An expeditious interim relief in Commercial Arbitration | Daily News

An expeditious interim relief in Commercial Arbitration

The concept of Emergency Order (‘EO’) is becoming increasingly popular in the realm of international commercial arbitration. It is an expeditious non-judicial interim relief which could prevent imminent risks before forming the arbitral tribunal which sometimes takes longer. Although there are certain methods available to speed up the formation of arbitration tribunals, they are not sufficient in urgent matters; and tribunals have no powers to issue any provisional measures before they are formed.

To avoid any irreparable damages likely to be caused and to preserve the goods and evidence before the formation of the arbitration tribunal. An Emergency Arbitrator could be appointed and thereafter an EO could be claimed. According to ICC Arbitration Rules, a party who needs urgent interim or conservatory measures before the constitution of an arbitral tribunal, has a right to make an application under the Emergency Arbitrator Rules (Art. 29 (1) and Appendix V).

The CIETAC Arbitration Rules mention that a party could appoint an Emergency Arbitrator (Art. 23 and Appendix 3). The LCIA Arbitration Rules mentions that it is possible to appoint an Emergency Arbitrator in special circumstances mentioned under it (Art. 9 B). Arbitration Rules like ACICA, ICDR, SCC, HKIAC, NAI, PRIME and Swiss Rules have introduced provisions allowing parties to appoint an Emergency Arbitrator and to claim EO.

The benefits accruable from EO

There are many success stories where an EO has been effectively utilized by parties. For instance, in ‘Yahoo! Inc. Vs. Microsoft Corporation 2013’, Microsoft Corporation has successfully used Emergency Measures against Yahoo Inc. in terms of a contractual dispute between them by following the procedure of the American Arbitration Association. This Emergency Arbitrator’s Order has been upheld by the domestic Court.

Although arbitral tribunals could issue Interim Reliefs and Preliminary Orders, both are possible only after the tribunal is constituted. Hence, Emergency Order is useful for an aggrieved party to prevent the other one from avoiding the effective compliance of final Award.

Even though parties have not expressly consented, to the Emergency Measures, such measures imply to the arbitration procedure through the agreed arbitral rules unless expressly opted out. On the other hand, since the EO does not bind the arbitral tribunal, it does not become an obstacle for the dispute resolution mechanism.

Therefore, Emergency Orders, do not avoid the freedom of the tribunal to further investigate anything related to the emergency and issue any subsequent Orders to modify or completely terminate the measures which have been taken. Since Emergency Arbitrator has a wider authority to issue Orders, during that period, the party which is in danger, necessarily has a substantial possibility to receive benefits out of it.

Another advantage of Emergency Measures is the flexibility to be opted out by parties’ agreement. Thus, it is not against the consensual nature of arbitration and the autonomy of the parties. Since EO has not provided any bar to prevent domestic Court to investigate the matter, parties still have alternative measures which could be selected based on their discretion.

Further, there are protections within Emergency Measures to avoid the abuse of it. For instance, in ICC Rules of Arbitration, there is a condition that the requesting party must furnish a security when applying (Art. 29 (1)). Additionally, if the defending party is genuinely disposing his assets, such disposal may not be unreasonably delayed because emergency proceedings would be terminated if the applicant was unable to file arbitration request within 10 days (Appendix V. Art 1(6)).

 

What’s wrong with interim measures and preliminary orders?

Interim Measure is a temporary measure which could be issued by the arbitral tribunal at any time before the issuance of the final Award. The Arbitration Act No.11 of 1995 of Sri Lanka states that, “an arbitral tribunal may, at the request of a party, order any other party to take Interim Measures as it may consider necessary to protect or secure the claim which forms the subject matter of the dispute” (S.13 (1)). But, other than in exceptional cases no such order should be made except after hearing the other parties.

The UNCITRAL Model Law on International Commercial Arbitration indicates that once a party has made a request, arbitral tribunal has powers to grant interim reliefs mentioned in Article 17.The same has been incorporated in the Article 26 of the UNCITRAL Arbitration Rules. The Model Law indicates that interim measures could preserve the assets and evidence relating to the subject matter of the dispute (Art. 17 (2) (c)& (d)). For instance, if goods were not in perishable nature, then tribunal could order to deposit them with a third party, otherwise it could order to sell them.

Furthermore, parties are required to satisfy certain conditions to obtain an Interim Order. First, the claimant should prove that the potential harm is irreparable by an Award of damages and the possibility of being successful on the merit of the claim (Arts.17 A (1) (a) & (b)). In addition, there are certain safeguards to avoid the misusing of the Interim Measures.

For instance, arbitral tribunals have capacities to amend, suspend or cancel the Interim Order in any situation (Art. 17 D). Tribunal could also order parties to provide security (Art. 17 E). Additionally, Model Law mentions that requesting party would be liable for cost or damages (Art. 17 G).

Many arbitral rules have followed mainly three approaches regarding the Interim Measures. First approach is following the Model law and the inclusion of a general description about Interim Measures. Second approach is the inclusion of a detail description about such measures. The third approach is non-inclusion of any Interim Measures at all in the arbitration rules. For instance, JCCA Rules have followed the first approach and provided a general description about the Interim Measures (R. 48 (1)).

SIAC and ACICA Rules have followed the second approach and introduced more extended versions of Interim Measures. Following the UNCITRAL Model Law, certain arbitration rules have provided opportunity to obtain ‘ex parte’ Interim Measures. For instance, Article 26 (3) of the Swiss Arbitration Rules states that the interim proceedings could be commenced on ‘ex parte’ basis. This provision has been made to speed up the processing of urgent claims.

Preliminary Orders are controversial because they could be issued on ‘ex parte’ basis. According to Model Law, “party may, without notice to any other party, make a request for an Interim Measure together with an application for a Preliminary Order”(Art. 17 B (1)). This may not be unreasonable because domestic Courts also sometimes issue ‘exparte’ Orders.

However, an argument could be advanced that issuing an ‘ex parte’ Order is against the concept of consensual nature of commercial arbitration. Many arbitration rules have not introduced ‘ex parte’ Orders except in the Swiss Rules.

Why should an injunction order not be preferred?

There are certain restrictions upon injunctive reliefs in respect of commercial matters where parties have agreed to arbitrate. According to Arbitration Act No.11 of 1995 of Sri Lanka “Any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the matter in respect of which the arbitration agreement is entered into is contrary to public policy or, is not capable of determination by arbitration” (S. 4).

If a party did not submit the dispute to arbitration as agreed and instead filed Action in the Court, then Section 5 of the said Act would be applied. Accordingly, “where a party to an arbitration agreement institutes legal proceedings in a court against another party to such agreement in respect of a matter agreed to be submitted for arbitration under such agreement, the Court shall have no jurisdiction to hear and determine such matter if the other party objects to the court exercising jurisdiction in respect of such matter” (S. 5).

In ‘Munasinghege Don Eranga Indrajith Vs. George Steuart Finance Limited 2014’, the Supreme Court upheld the decision of the Commercial High Court dismissing Plaintiff’s Action seeking inter alia, an enjoining order and an interim injunction, because there was an Arbitration clause and the Defendant has objected to the Court exercising jurisdiction.

It was held in ‘Elgitread Lanka (Pvt) Ltd Vs.Bino Tyres (Pvt) Ltd 2010’, that the Action filed by the Respondent in the Commercial High Court should stand dismissed as there was an arbitration clause in the franchise agreement and the Appellant objected to the jurisdiction of the Commercial High Court on that basis.

Further, the modern view of arbitration expects a certain level of delocalization, which means exclude the intervention of Court up to certain extent. That is why the remedy of ‘EO’ has been introduced within the Arbitration Rules, rather than within the domestic law. In ‘Channel Tunnel Group Ltd Vs. Balfour Beatty Constr. Ltd 1993’, Court held that the judicial authority must be very careful in issuing Interim Measures regarding arbitration disputes.

Could EO be enforced under NYC?

Compared with enforcement of arbitration Awards, there is an issue regarding the enforceability of Emergency Order under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (NYC) because only ‘Awards’ are enforceable under that (Art. 3). For instance, the domestic Courts have discretion to refuse enforcing any Interim Orders issued by arbitral tribunals because they are not binding as final Awards (Art. 5 (1) (e)).

According to Article 29 of the ICC Rules, EO is an Order, but not an Award; and it does not limit or bind the tribunal’s capacity to further investigate the dispute. However, in CIETAC Arbitration Rules, Emergency Arbitrator’s decision could be either an Order or an Award (Art. 23 (2)). The ICDR Arbitration Rules state that an Order or an Award could be made by the Emergency Arbitrator (Art. 37 (5)). Both Swiss and the SCC Rules have used the term ‘decision’ to represent the outcome of emergency proceedings (Art. 43 (7); Art 9 (1)).

Nevertheless, when considering the situation, of Interim Measures, before 2006 UNCITRAL Model Law (Model Law) revision, even the Interim Measures were unenforceable in certain situations. For instance, in ‘Resort Condominiums International Inc. Vs. Ray Bolwell and Anor. 1993’, it was held that the Court has the discretion whether to enforce an arbitral Award or not which has been rendered by a foreign arbitral tribunal.

This issue has been sorted after the Model Law 2006 revision. At present, an Interim Measure is binding and enforceable in any state (Art. 17 H (1)). Enforceability could be refused only in special circumstances given in Article 17 I. Certain jurisdictions have recognized EOs as Awards.

For instance, in Singapore the term ‘Emergency Arbitrator’ has been included in to the definition of ‘Arbitral Tribunal’. They further included the term ‘Order’ under the definition of ‘Arbitration Award’. This means EOs could be sometimes considered Awards in Singapore. Consequently, it could be enforced under NYC.

Moreover, parties must comply with any EO and it has a binding nature. In ‘Blue Cross Blue Shield of Michigan Vs. Medimpact Healthcare Systems Inc. 2010’, Court held that an EO is important in terms of enforcing the contract between the parties. According to ICC Rules, the arbitral tribunal has legal capacity to decide upon any party’s requests or claims relating to the emergency arbitrator proceedings, including the claims and costs regarding the compliance or non-compliance of an EO (Art. 29 (4)).

Constraints upon EO

The power vested in the Emergency Arbitrator is not absolute because of two reasons. First, EO could be obtained only if there is a ‘genuine urgency’. Secondly, once the tribunal is appointed, emergency proceedings would become terminated (SIAC Arbitration Rules, Sch.1). Issuing an EO without considering whether the sale is ‘mala fidei’ or ‘bona fidei’, could create adverse consequences in a genuine sale.

There are certain limits in the process of issuing an EO. First, emergency arbitrator has no power to issue an Interim order against third parties. For instance, Emergency Arbitrator lacks the legal capacity to order a bank to seize an account or withhold transactions. In contrast, the domestic Court has much wider legal capacity to seize such bank accounts. Secondly, Emergency Arbitrator cannot impose any criminal penalties in case of disobeying his Orders whereas domestic Courts are stricter by considering it as contempt of Court and impose strict criminal charges.

Thirdly, unlike ordinary arbitration procedure, in Emergency Arbitration, parties’ choice to select their own arbitrator is limited because many arbitration rules have reserved the selection power to the institution rather than to parties. Since, there are such limitations, parties may in certain situations tend to seek interim reliefs from domestic Courts instead of seeking an EO.

A best practice ‘Case-Based’ approach

Since intervention of domestic Court is not widely accepted in conventional arbitration, the best practice would be the ‘Case-based’ decision making. Which means, parties should plan and assess the outcome of an Emergency Order before claiming for it.

For instance, if the arbitration tribunal is likely to be formed soon and the risk is not substantially imminent, it would be better to wait until the formation of such tribunal rather than rushing towards seeking an EO. In addition, where possible, parties could take a reasonable effort to exhaust methods such as expedited formation of tribunal or appointing a sole arbitrator, in less urgent circumstances.

Based on the urgency of the matter, two approaches have been followed by the rules regarding the ‘time’ which allow the parties to bring an emergency claim. First approach is, allowing parties to bring such claim after the Notice of Arbitration but before the formation of the tribunal. For instance, ICDR Rules have mentioned, it could be claimed after the Notice but before forming the tribunal (Art. 37(2)).

The second approach is, allowing parties to bring emergency claims even before the Arbitration Notice. For instance, in view of the ICC Rules, irrespective of arbitration request, Emergency Measures could be claimed (Art. 29 (1)). This means, the ICC Rules are substantially flexible in terms of the time of application of Emergency Measures. However, certain arbitration rules have provided slightly strict conditions on the timing issue of the EO claim. For instance, Swiss Rules have mentioned that if the emergency application has been filed before the Arbitration Notice, then Court has a discretion to refuse such claim (Art. 43 (3)).

Future reforms

Arbitration Centres and Institutes could introduce Emergency Measures within their Rules& Procedures. The Legislation and Institutional Rules could be reformed to convey authority to Emergency Arbitrators to seize respondent’s assets which withheld by third parties.

At least there should be provisions to do such seizures with the cooperation of domestic Court without any delay. Such provisions would increase the validity and recognition of Emergency Orders. UNCITRAL Model Law and the Arbitral Rules could be reformed by including provisions empowering the international enforceability of Emergency Orders in commercial arbitration.

 


 

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