Troutman Pepper Hamilton Sanders LLP

02/24/2021 | News release | Distributed by Public on 02/24/2021 23:15

International Arbitration Experts Discuss the New LCIA Rules

Albert Bates and Zachary Torres-Fowler were quoted in a Q&A for Mealey's International Arbitration Report titled, 'International Arbitration Experts Discuss the New LCIA Rules.'

Bates and Torres-Fowler: The latest update to the LCIA Arbitration Rules reflects a broader trend among arbitral centers, including the ICC, SIAC, and ICDR, to bring the procedures in line with global practices and developments. These updates included, to name a few, revisions concerning the acceptance of virtual hearings (especially in light of the COVID-19 pandemic), improvements to the LCIA's consolidation rules, and new cybersecurity measures. These updates have been broadly welcomed by the arbitral community; however, most are unlikely to dramatically alter the way in which LCIA arbitration proceedings currently operate.

The one potential exception, and most interesting update in our view, is the LCIA's adoption of an express procedure that enables tribunals to render 'Early Determinations' on certain claims prior to the arbitration hearing that are 'manifestly without merit.' Specifically, Article 22.1(viii) of the updated LCIA Rules empower tribunals:

[T]o determine that any claim, defense, counterclaim, cross-claim, defense to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the Arbitral Tribunal, or is inadmissible or manifestly without merit; and where appropriate to issue an order or award to that effect (an 'Early Determination.')

This authority is significant because, unlike U.S. and U.K. court proceedings which afford the parties the right to seek pre-trial dismissals (e.g., motions to dismiss and summary judgment), the early dismissal of claims in arbitration proceedings, as a matter of common practice, remains relatively uncommon. As a result, users sometimes complain that time and effort is wasted by forcing parties to defend against claims that clearly lack merit.

This is not, however, to suggest that LCIA Article 22.1(viii) is necessarily novel among arbitration rules. The ICDR, HKIAC, SIAC, SCC, and ICSID rules all afford arbitrators the right to dismiss claims prior to an arbitration hearing. Further, in 2017, the ICC issued a practice note that outlined arbitrators' authority to issue early determinations pursuant to their broader case management powers. Nevertheless, the LCIA's adoption of the 'manifestly without merit' standard further cements the practice among the leading international arbitration centers and will inevitably cause parties to reexamine this often underutilized mechanism.

What remains to be seen is how narrowly tribunals will interpret the 'manifestly without merit' standard and how often tribunals will exercise this authority. Arbitral tribunals have strong incentives to ensure they expeditiously and efficiently manage arbitration proceedings. However, arbitrators are also keen to protect their awards from challenge. Because the summary dismissal of a claim prior to a merits hearing may raise a question of whether a party was denied the ability to 'present his case' (see Art. V(b) of New York Convention), arbitrators tend to be reluctant to grant summary dismissal. Nevertheless, the LCIA's express inclusion of the 'manifestly without merit' standard aims to affirm the authority of the tribunal to make an Early Determination and may alter perceptions among arbitrators toward a greater acceptance of summary dismissal procedures in appropriate cases.