Singapore ruling sheds light on early dismissal procedures under SIAC rules

In a case involving a loan to fund the development of a project which was adversely impacted by the Covid-19 pandemic, the borrower filed a notice for arbitration claiming that the loan agreement between the borrower and the lender was discharged by frustration, meaning the lender had no rights under the agreement.

The lender applied for early dismissal of the claim stating that the borrower’s frustration claim was “manifestly without legal merit” under SIAC Rule 29.1 An application for an early dismissal hearing took place before the arbitral tribunal, where the borrower raised the existence of an oral collateral agreement which provided that the sums due under the agreement would come from the sales of units in the project. The tribunal confirmed that it was only where a claim or defence was undoubtedly legally unsustainable that Rule 29.1 could be properly invoked and concluded that the borrower’s frustration claim was indeed without legal merit, regardless of the oral agreement. The tribunal ultimately issued a partial award dismissing the borrower’s claim and ordered payment of all sums under the loan agreement.

Following this, the borrower sought to set aside the arbitration award claiming that the arbitral tribunal breached natural justice and violated due process under Article 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) and Article 24(b) of the International Arbitration Act 1994 (IAA). The borrower argued that the tribunal should have assumed the existence of the oral agreement, rejected the application for early dismissal and offered the borrower a full hearing.

The High Court of Singapore, rejected the appeal, and held that there was no breach of due process as the arbitral tribunal took into consideration the borrower’s allegations regarding the existence of the oral agreement, and the borrower had enough opportunity to present their case. The High Court stressed that even if the tribunal had been mistaken in its decision that the oral agreement had no impact on the resolution of the case, this would have amounted to an error of law, which does not constitute a breach of natural justice under the IAA.

The borrower then took the case to the Court of Appeal of Singapore which, without commenting on the breach of natural justice ground for setting aside the award, looked at the transcript from the initial hearing and confirmed that the arbitral tribunal correctly dismissed the borrower’s claim because the collateral agreement was irrelevant to the issue of the dispute.

Practical considerations for parties seeking to use the early dismissal mechanism

Although SIAC Rule 29 is titled “early dismissal”, it is silent on how early an application must be made. In this case, the parties had already exchanged two sets of pleadings and almost a year had passed when the application was made. The arbitral tribunal, however, did not consider that the application was too late.

SIAC Rule 29.3 states that the tribunal must give the parties an opportunity to be heard before making its decision. However, unlike other rules – such as the Hong Kong International Arbitration Centre’s (HKIAC) rules - the SIAC rules do not specify whether a round of pleadings or a hearing would be necessary. In this case, the arbitral tribunal only requested oral hearings and, despite the late evidence of the oral agreement, did not ask the parties to issue submissions. This is an indication for parties that once the application is made and the tribunal has allowed it to proceed, the parties may not have another opportunity to submit written pleadings.

Applications for early dismissal are relatively new in international commercial arbitration: SIAC was the first international commercial institution to issue an early dismissal procedure, followed by the Arbitration Institute of the Stockholm Chamber of Commerce, HKIAC, and the London Court of International Arbitration (LCIA). To date, the International Chamber of Commerce (ICC) has only issued a practice note on early dismissal. As a result, there is no comprehensive case law to guide parties on what tribunals and courts consider “manifestly without merit”. In this case, the arbitral tribunal stated that the claim or defence had to be “undoubtedly legally unsustainable”, which was subsequently confirmed by the courts.

SIAC Rule 29.4 states that the decision of the tribunal on early dismissal can take the form of an award, which was the case here. The arbitral tribunal dismissed the claim and ordered the borrower to pay all sums due under the agreement. It follows that, once allowed to proceed, an application for early dismissal is a powerful tool for the applicant when the award is rendered and cannot be set aside unless the other party can show a breach of natural justice.

Even so, recent SIAC statistics show that since Rule 29 was introduced in 2016, only 33 of the of the 65 early dismissal applications made were allowed to proceed, and only 12 were granted – seven of them in whole and five in part. Also, 13 applications for early dismissal were received by the HKIAC by 2023 - of the five applications made in 2023, only 2 were granted.

In addition, while statistics from LCIA show a high number of applications for early dismissal being made, most applications are rejected. In 2023, for example, of the 24 applications that were made, only two were granted.

These statistics show that tribunals are fulfilling their ‘gate keeper’ function by not allowing many claims to go forward. Once the application is allowed to proceed, the number of rejected claims reflects the high threshold that an applicant must meet to prove that the claim is “manifestly without merit”. Understandably, tribunals may be reluctant to dismiss claims within the tight timeframe provided - 60 days from the application - unless the case is clear and unambiguous.

As the arbitration community seeks to promote efficiency of arbitral proceedings, early determination proceedings such as the application for early dismissal are likely to become more prevalent.

Almost all the institutions - with the notable exception of the ICC - have introduced a form of application for early dismissal into their rules. The UK is considering introducing an early dismissal procedure in the new arbitration act. In addition, the scope of the procedure is getting wider. For example, the recently issued consultation draft of the new SIAC Rules (52-page / 591KB PDF) includes a new “preliminary determination” procedure - Article 46, which will allow a preliminary determination of any issue - with the timeframe to render an award from the date of application for both the preliminary determination and the application for early dismissal to be shortened to 45 days.

Co-written by Johanne Brocas and Connor Clark of Pinsent Masons.