Emergency Measures in International Arbitration
Relevance of International Arbitration
International Arbitration continues to be the preferred method of dispute resolution in relation to construction, resources and oil and gas projects involving parties with cross-border relationships and agreements.
Many domestic contractors, builders and developers hold a view that as they only operate in the context of projects within Australia or a particular State, they are unlikely to ever become involved in an International Arbitration.
That may not be the case.
The globalisation of the Australian construction industry is resulting in a larger number of international contractors becoming involved in domestic projects, as well as a number of domestic contractors and builders sourcing equipment and machinery from international suppliers and manufacturers.
Such suppliers and international contractors are highly likely to rely upon International Arbitration as the preferred method of dispute resolution in relation to any conflicts arising during the course of the project, or in relation to agreements for lease or purchase.
A systemic concern for parties engaging in International Arbitration is the likelihood of enforcing and arbitral award against an unsuccessful party. Without proper means and ways for enforcement, an Arbitral award can be rendered impotent and obsolete.
A method that has been utilised by some parties in order to guarantee or improve the prospects of enforcing a future arbitral award is Emergency Arbitration.
Introduction to Emergency Arbitration
Although, provisions for Emergency Arbitration or interim relief are offered by a range of International Arbitration institutions including the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the Hong Kong International Arbitration Centre (HKIAC), the Singapore International Arbitration Centre (SIAC) and the China International Economic and Trade Arbitration Commission (CIETAC), for the purpose of this paper, we will focus on the rules for Emergency Arbitration as contained within the 2012 ICC Rules of Arbitration (the Rules).
“…A systemic concern for parties engaging in International Arbitration is the likelihood of enforcing and arbitral award against an unsuccessful party…”
Emergency Arbitration is an alternative to seeking interim relief through the Court system by way of injunction or order for attachment (seizure of assets).
The ICC provisions relating to Emergency Arbitration are set out in Article 29 and Appendix V of the Rules and apply only to Arbitration agreements that have been entered into after 1 January 2012.
Since those provisions have come into place there have been approximately 20 applications for Emergency measures made to the ICC to date with the majority of applications being made in 2013 and 2014.
The decline in the amount of Emergency Arbitration Applications being made to the ICC in 2015 could be a result of lowered confidence in the Emergency Arbitration process given its various limitations and criticisms.
What is Interim Relief?
Put simply, the appointment of an Emergency Arbitrator is the appointment of an Arbitrator to deal with requests of urgent interim relief prior to the establishment of the Arbitral Tribunal.
If substantive arbitration proceedings have not yet been commenced at the time of making the application for Emergency Arbitration, Appendix V, Article 1(6) provides that a Request for Arbitration must be filed within 10 days of the Emergency Arbitration application.
This is to avoid the Emergency Arbitration process being abused as a tool by parties to frustrate Respondents, and achieve mischievous and ancillary outcomes.
The types of interim relief sought in Emergency Arbitration applications have varied however most cases have concerned one of the following:
Enforcement of Awards
Parties have previously sought orders to secure the prospects of enforcing any future Arbitral award.
These orders have included requests for the Respondent to pay sums of money into an escrow account to be held following the resolution of substantial proceedings, or orders to prevent the dissipation, disposal or the dealing with of significant assets.
Preserving Status Quo
Some applications have been for orders in relation to restraining the sale of shares by the Respondent or for the Respondent to be restrained from calling in Bank Guarantees until the resolution of the substantive proceedings.
Enforcing Contractual Obligations
Other applications have been for orders preventing a party from unfairly or legally terminating a contract or forcing certain obligations of the contract to be performed by one of the parties.
One particular example included a successful application for a ship carrying a cargo of coal which was the subject of a sale of good dispute, to be restrained from leaving Singapore harbour and sold to another purchaser until the dispute had been determined.
These particular applications seek orders restraining a party from seeking relief on an interim or final basis through the Court System and in breach of the Arbitration Agreement.
These are essentially proceedings to enforce an arbitration agreement and compel the parties to comply with their agreement to resolve disputes by way of Arbitration as opposed to litigation.
The procedural rules for of making an application for Emergency Arbitration under the ICC rules are contained in Appendix V to the Rules.
Generally the Emergency Arbitrator is appointed by the President of the ICC Court of Arbitration within 3 days of the application and the awards are issued within a 15 day period of the application.
Challenges to the Jurisdiction of the Emergency Arbitrator
It is often the case that the Respondent will challenge the jurisdiction of the Emergency Arbitrator to deal with the application.
Some of the common grounds for challenging the jurisdiction of the Emergency Arbitrator are as follows:
Date of the Arbitration Agreement
As previously stated, only arbitration agreements entered into after 1 January 2012 (being the commencement of the 2012 amendments to the Rules) incorporate the provisions for Emergency Arbitration.
“…There is conflicting case law as to whether or not decisions by an Emergency Arbitrator will be enforceable…”
It has been determined in previous cases that a pre-January 2012 contract which has been amended after that date could be deemed to have assumed the 2012 Rules.
In similar circumstances, contracts which pre-date 2012 but provide that the applicable rules to apply to the Arbitration agreement, are the rules applicable at the time of the commencement of the dispute, will also allow pre-2012 arbitration agreements to rely upon the Emergency Arbitrator provisions.
The default position is that the Emergency Arbitration Rules apply to all ICC Arbitration Agreements entered into after 1 January 2012.
If the parties wish for the Emergency Arbitrator provisions to not be applicable, Article 29 (6) provides that the parties may opt-out of the default Emergency Arbitrator provisions.
The language of this opt-out agreement must be clear, explicit, and unambiguous in order to be effective.
There have been circumstances where the parties have attempted to opt-out of the Emergency Arbitration provisions but the language used has been vague enough for the Emergency Arbitrator to uphold their jurisdiction to deal with the application despite the parties’ attempt to opt-out.
Some arbitration agreements provide for other methods of dispute resolution (including mediation) prior to commencing arbitration proceedings. If that is the case, these arbitration clauses must be drafted clearly in order to ensure that the intended processes for different methods of dispute resolution are set out clearly.
Circumstances have arisen in the past where such clauses have been deemed to be non-functional and parties have been able to apply for Emergency Arbitration concurrently with applications for mediation, referee determination or some other form of alternative dispute resolution prior to the substantive arbitration, despite this not being the intention of the parties at the time of preparing the dispute resolution procedures under the agreement.
There is conflicting case law as to whether or not decisions by an Emergency Arbitrator will be enforceable.
For a large part, parties are incentivised to comply with the decision of the Emergency Arbitrator on the basis that any non-compliance will be viewed highly unfavourably by the Arbitral Tribunal in the substantive proceedings.
In the event that the unsuccessful party does not comply with the orders of the Emergency Arbitrator, the successful party will have to seek enforcement of those Orders through the court system by the application of either the New York Convention (1958) or Article 17H and 17I or the UNCITRAL Model Law (2006) which provides for the enforcement of interim measures by an Arbitrator.
“…Although Emergency Arbitration can be a useful mechanism, it has a range of limitations…”
Parties have previously encountered difficulty in the application of the New York Convention to ICC Arbitration awards on the basis that the New York Convention relates to the enforcement of Arbitral Awards that are final.
The concept of finality is controversial in the context of Emergency Arbitration, given that although the Emergency Arbitration award is final in respect of the issues that were to be determined by the Emergency Arbitrator, the ICC provisions provide that the Arbitral Tribunal in the substantial proceedings is not necessarily bound by the decision of the Emergency Arbitrator, which suggests that in some ways it is not a final decision.
This conflict has been considered by courts in various jurisdictions.
Yahoo! Inc. -v- Microsoft Corporation (2013) and HSBC PI Holdings (Mauritius) v Avitel Post Studioz (2014) were decisions of the US District Court and Bombay High Court respectively, to enforce interim decisions of an Arbitrator (American Arbitration Association and SIAC) on the basis that they were final decisions as contemplated by the New York Convention.
The most effective method to ensure that Emergency Arbitrations will be enforceable, is for provisions to be enacted into existing Arbitration Legislation which recognises that Emergency or interim measures by Arbitrators will be enforceable.
Singapore and Hong Kong have both been the most proactive jurisdictions by recently enacting amendments to the Singapore International Arbitration Act and to the Hong Kong Arbitration Ordinance which provide for enforcement of interim or Emergency measures by an Arbitrator.
Further, Arbitration agreements can be drafted in such a way to provide that the Emergency Arbitrator is required to include a Statement in their award, stating that non-compliance with the award will result in consequences such as a fine or a penalty for the non-compliant party.
The limitations of this method is that any non-compliance with those consequences will subsequently have to be enforced during the substantive proceedings by the arbitral tribunal, which will not provide any short term relief for the successful party to the Emergency application.
Practical Issues and Criticisms
On the basis that ICC Rules for Emergency Arbitration do not provide for ex-parte proceedings, the requirement to notify the other party of the application can be problematic in circumstances where a recalcitrant Respondent is likely to take steps to act in contravention of the orders that are being sought against it.
Further, the ICC does not provide that orders can be made against any third party which is not a signatory to the arbitration agreement.
In circumstances where an Applicant seeks to restrain a party from selling its shares or prevent dissipation, disposal or the dealing with of assets, these sorts of orders could inadvertently have an impact against a third party, which could be deemed to be non-compliant with the ICC rules.
In addition, the cost consideration is an important consideration for Emergency Arbitrations – the compulsory filing fee is US$40,000.00 of which only US$5,000.00 is refundable if the Emergency application is to be withdrawn.
The legal costs for preparing such proceedings in a reduced submissions and brief counsel on very short notice including having to re-locate, to the place of the Arbitration.
The concerns as to enforcement referred to above are also factors which can cast doubt in an Applicant’s mind as to whether or not the Emergency Arbitration process is worth the cost.
Although Emergency Arbitration can be a useful mechanism, it has a range of limitations and is best suited to be used in the following circumstances:
- Where there is no possibility of applying to a Court for similar interim or interlocutory relief on the basis that the Court system lacks judicial integrity;
- The nature of the order sought, or the project subject to the arbitration agreement, is highly sensitive or highly confidential in which case arbitration is a preferred method of dispute resolution;
- There is little or no doubt in the Applicant’s mind that upon being notified of the Emergency Arbitration application, the Respondent will not take steps to frustrate those proceedings by acting to prevent enforcement of the interim relief sought, and;
- The benefit obtained by obtaining the interim relief is great enough to justify the significant costs that will be expended by the parties during the course of the Emergency Arbitration proceedings.
Jay Randhawa is a Solicitor in the Kreisson Construction & Engineering and International Arbitration teams.
This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.