario, the benefits of an expedited arbitration procedure are practically lost. Parties’ conduct can lead to an extreme situation in which a standard procedure is pushed through in relatively quick procedure but with an increased risk of mistakes and a considerable pressure.
By way of an example, the ICC Expedited Procedure Provisions provide for a proceeding with a final award rendered within six months from the case management conference. The procedure is simplified, and the arbitral tribunal has discretion to adopt such procedural measures as it considers appropriate. The arbitral tribunal may, after consultation with the parties, inter alia, decide the dispute solely on the basis of the documents (i.e. without a hearing and examination of witnesses or experts). The arbitral tribunal may also disallow requests for document production or limit the number, length, and scope of written submissions and written witness evidence. The procedure is applicable, in principle, in cases in which the value of dispute does not exceed USD 3 million.
Under the Rules for Expedited Arbitration of the Finland Chamber of Commerce, the dispute are decided by a sole arbitrator. The parties may agree that the dispute will be decided solely based on documentary evidence. A hearing is held only if requested by a party and if deemed necessary by the sole arbitrator. In addition to the Statement of Claim and the Statement of Defence, the parties may each file only one written submission unless the sole arbitrator decides otherwise in special circumstances. The submissions must be brief, and the time limits within which the submissions must be filed may not exceed 14 days. The time limit for the final award is three months from the date on which the sole arbitrator received the case file. The final award must be made in writing, but it does not contain the reasons therefor, unless a party has requested a reasoned award. The costs of expedited arbitration are lower compared to standard arbitration.
The SCC Rules for Expedited Arbitration are very similar to those adopted by the FAI. The expedited cases are decided by a sole arbitrator within three months from the referral of the case from the SCC to the sole arbitrator. Moreover, there are certain limits to the parties’ submissions. As a general rule, the parties may make only one supplementary submission in addition to the request for arbitration and the answer, the submissions should be brief, and the submissions must be filed within 15 working days. A hearing must be held only at the request of a party and if the sole arbitrator considers the reasons for such a request compelling.
In practice, it is more of a rule than an exception that the parties to an expedited arbitration request for another submission round, oral hearing, and/or a reasoned award. No stone is left unturned in the search for justice. When parties request for additional procedural steps, arbitrators must keep in mind that they are serving the parties, who must have reasonable opportunity to present their case. Rejecting the parties’ joint procedural requests is practically impossible.
When the procedural steps mentioned above are applied, they may lead to the need for extending the default time limits, including the time limit for the arbitral award. This conclusion is supported by experience but also by the statistics. One fourth of the awards in ICC expedited arbitrations could not be rendered within the stipulated six-month time limit.
3 Next Generation: Combined Arbitration Clauses
Expedited arbitration is a practical dispute resolution mechanism when applied in the right cases. But it is not always easy to foresee what are the right and what are completely wrong cases for expedited arbitration. A so-called combined arbitration clause may be the solution to this problem. The idea is that arbitration will be expedited, unless the institute decides that the concrete dispute calls for an ordinary arbitration.
For instance, the FAI has offered a model combined arbitration clause from the beginning of 2020. It reads as follows:
“Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or validity thereof, shall be finally settled by arbitration in accordance with the Rules for Expedited Arbitration of the Finland Chamber of Commerce. However, at the request of a party, the Arbitration Institute of the Finland Chamber of Commerce may determine that the Arbitration Rules of the Finland Chamber of Commerce shall apply instead of the Rules for Expedited Arbitration, if the Arbitration Institute considers this to be appropriate taking into account the amount in dispute, the complexity of the case, and other relevant circumstances.”
A similar model arbitration clause is offered by the SCC.
A combined arbitration clause leaves room for necessary flexibility after a dispute has arisen.