A factor often perceived as a disadvantage of arbitration when compared with national court litigation is the lack of availability of summary procedures such as default or summary judgment. The recent judgment of the English court in proceedings to enforce an award in Travis Coal Restructuring Holdings LLC v Essar Global Fund Limited1 has shed some light on the approach the English courts take when considering the issue of summary procedures in international arbitration.
The judgment may encourage tribunals to take a more robust approach to weak defences where their powers allow them to do so.
Background and the "summary" process adopted by the tribunal
The underlying dispute related to the purchase of shares by Essar Minerals Inc (EM), a subsidiary of Essar Global Fund Limited (EGFL), from Travis Coal Restructuring Holdings LLC. As part of this transaction, EGFL entered into a guarantee with Travis, which contained an arbitration clause providing for arbitration in New York under the ICC rules. EM failed to make payments to Travis under the relevant agreement, claiming that Travis had been fraudulent in representing its financial position. As a result, Travis sought to enforce the guarantee against EGFL (which had also refused to honour the guarantee on the basis of Travis' alleged fraud) and commenced arbitration proceedings.
Travis submitted a motion for summary judgment in the arbitration to dismiss the fraud defences raised by EGFL, which was contested by EGFL on the basis that the tribunal did not have the power to determine the issue on a summary basis and doing so would contravene EGFL's fair right to be heard on its fraud defences.
Two hearings were held, including one in which oral witness testimony was given in relation to EGFL's fraud defences. In doing this, the "hybrid" procedure adopted by the tribunal (while falling short of a full hearing of the merits) went beyond a summary judgment procedure as might be adopted in the courts in London or New York. Following the second hearing, on 25 November 2013, the tribunal decided that, given certain waivers and disclaimers in the guarantee, the fraud defences raised by EGFL did not prevent Travis's claim under the guarantee. An award was subsequently made ordering EGFL to pay Travis US$148 million plus pre-award interest and costs.
English court proceedings
EGFL subsequently applied to vacate the award in New York, while Travis brought enforcement proceedings in the English High Court. EGFL applied in the English proceedings under section 103(5) of the Arbitration Act 1996 for an order to adjourn the enforcement proceedings pending the outcome of its challenge to the award in New York.
EGFL referred to the tribunal's decision to entertain Travis' motion for summary judgment and submitted that the tribunal:
- exceeded its powers in entertaining Travis' motion for summary judgment and, as a result, deprived EGFL of the opportunity for a full and fair hearing on its fraud defences and
- acted in “manifest disregard of the law” by adopting a summary judgment procedure notwithstanding the acknowledged existence of controversial issues of fact.
EGFL also noted that when the ICC arbitration rules were reviewed in 2012, the absence of a summary judgment procedure had been deliberate and reflects the fact that summary judgment is strongly disfavoured in international arbitration. Conversely, Travis argued that the English courts should not hold that a procedure that provides for summary judgment is a denial of due process.
Decision of the English court
The judge first disagreed with the general proposition that the adoption of a summary judgment process by arbitrators amounts to a denial of due process. He then noted that the question before the court was whether the procedure adopted by the tribunal was within the scope of its powers and fair. Two matters were particularly relevant: (i) the terms of the arbitration agreement; and (ii) the procedure adopted by the tribunal.
The judge noted that the arbitration clause in this case gave the tribunal wide powers in respect of the procedure adopted to determine dispositive issues on the basis it considered appropriate:
"The arbitrators shall have the discretion to hear and determine at any stage of the arbitration any issue asserted by any party to be dispositive of any claim or counterclaim, in whole or part, in accordance with such procedure as the arbitrators may deem appropriate, and the arbitrators may render an award on such issue".
The judge also considered that the tribunal had complied with Articles 19 and 22 of the 2012 ICC rules as it had had allowed the parties a fair opportunity to present their case (including by allowing EGFL to present oral testimony to the tribunal, which went beyond what is generally expected of a summary judgment procedure).
The judge explicitly refused to be drawn into the "important debate" on the availability or otherwise of summary judgment procedures in international arbitration. Ultimately, however, while the requested adjournment was granted (with an order for security of the full amount of the award) on the basis that it was reasonable to await the outcome of the New York proceedings for vacation of the award, the court concluded that EGFL had no "realistic prospect of showing the Tribunal exceeded its powers in the procedure which it adopted".
It is important to note that in this case: (1) the wording of the arbitration clause specifically empowered the tribunal to decide "dispositive" issues in an appropriate manner; and (2) the tribunal in any event went beyond what are generally recognised to be "summary" procedures, by adopting a "hybrid" procedure and holding a hearing with oral evidence before dismissing the relevant defences.
However, this case does provide an example of an international arbitration tribunal deciding a case on a somewhat truncated basis and of the English court upholding such approach. It is to be hoped that this could encourage tribunals to adopt more expedited methods of determining disputes in appropriate circumstances. This is likely to represent a positive development in terms of addressing an issue raised by critics of international arbitration who refer to its failure to adopt summary processes and the length of time it can take to obtain awards.