As the SCC Arbitration Institute’s new summary dismissal procedure beds in, a debate at GAR Live Stockholm highlighted the danger that an innovation intended to cut off frivolous claims may instead prove yet another way to spin out arbitrations.
At the event held at the SCC’s premises on 27 April, Gibson Dunn & Crutcher partner Penny Madden QC introduced the motion that the new procedure “will cause more problems than it solves” (like other speakers, arguing the position assigned to her rather than necessarily stating her own view).
The London-based lawyer said it is “inexplicable” that Sweden – “the land of wonderfully civilized Volvo-driving ABBA fans known for their desire to avoid conflict” – would produce the “smorgasbord of disaster” which the new procedure promises to be.
This “bonkers” idea will lead to inefficiency, wasted costs, and increased rather than decreased conflict, she argued.
Because of the procedure, parties that want to delay proceedings can come up with “a myriad of legal issues” to be determined by a summary proceeding, which will lead to hearing after hearing, she said. Tribunals will have to decide essential questions in the compressed time allowed for summary dismissal, rather than at a full evidentiary hearing.
Madden rejected the notion that the procedure will allow claimants to knock out sham defences in advance – saying that that it will simply lead to a succession of “mini hearings” on discrete issues which delay the ultimate merits hearing where they could be considered all together. She also said the procedure could diminish the quality of justice the parties receive – with parties arguing on the basis of no evidence substantive issues that go to the merits of the dispute.
“Tribunals will then have to determine the issue in a short time frame without the full picture – corners will be cut,” she warned.
Supporting the motion, Fredrik Andersson, partner at Mannheimer & Swartling in Stockholm warned the procedure “will give rise to lots of applications because it’s lawyers’ nature to try everything – but most will fail because tribunals will only in exceptional circumstances dismiss arguments on a summary basis without a hearing”.
“Has anyone ever heard a client or a user complain about the lack of a summary procedure?” he said.
Be the frog that jumps
But Patrick Taylor of Debevoise & Plimpton in London, opposing the motion, said innovations like the summary dismissal procedure are essential if arbitration is to survive criticisms relating to the excessive time and cost of the process.
“Arbitration is in danger,” he warned. Referencing the urban legend about frogs in a pot of warming water he asked, “Do you want to be the frog that stays in the water until its grisly death, or be the one that sees the danger coming, and jumps out?”
The procedure may have certain negative side effects but “side effects are not a reason not to take the medicine,” he said. Armed with this “powerful tool”, arbitrators should be able to preclude abuses – provided they are “bold and proactive”.
As second opponent of the motion, Daniel Busse, partner at Allen & Overy in Frankfurt agreed. He gave the example of two parallel proceedings he handled, one with an arbitration clause and one without, where the litigation was determined by means of summary judgment within a year. The arbitration, in contrast, continues to rumble on four years later.
“That client told me they will not choose arbitration again,” Busse said. “If I had had the option of this type of procedure, I could have spared them years of fighting”.
Busse said the new procedure is consistent with arbitration’s much advertised “flexibility” and in fact allows tribunals to significantly reduce the length and cost of proceedings by cutting out swathes of issues at an early stage – if applied with caution and in consultation with the parties.
“It’s like a breath of fresh air in a stale environment”, he said – and will be a positive development for commercial arbitration just as the introduction of a summary dismissal procedure at ICSID did – in article 41.5 of the ICSID rules.
Following the formal debate, arguments went back and forth - with Andersson saying that his experience of article 41.5 proceedings had not been a happy one.
“One side says they want to invoke article 41.5. You get two rounds of submissions on whether they should be able to, along with a hearing, and then the tribunal decides the issue is too complicated to resolve without full evidence, meaning it was all a total waste of time and costs.”
“We’re not against early resolution of disputes,” Andersson said. “But such procedures create more problems than they solve. It’s almost never going to happen that a tribunal disposes of a substantive issue early.” The procedure is furthermore superfluous as tribunals already have inherent powers to organise summary proceedings, he said.
Madden suggested that even where summary dismissal on the merits might be justified, a cautious tribunal is likely to be reluctant to do it because of “due process paranoia” and the fear that one side will seek to set aside the award because they weren’t afforded the right to be heard.
By the same token, a bold tribunal might overestimate the extent to which the procedure allows them to depart from fundamental due process norms – seeing it as a “carte blanche” to ignore them, Andersson warned.
In an interjection the debate’s chair, Patricia Shaughnessy of Stockholm University, suggested that the Swedish courts would regard parties who chose SCC arbitration as having waived their due process rights to the extent required for the summary procedure to be effective. But Madden thought, if required to do that, parties simply won’t choose SCC arbitration in the first place.
By focusing on extreme worst-case scenarios, his opponents were missing the point, Busse countered. “Arbitration is about striking balances – in this case, between expeditious disposal and the due process rights of the parties. Right now, the balance is too far in favour of over-caution. We're sometimes seeing 'due process paranoia' rather than merely a sensible regard for parties' rights.”
Taylor added that the problems the procedure could bring are all “surmountable” and will help arbitration stay relevant to business and remain a legitimate means of dispute resolution.
The panel of judges was chaired by Phillip Capper of White & Case in London and included Charlotta Falkman of Gernandt & Danielsson, an SCC board member who participated in the creation of the procedure, and Vinge partner Mattias Rosengren. They ruled against the motion – although Falkman said it was “very embarrassing” to have to admit the strength of the objections to the procedure.
“I think this will give parties ideas they did not have before,” she said.
Rosengran acknowledged Andersson’s point that tribunals already have an implied power to summarily dismiss claims – but said the procedure would give tribunals confidence to do so despite “due process paranoia”.
“It will help users to know what rights they have and it will persuade arbitrators to consider the case in the most efficient way. I am totally for it,” he said.
Capper did not agree that “express articulation” of the arbitrator’s power can prevent such paranoia but said it “cannot hurt” to set out an existing power.
A show of hands revealed that, like the judging panel, GAR Live delegates rejected the motion – but by a significantly smaller majority than before the debate.