| 10/13/2017 | ||
| Source: Law360 | ||
| Authors: Lauren Friedman, Javier Rubinstein | ||
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A central benefit of commercial arbitration is the ability to select neutral decision makers better suited to decide commercial disputes. At times, however, parties having agreed to arbitrate face a crisis where they need relief before a tribunal can be appointed. Parties may need to secure property, prevent disclosure of proprietary information, or preserve evidence before it is destroyed. Traditionally, parties had no choice but to seek such relief from national courts. This undermined many of the virtues of arbitration, including the desire for confidentiality and the desire to avoid the court system.
In recent years, all of the major arbitral institutions have introduced an emergency arbitration procedure to address these predicaments. Yet recent studies suggest that parties rarely avail themselves of emergency arbitration and instead turn to local courts in times of crisis. This is understandable; it will take time to test and understand the potential benefits of emergency arbitration. The following practice note provides guidance to help decide whether to pursue emergency relief in arbitration or in national courts.
The Need: Interim Relief Within the Arbitral Framework
Traditionally, parties that agreed to resolve their disputes via international arbitration were unable to obtain interim relief in arbitration until the tribunal was in place, a process that may take weeks or months to complete. In the meantime, a party facing irreparable harm would need to go to the courts for interim relief.
However, applying to local courts for interim relief has serious drawbacks. For instance, a national court might not be willing and able to exercise jurisdiction over the dispute. Even if it did, parties might find themselves before a biased or inefficient decision maker. To address these shortcomings, arbitral institutions devised emergency arbitration rules as a means to give parties the option to seek interim relief within the arbitral framework. The availability of this alternative thus now raises an important question: When a party needs to seek emergency relief, which procedure should it pursue?
Emergency Arbitration: What is it?
Emergency arbitration refers to a procedure by which a party threatened with irreparable injury may pursue interim relief in arbitration before the main tribunal is constituted. All of the major arbitral institutions have introduced such procedures in recent years.[1] Of note, under certain institutional rules, these procedures are only available when the parties signed the contract at issue after the enactment of the relevant emergency rules.[2]
There are fine distinctions between the emergency arbitration procedures offered by each institution (e.g., International Chamber of Commerce, London Court of International Arbitration and the International Centre for Dispute Resolution), but several commonalities predominate. Typically, the rules provide that the institution will appoint a sole arbitrator within a matter of days after submission of the request.[3] The schedule is fast and the appointed arbitrator typically establishes a calendar within a day or two after appointment.[4] The emergency arbitrator decides the matter on written submissions or after a short oral hearing[5] and can usually order any interim relief necessary, including injunctions and asset freezing orders.[6] The emergency award may result in voluntary compliance, but otherwise, must be enforced before the domestic courts where relief is sought. Finally, the main tribunal is authorized to modify or vacate the emergency arbitration order.[7]
Years after emergency arbitration first emerged, the major arbitral institutions have noticed a sharp uptick in usage, although overall usage remains low. The International Court of Arbitration at the ICC received 25 applications for emergency proceedings in 2016 after having received only 10 the year prior. The latest Singapore International Arbitration Centre and Stockholm Chamber of Commerce numbers reflect a similar increase.[8][9] While this growth is important, it still represents a small percentage of the overall caseload; for instance, the ICC administers over 1,500 arbitrations per year.[10]
Key Considerations in Choosing Between Emergency Arbitration and National Courts
In light of the new emergency arbitration options, parties facing possible irreparable harm may now choose to pursue relief from an emergency arbitrator or a national court. Several considerations should guide that choice.
1. Evidentiary Needs and the Opportunity to Conduct Discovery
Consider whether the party needing emergency relief possesses the evidence it needs to present an application for interim relief. Where a party needs evidence to prevail on its interim relief claim, it should weigh the chance of obtaining such evidence in emergency arbitration versus from a court in a domestic law proceeding.[11] Emergency arbitration typically affords only a limited opportunity for document disclosure. While an emergency arbitrator has broad discretion to order discovery, he or she has on average five to 15 days after appointment to issue a decision.[12] These short deadlines effectively preclude disclosure, relegating the parties to their own evidence. By comparison, courts in many common law countries (particularly the U.S.) are more likely to afford a meaningful opportunity for discovery in connection with an application for interim relief. Courts in common law jurisdictions other than the U.S. most likely fall somewhere in the middle and may allow for limited discovery if the party can demonstrate the relevance of the evidence and colorable grounds that the evidence exists. Assess your evidentiary needs and the discovery mechanisms available in each of the available fora.
2. Confidentiality
Consider whether or not there are confidentiality concerns regarding the subject matter, evidence or very existence of the dispute. By seeking injunctive relief in the courts, the dispute may become public, depending on the jurisdiction. While confidentiality is not automatic in arbitral proceedings, commercial arbitration institutes do not publicize the existence of a dispute. Therefore, where confidentiality matters, it may be preferable to seek emergency arbitration first. Note, however, that if the respondent is unlikely to comply voluntarily with an emergency arbitration award, the claimant may need to seek enforcement of the emergency award in the national courts, thus undermining the confidentiality of the arbitration.
3. Specialized Decision Makers
Consider the complexity of issues in the dispute and the need for a specialized decision maker. Arbitral institutions often seek to select an emergency arbitrator that is specifically suited for the subject matter of the dispute, rather than choosing the next judge in line. A decision maker with experience in intellectual property matters, for example, may be better suited to assessing requests for injunctive relief in disputes concerning a cease and desist for patent or trademark infringement than a judge in a local court with minimal intellectual property experience. Therefore, if the subject matter of the dispute requires particular expertise, a party may be better off going with emergency arbitration.
4. Likelihood of Success in Obtaining Interim Relief
Likelihood of success depends upon the relevant decision makers and the available procedures. Consider first the impact of notice requirements in emergency arbitration. The rules of all of the major arbitral institutions require that a counterparty receive notice of the application and appointment of the emergency arbitrator.[13] Where a counterparty has movable assets at issue, it may be difficult to stop it from transferring its assets once it learns of any injunction efforts via emergency arbitration. In these circumstances, nontraditional routes and those available through national courts may be preferable. Among the most powerful options available outside of arbitration is calling local police to freeze assets (usually based on a court order), which may be preferable where movable assets are at issue.
Meanwhile, emergency arbitrators routinely see applications for emergency relief and may be more comfortable issuing such orders during the pendency of an arbitration. If the party does not comply with the emergency arbitration order, however, then domestic courts would still need to review the order. Engage local counsel to understand the dynamics of obtaining (and enforcing) interim relief in the jurisdiction where you need relief.
5. Enforceability
Recent studies suggest that the number one concern regarding emergency arbitration is its enforceability during the pendency of the arbitration.[14] Arbitral awards are not per se enforceable since arbitrators lack the coercive power to compel compliance with their awards. While it may be tempting to conclude that emergency arbitration is less enforceable than domestic orders, that is not always the case.
As a threshold matter, a party should consider whether its counterparty is likely to comply voluntarily with an interim award or not. There are strong reasons for a party to comply voluntarily with an emergency award. Noncompliance with an interim measure may discredit the party for the remainder of the proceedings and harm their overall prospects to succeed in their defense of the claims.[15] Early studies suggest that most parties voluntarily comply with emergency arbitration awards.[16]
Where enforcement may be an issue, a party should evaluate the courts of the jurisdictions in which an order may need to be enforced. Under the New York Convention, a “final” arbitration award is recognized in the courts of the 157 signatory nations to that Convention. However, the decision of whether to enforce emergency interim orders, including whether an interim award is “final” for purposes of the New York Convention, lies with national courts.[17]
Not all nations support the enforcement of emergency arbitration awards. Certain countries, including Mainland China, prohibit arbitral tribunals from issuing interim measures.[18] In Australia, the Supreme Court of Queensland has ruled that an interim award is interlocutory and therefore is not capable of recognition and enforcement before domestic courts under the New York Convention.[19] For such jurisdictions, it is generally preferable to seek relief directly from the domestic courts.
However, many courts have been receptive to emergency arbitration awards. U.S. courts consider interim arbitration awards as “final” for purposes of the New York Convention and enforce them as such.[20] Hong Kong recently amended its arbitration ordinance so that emergency arbitration orders receive the same treatment as Hong Kong court orders.[21] Singapore’s arbitration laws also ensure that emergency arbitration orders receive the same legal status as final awards rendered by arbitral tribunals.[22]
Emergency arbitration might be even more attractive where a party may need to enforce the order in multiple jurisdictions. Emergency arbitration allows a party to focus its fire on presenting the dispute to one tribunal, and then enforce an award before national courts in various countries. For example, a party could seek an emergency arbitration order and then seek to execute it simultaneously in Hong Kong, Singapore and the U.S. Once again, the advisability of this strategy depends upon the enforceability of emergency arbitration orders in the countries where enforcement is expected.
Conclusion
The introduction of emergency arbitration rules allows parties parties who have agreed to arbitrate with a new option for emergency relief. In deciding whether to pursue interim relief before national courts or emergency arbitration, a party should take into account:
their need for document discovery and whether domestic courts may build in time for discovery;
their need for confidentiality, as emergency arbitration is likely to provide heightened confidentiality;
the specialized nature of the dispute, as emergency arbitration offers a greater chance of obtaining relief from a specialized decision maker;
the likelihood of success, taking into account notice requirements and advice of local counsel; and
the enforceability of interim relief, taking into account the relevant domestic courts’ receptiveness to emergency arbitration orders.
Parties today have ultimate freedom to decide where to pursue interim measures. Rather than blindly continue down the traditional route, we encourage parties to consider whether emergency arbitration might better serve their interests. We hope the above considerations can help inform those decisions.
Javier Rubinstein, a Chicago-based partner in the international arbitration and dispute resolution practice of Kirkland & Ellis LLP, focuses on international commercial and investment arbitration, and was previously vice chairman and global general counsel of the PricewaterhouseCoopers International.
Lauren Friedman a New York-based partner in Kirkland’s international arbitration group, handles international arbitration and public international law, focused on investment-treaty arbitration and international commercial arbitration.
Seth A. Meyer is a litigation association in Kirkland’s Chicago office, represents clients engaged in complex commercial litigation and arbitration, heard before courts and panels in the U.S. and abroad.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See ICC Arbitration Rules, art. 29 and Appendix V; ICDR Arbitration Rules (2014), art. 6; HKIAC Administered Arbitration Rules (2013), art. 23 and Schedule 4; SIAC Arbitration Rules (2016), art. 30 and Schedule 1.
[2] The ICC, ICDR, and HKIAC only allow for emergency arbitration for disputes related to contracts signed after their new rules entered into force. By contrast, the SIAC and JAMS focus on the date of the commencement of the arbitration instead of the date the contract was signed.
[3] ICC Appendix V, art. 2; ICDR art. 6(2); HKIAC Schedule 4(5); SIAC Schedule 1(3).
[4] ICC Appendix V, art. 5; ICDR art. 6(3); HKIAC Schedule 4(11); SIAC Schedule 1(7).
[5] Id.
[6] ICC Appendix V, art. 6; ICDR art. 6(4); HKIAC art. 23.2; SIAC Schedule 1(8).
[7] ICC art. 29; ICDR art. 6(5); HKIAC art. 23.5; SIAC Schedule 1(10).
[8] SIAC Statistics, http://www.siac.org.sg/2014-11-03-13-33-43/facts-figures/statistics, accessed on September 27, 2017.
[9] SCC annual reports available at http://www.sccinstitute.com/statistics, accessed on September 27, 2017.
[10] ICC reveals record number of new Arbitration cases filed in 2016, https://iccwbo.org/media-wall/news-speeches/icc-reveals-record-number-new-arbitration-cases-filed-2016/.
[11] The relevant domestic court is usually in the jurisdiction in which the party is engaging in conduct that poses a risk of irreparable harm. Contracting parties sometimes limit the jurisdiction in which the parties can seek interim relief.
[12] SIAC Rules, Schedule 1(9); ACICA Rules, Schedule Schedule 1(3.1); ICC Rules, Appendix V, art. 6(4); HKIAC Rules, Schedule 4(12); SCC Rules, Appendix II, Article 8(1). Note that the rules themselves do not limit or prohibit discovery per se.
[13] This is true for the ICC, ICDR, SIAC, SCC, HKIAC, and ACICA.
[14] Queen Mary University & White & Case, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, available at www.arbitration.qmul.ac.uk/research/2015/.
[15] Even though the emergency arbitrator will generally not be a member of the merits panel, the panel has the power to review the interim measure. Even if the panel declines to uphold the interim measure, it may look disparagingly at party defiance.
[16] Queen Mary University & White & Case, 2012 International Arbitration Survey: Current and Preferred Practices in the Arbitral Process, available at www.arbitration.qmul.ac.uk/research/2012/index.html at 17 (“of those [interim measures] applications which are granted, the majority are complied with voluntarily (62%). By region, the rate of voluntary compliance is highest in North America and Western Europe (both 68%) and lowest in Eastern Europe (39%). On average, parties seek enforcement by a court in only 10% of interim measures applications which are granted by the arbitral tribunal. However, the results vary significantly by region. Respondents from Eastern Europe and Latin America seek enforcement in courts most often (both 23%), whereas respondents from North America do so least often (3%).”
[17] Among other reasons, the New York Convention requires recognition and enforcement of “final” awards. There is considerable debate regarding whether an emergency arbitration award constitutes a “final” award as it is interlocutory and subject to review by the main tribunal.
[18] See, e.g. Hemofarm DD, et al. v. Jinan Yongning Pharmaceutical Co. Ltd. (June 2008) Min Si Ta Zi No. 11 (refusing to enforce interim measures ordered by a foreign arbitral tribunal).
[19] Resort Condominiums International Inc. v. Ray Bolwell and Resort Condominiums, Pty. Ltd., Supreme Court of Queensland, Australia, 29 October 1993, XX Y.B. Com. Arb. (1995).
[20] Publicis Comm. v. True North Comm. Inc., 206 F.3d 725, (7th Cir. 2000); Southern Seas Navigation Ltd. v. Petroleos Mexicanos of Mexico City (606 F.Supp. 692 (S.D.N.Y. 1985).
[21] Hong Kong Arbitration Ordinance (Cap. 609).
[22] Singapore International Arbitration Act 2012.
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