Summary: Cost and delay remain the two areas of greatest concern to parties in arbitration. A particular source of frustration is that it can sometimes take many months for arbitrators to deliberate and issue an award. As a result, we are increasingly being asked whether arbitration agreements should include a deadline for the delivery of an award. This article considers some of the pros and cons of setting a deadline for the delivery of an award.
Cost and delay remain the two areas of greatest concern to parties in arbitration. Data released last year by the London Court of International Arbitration (“LCIA”) indicated that the median and mean durations of an LCIA arbitration are 16 and 20 months respectively.
Over the last few years there has been a huge focus on techniques for controlling time and cost in arbitration: all designed to reduce the duration of arbitration. But it’s not only arbitration proceedings that can take a long time. Perhaps the biggest source of frustration for parties, and their advisers, is that it can sometimes take months for the arbitrators to issue an award.
As a result, we are increasingly being asked whether a time limit should be prescribed in arbitration agreements within which the tribunal must make an award. The intention behind the imposition of a time limit is to ensure that the arbitration is concluded quickly and efficiently and that an award is issued promptly. However, in our experience, it is a strategy that can sometimes prove to be counter-productive: allowing respondents to frustrate the arbitral process and potentially leaving an award vulnerable to challenge.
A number of arbitral institutions do set deadlines for the delivery of awards.
The Arbitration Rules of the International Chamber of Commerce (“ICC”) include a deadline of six months from the last signature to the terms of reference and the Arbitration Rules of the Stockholm Chamber of Commerce also set a six month deadline from the date on which the arbitration was referred to the tribunal.
Other institutions, like the LCIA, simply provide that an award should be made a soon as reasonably possible from the date of the last submission.
The advantage of choosing institutional rules which set a time limit for the delivery of an award is that they also include provisions which allow the time limit to be varied if circumstances are such that the award cannot be delivered on time.
On the face of it this may seem to defeat the object of setting a deadline; but in fact it’s an important consideration.
Unlike court proceedings, arbitrators derive their jurisdiction from the parties agreement to arbitrate. Where a time limit is imposed within which the tribunal must make its award, failure to deliver an award within the specified time limit may mean that the parties’ consent to arbitration has lapsed and any arbitration award issued after the deadline may be unenforceable.
Take, for example an arbitration agreement that fixes a time limit for the delivery of an award from the date of the appointment of the tribunal or the date of commencement of the arbitration. If that time limit can be extended only by agreement of the parties, one party may try to frustrate the arbitration by delaying the process and refusing to agree any extension of time for the delivery of an award.
Where the seat of the arbitration is in England, the court may have the power under Section 50 of the Arbitration Act 1996 to extend time for making an award. However, where the seat of the arbitration is not in England, similar powers may not be available under the applicable law.
Another important consideration is whether the time limit imposed is realistic. Parties may be keen to include short deadlines for the resolution of disputes at the contract drafting stage however, in practice, it is not always easy to foresee the nature and complexity of disputes that may arise in the future. As indicated by the LCIA data on the average duration of an arbitration, it is unlikely that an arbitration in relation to a substantial dispute could be completed within a time scale of less than six months.
The danger of setting a unrealistic deadline is that the tribunal may be forced into a situation where, in order to comply with the time limit, it is forced to issue an award without giving both parties a reasonable opportunity to present its case or without having enough time to deliberate and issue a properly reasoned award. In both scenarios, the ultimate award would be vulnerable to challenge for lack of due process.
For parties who are considering prescribing a deadline for the making of an award, the choice of institutional rules which include a deadline may well be the answer – combining certainty with a degree of flexibility designed to prevent one party from frustrating the process.
Arbitral institutions, like the ICC, are clearly committed to addressing concerns about the time it takes for arbitrators to issue awards.
In January of this year, the ICC announced a new policy setting fixed time limits for arbitrators to submit draft awards to the ICC Court for scrutiny and introducing discretionary financial sanctions for arbitrators who fail to comply with those timeframes. In July of this year, the ICC introduced further new steps whereby the ICC Court will inform parties and tribunals whether awards under scrutiny have been approved, or are subject to further scrutiny at a future Court session.
For parties who still wish to prescribe their own time limits in an arbitration agreement we recommend important to consider the follow:
- Make sure that the time limit does not enable one party to frustrate the arbitration. Link the time limit to the closure of hearings not the appointment of the tribunal or the commencement of the arbitration.
- Make sure that time can be extended if necessary without the consent of both parties.
- Make sure the time limit is realistic. It simply may not be possible to resolve any dispute that may arise under a contract within a 3 month time scale. You need to allow time for both parties to present its case and the for the tribunal to deliberate and issue a reasoned award.
It is frustrating for parties, and their advisers, if a tribunal takes many months to deliberate and issue an award. However, deadlines for the delivery of an award need to be carefully considered to ensure that they are realistic and cannot be used to frustrate the arbitral process or as a basis for challenging an award.
This blog post first appeared on Practical Law Arbitration Blog on 3 August 2016.