Arbitrations without arbitrators: an institutional paradox

Arbitrations without arbitrators: an institutional paradox

On 31 March 2021, the Singapore International Arbitration Centre (SIAC) reported a record caseload: 1,080 new arbitrations filed in 2020, dramatically up from 479 new cases in 2019.  In contrast, the number of appointments of arbitrators in SIAC arbitrations declined in 2020, as it had done also in 2019.  With 288 appointments to around 180 tribunals in 2020, SIAC saw a shortfall of about 900 between arbitrations registered and tribunals appointed. James Clanchy of the Lexis®PSL Arbitration team looks at the reasons for arbitrations without arbitrators, a phenomenon peculiar to institutions, and considers the practical implications. 

Three–two–one–zero 

In my analysis of arbitration statistics from 2019, which was published in the LexisNexis DR Blog on 30 July 2020, I noted that international commercial arbitration had been growing again before the COVID-19 pandemic and that this growth was largely in arbitrations before a sole arbitrator. See: Arbitration statistics 2019: rise of the sole arbitrator.

SIAC stood out as having a high proportion of sole arbitrators. The institution had appointed 145 of them while three-member tribunals could not have reached more than around a third of that number (SIAC had not provided a breakdown). SIAC’s annual report for 2020 paints a similar picture: 126 sole arbitrators appointed by the institution and a further 162 appointments. If all of the latter were to three-member panels, they would comprise 54 tribunals. On that basis, the total number of tribunals appointed in SIAC arbitrations in 2020 would be 180 as against 1,080 registrations of new cases.

The disparity is notable in SIAC but the phenomenon of arbitrations without arbitrators is not unique to it: it is a feature of institutional arbitration, which is virtually unknown in ad hoc and trade association arbitration. Its origins lie in the procedure, and cost, of commencing arbitration.  

Step one: appointing or filing

In ad hoc arbitration, it is usual for the claimant to appoint an arbitrator before serving a notice of arbitration on the respondent. Many standard form contracts provide for this. A party can appoint quickly in a telephone call and/or an exchange of emails. The arbitrator will likely charge a modest appointment fee but that won’t be payable immediately. 

The default procedure for commencing arbitrations under the Arbitration Act 1996 (AA 1996) is that, if a two or three member tribunal is to be appointed, each party is to appoint one arbitrator within 14 days of service of a notice (AA 1996, ss 14 and 16). See our Practice Note: AA 1996—appointing the tribunal

The UNCITRAL Arbitration Rules provide for a more leisurely 30 days but the principle is the same: appointing the tribunal is integral to commencing the arbitration. 

Similarly, under GAFTA (Grain and Feed Trade Association) rules, the claimant commences arbitration by appointing an arbitrator and giving notice to the respondent who then has just nine days to appoint a second arbitrator. 

In institutional arbitration, on the other hand, commencement of the arbitration and appointment of arbitrators are separated. The arbitration is commenced by the filing of a request for arbitration with the institution and by the payment of a registration fee, which can be five times as much as an arbitrator’s appointment fee in an ad hoc arbitration. A tribunal will only be appointed after certain other steps have been taken, including the payment of a pre-appointment advance on costs, which is on top of the filing fee and may run into several thousand pounds or dollars.  

If a claimant has commenced an institutional arbitration for the purpose of instigating settlement discussions, and/or to preserve time, the parties may prefer to delay the formation of the tribunal and the additional costs. A drawback in such a case is that there is no tribunal in place to make a consent award or to provide other assistance, as there would be in an ad hoc arbitration, in which a tribunal would have been constituted immediately.  

Arbitrations from a parallel universe

SIAC has not provided a breakdown of its arbitrations in which no arbitrators were appointed in 2020. 

However, there is an indication that impending time bars may have played a part: 15.7% of the contracts in issue dated from 2014, six years before filing. 

More significantly, perhaps, 734 of the cases (64%) arose from trade and 72 (6%) from shipping. Cases in these sectors traditionally go to ad hoc arbitration or to trade associations, not to institutions. Indeed, it has been suggested that such cases inhabit a parallel universe. Institutions tend to be associated instead with construction and engineering, energy, investments, shareholders’ disputes, i.e. with projects rather than transactions. See my blog post: The Silo Effect in Arbitration.

One reason why SIAC may have succeeded so well in attracting disputes arising from international commerce (buying, selling and transportation of goods) is that it has user-friendly rules (SIAC, rule 6) allowing arbitrations under associated contracts to be commenced in a single notice of arbitration and on payment of a single filing fee with the possibility of having the SIAC Court consolidate them (in 2020, 69 consolidation applications were made and 36 granted). A number of arbitrations arising under a series of sales contracts or bills of lading, for example, can thus be commenced relatively cheaply and easily. In contrast, when the London Court of International Arbitration (LCIA) introduced the composite request for arbitration in its 2020 rules, it still required payment of a separate registration fee in respect of each arbitration. 

Lessons from Singapore

Arbitration caseload statistics have to be analysed in the relevant economic and commercial contexts. There can be no doubt that SIAC’s impressive case numbers reflect the enormous growth in international commerce in the Asia-Pacific region.

More parties from Singapore were involved in SIAC arbitrations in 2020 than parties of any other nationality: 972 parties compared to 690 from India, which was in second place. At the contract negotiation stage, if a Singaporean party wanted to offer international arbitration in Singapore in a dispute resolution clause, it would have a limited choice. 

Both government and judiciary explicitly favour SIAC over ad hoc or any other form of arbitration. The institution is a statutory appointing authority. It is regularly praised by the Chief Justice, Sundaresh Menon, who went so far as to assert, in his keynote address at the SIAC Congress in 2018, that arbitral institutions had ‘not only a special role, but a duty, to shape the future of arbitration’.

Arbitrators, who have been looking with dismay at the burgeoning number of arbitrator-free arbitrations in SIAC’s caseload, may consider this a bleak vision. Arbitration belongs to its users, though, not to arbitrators. Perhaps it is time for surveys in the international arbitration community to ask about arbitrations without arbitrators and how they are perceived. 

 


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About the author:

James is an arbitration specialist. He has more than 25 years’ experience of ad hoc, trade association, institutional and investment arbitrations as a solicitor in London and Paris, as a former Registrar of the London Court of International Arbitration (LCIA), and as a case assessor for legal costs insurers and third party funders. His background as a lawyer is in international trade, commodities, shipping and insurance.

He trained at Withers in London and then spent four years in the firm’s Paris office. He was admitted as an avocat at the Paris bar (1994 – 2008). Returning to London, he spent more than 13 years at Holman Fenwick Willan in its Trade & Energy group. As Registrar and Deputy Director General of the LCIA in 2008 – 2012, he oversaw the administration of more than a thousand commercial arbitrations and assisted with a review of its Arbitration Rules. He subsequently spent two years at Thomas Miller Legal, assessing and managing a wide range of commercial and investment claims on behalf of insurers and funders. Returning to private practice in 2015, he spent a year in Stephenson Harwood’s International Arbitration group where he assisted on ICC and LCIA arbitrations, principally oil and gas disputes.

James is a Fellow of the Chartered Institute of Arbitrators. At LexisNexis, James works on the Lexis®PSL Arbitration module.