The Benefits and Perils of Expedited Arbitration Clauses

Companies often complain that international arbitration can be as long of a process as litigation. Therefore, they inquire about faster ways of resolving disputes, such as resorting to expedited arbitration. Many arbitration rules incorporate this alternative, and it can be a powerful tool, but there may be several perils associated with it that companies should consider when deciding whether to expedite their arbitration.

The problem, the common solution and the problem with the solution

• Many corporate users believe arbitration – domestic and international – has become slow, costly and too much like litigation.
• In response, clients are demanding expedited arbitral procedures. While that objective is understandable, in some cases, the remedy may be worse than the disease.
• Parties are now including time limits in their arbitration clauses – often with unrealistic deadlines that do not provide sufficient time for what the arbitral process requires.
• Deadlines that are too ambitious could render the resulting award unenforceable, defeating the main purpose of the arbitration.
• While these clauses offer advantages in terms of an early award, they can favor the deep-pocketed party or the first mover and can seriously prejudice the smaller party in the event of a dispute.

The problems with arbitration ‘deadline’ clauses

• First, arbitration deadline clauses are often unrealistically aggressive and do not allow sufficient time to form a tribunal, prepare submissions and hold a hearing. They also often make no allowances for the other inevitable exigencies of dispute resolution – which is especially true in significant or complex cases.
• Second, these clauses can be viewed as temporally restricting the tribunal’s jurisdiction, such that a late award may be unenforceable on the theory that the tribunal’s jurisdiction has been time-constrained by the parties (under the doctrine of functus officio).

How to provide for functional expedited arbitration

Clients that desire speedy proceedings should either use an institutional form of expedited arbitration or draft a bespoke arbitration clause that avoids the flaws in deadline clauses and provides for a realistic arbitration process.

Recommendations and best practices

• Strongly consider using the expedited rules of an established institution that actively administers its cases and allows the institution or tribunal to use its judgment in modifying the expedited procedures.
• If you use a bespoke clause, draft for realistic time periods and allow deadlines to be extended by the tribunal (or institution) when necessary.
• Be aware of the potential prejudice to the client in agreeing to accelerated arbitration and forgoing certain forms of process, such as document disclosure.

Institutional expedited arbitration

• Many of the major arbitral institutions have developed expedited arbitration rules that are tried and tested.
• Typically, these rules impose abbreviated proceedings, limit or eliminate hearings, establish (extendable) deadlines for issuing the final award and vest the arbitrator and/or the institution with broad authority to truncate the process. Some also give the institution the power to appoint a sole arbitrator, even if the parties agreed to three.
• Expedited rules tend to apply automatically when the amount in dispute is below a defined threshold, but they also allow users to opt into the procedures for larger disputes. The ICDR, the ICC, the LCIA, the SCC, the SIAC, the HKIAC, CPR and JAMS all provide for expedited procedures.

Drafting considerations for functional expedited arbitration clauses

• Provide for a presumptive deadline but give the tribunal discretion to extend it. The clause should grant the tribunal the power to extend the deadline for good cause, on a finding that more time is required due to the complexity of the case, on account of unforeseen circumstances or in the interest of due process.
• Any target date for the award should run from the constitution of the tribunal or (better yet) the first case management conference or procedural hearing. It can take months to form a tribunal, which can eat up a significant portion of the expedited timeframe.
• Consider providing for a sole arbitrator. Frequently, delays are created by the inability of three busy arbitrators to coordinate their calendars.

Rethinking the need for expedited arbitration: Is it really essential?

• Parties should not forget that there is a relationship between time, on the one hand, and quality of processes and decision-making on the other. Arbitral awards are generally not reviewable for errors of fact or law, and arbitrations sometimes offer what is effectively rough justice.
• While expedited arbitration may be suited to simple, low-value disputes, when used for complex, significant or high-value cases, the effects can have a significant impact.
  • For example, where a smaller intellectual property (IP) owner has contracted with a larger player providing capital and support, a dispute may have far-reaching consequences concerning the use or misappropriation of the smaller company’s IP.
  • Expedited procedures may prevent thorough development of all the issues and can be used tactically by the larger party to rush an important decision or gain leverage in settlement discussions.
• Before agreeing to expedited arbitration, consider the following factors:
  • The importance of the relationship in commercial and economic terms.
  • The likely nature of any dispute – the complexity of the relationship, the nature of recurring disputes, the magnitude of likely disputes and whether key assets or freedom to operate may be at issue.
  • The need for document disclosure. Tight deadlines make accommodating any sort of document disclosure difficult to manage.
  • Expedited arbitrations require intensive effort in a short period of time. Is the client ready and able to commit the resources required to support an accelerated arbitration?

Cooley’s international arbitration group is available to assist clients in evaluating the need for expedited arbitration, choosing the most appropriate institutional rules and designing bespoke arbitration clauses. You can reach us directly at arbitration@cooley.com.

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