Emergency arbitrators: can they be useful to the construction industry?

Transcription

1 Louise Barrington Aculex Transnational Dispute Resolution Services, Hong Kong, Paris & Toronto Emergency arbitrators: can they be useful to the construction industry? Employer about to call your bond? Contractor has downed tools with a looming deadline? Do you need an emergency arbitrator? Introduction Growth in international investment and trade, coupled with the recent financial crisis, has led to an increase in the number of international disputes. The construction industry, traditionally a minefield of opportunities for dispute, is no exception. Tight finances bring late payments, defaults and cutting corners, and the disputes that accompany them. International arbitration has long been the preferred method of dealing with international disputes. Its advantages neutrality, expertise, privacy and enforceability need not be reiterated here. There are, however, occasions when the business community urgently needs protective measures. Until recently, the only avenue for these parties was a national court. With the advent of real-time electronic communications and internet transactions, business is done in real time; decisions on one side of the world can produce immediate effects on the other and so require speedy reactions. It may be necessary to protect sensitive information, prevent the abusive call of a guarantee, or keep a team on site to ensure timely completion. A party may need to be sure that evidence is not destroyed or assets dissipated before the arbitral tribunal can deal with them. Without such an order, the whole arbitration may become ineffective or the final outcome of the dispute may be prejudiced. Once constituted, most tribunals have the power to make these orders, either under the procedural law of the seat, the rules governing the procedure, or both. For example, both the UN Commission on International Trade Law (UNCITRAL) Model Law (Articles 17 17I) and the International Chamber of Commerce (ICC) Arbitration Rules (Article 28(1)) contemplate such interim measures. However, a notice or request must be filed and the tribunal constituted, in a process that usually takes weeks or even months. Until recently, parties needing immediate relief had no option but to go to a national court. In 1990, the ICC created the Pre-Arbitral Referee to deal with emergencies arising prior to the constitution of the tribunal. Designed as a free-standing scheme for use prior to the initiation of an arbitration, the Pre-Arbitral Referee was a voluntary procedure. As a result, the Pre-Arbitral Referee received limited attention from parties and counsel, and the ICC has made only a dozen appointments under these rules, all of which have taken place in the past 11 years. Nonetheless, the Pre-Arbitral Referee system remains available. The International Centre for Dispute Resolution (ICDR), the international arm of the American Arbitration Association, followed suit with its own Optional Rules for Emergency Protection. Their fate was similar to that of the ICC s Pre-Arbitral Referee. The ICDR then introduced a novel procedure in Article 37 of the ICDR Rules set out a facility for emergency interim relief before the constitution of the arbitral tribunal; it was the first time that such a procedure was integrated into the Rules, rather than standing alone as a rarely used option. It made the emergency arbitrator ( EA ) procedure available to any parties who have not previously contracted out and has appointed 21 EAs since Other institutions, including the Stockholm Chamber of Commerce (SCC), the Singapore International Court of Arbitration (SIAC) and the Australian Centre for International Commercial Arbitration (ACICA), followed suit and as part of its (roughly) decennial rule review, the ICC added EA provisions in Article 29 of the 2012 Rules. Salient features of the EA provisions under these Rules are summarised in Table 1 below. CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 2 June

2 Institution ICDR SCC SIAC ACICA ICC Date of EA 1 May January July August January 2012 Cases to date Timing of application With or after demand Before or after request filed With or after notice With or after notice Before or after request filed Appointment Within one business day Within 24 hours Within one business day Within one business day Within two days Decision Time (target) Average 21 days Five business days Not specified Five business days 15 days Form Award, Order Award, Order Award, Order Award, Order Order Cost of procedure No extra charge but arbitrators bill hourly 15,000 S$3, per cent of max sole arbitrator fee AU$12,500 US$40,000 Table 1 Salient features of the EA provisions Scope of the EA procedure As ICDR Rule 37 had done in 2006, to avoid any element of surprise, the ICC s 2012 Rules (Appendix V, Article 2.2) provide that the EA procedure does not apply in the case of an arbitration agreement concluded prior to the 2012 Rules coming into force on 1 January Once the arbitral tribunal has been constituted, none of the institutions surveyed will entertain an application for an EA. What constitutes an emergency? Under the ICC Rules, any party that needs urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal may apply. ICDR s applications are for parties in need of emergency relief. ACICA Article 28.3 provides more guidance, tracking Articles 17 and 17A of the UNCITRAL Model Law. The applicant, to obtain an order, must satisfy the EA that: irreparable harm is likely to result if the measure is not ordered; such harm substantially outweighs the harm likely to result to the party affected by the measure if it is granted; and there is a reasonable possibility that the requesting party will succeed on the merits. Initiating the EA request Although all the institutions mentioned above allow for the appointment of an EA prior to the constitution of the tribunal, they do vary somewhat in its implementation. Article 37 of the ICDR Rules envisages an emergency application only once the demand for arbitration has been filed. ACICA s procedure (Appendix A, Article 3.1) envisages sending the application for an emergency arbitrator concurrently with or following the notice of arbitration. The ICC Rules (Appendix V, Article 1.6) allow an application for an EA prior to filing the request for arbitration, but stipulates that it normally will be terminated if a request for arbitration is not received by the Secretariat within ten days of the application. The SCC allows an application before the notice of arbitration, but the arbitration must be commenced within 30 days of the application. A party wishing to have recourse to an EA under the ICC Rules submits an application to an office of the ICC Secretariat (Paris, Hong Kong or New York), sending enough copies for the ICC, all parties and the EA. If the President of the ICC Court decides that the application should go forward, the Secretariat sends a copy of the entire application to the responding party. If the President decides that the application is not suitable for an EA, the Secretariat still sends the application to the other party for information. The President will terminate the proceedings if the request for arbitration is not received at the Secretariat within ten days of the date of the application. The ICC President is to appoint the EA within as short a time as possible, normally within 2 days from the Secretariat s receipt of the application. This timeframe is actually longer than those of other institutions. For example, the ICDR, SCC and ACICA all provide for appointment within one business day or 24 hours. Who are the emergency arbitrators? Obviously, the first key is immediate availability. Although there is no written rule, sources from several institutions interviewed for this paper all emphasised that they would choose only the most highly experienced arbitrators 40 CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 2 June 2012

3 for what is likely to be a complex, challenging and stressful task. As contemplated by Article 37(3) of its Rules, the ICDR maintains a special panel of arbitrators designated to hear emergency applications. There is no provision in the ICC Rules allowing parties to appoint their own EA but neither is there a prohibition. Presumably, if the application to the ICC Secretariat specified that the parties had agreed to the appointment of a particular person as their EA, the ICC would take that into consideration. The EA is subject to the same obligations of independence and impartiality as the arbitral tribunal and the ICC requires its usual Statement of Independence before appointing any individual. Once the EA is appointed, the ICC transmits the file to the EA and notifies the parties. Challenges to the EA A challenge to the EA must be made within three days and, in the case of the ICC, shall be decided by the ICC Court after hearing from the EA and the parties if they wish to comment. The ICDR gives only one business day for challenge and decides on the challenge after hearing from the EA and the parties. In deciding its first challenge to an EA, the ICDR appointed the replacement on the day it received the challenge. On receiving the file, an EA establishes a procedural timetable, again normally within two days, and conducts the proceedings appropriately under the ICC Rules. ICDR Rule 37(4) gives a little more guidance: [The] schedule shall provide a reasonable opportunity to all parties to be heard, but may provide for proceedings by telephone conference or on written submissions as alternatives to a formal hearing. Like the arbitral tribunal, the EA must act fairly and impartially and ensure that each party has a reasonable opportunity to present its case. How long does it take to get emergency relief? The decision of the EA, under the ICC Rules, is to be made within 15 days of receiving the file, although the ICC President may extend that time limit either at the EA s request or on his/her own initiative. The SCC s appointment is to be made within 24 hours of the application and the decision within five days after that, although brief extensions of two or three days may be granted. The ICDR appointment period is one business day and the average time for deciding the application, according to an ICDR source, is 21 days. Most are far shorter, with some being completed in as little as four days. The goal is two weeks but in some cases the parties have agreed to suspend the proceedings, thereby raising the average. In the ICDR case mentioned above, where the EA was successfully challenged, the replacement EA was able to conclude the entire procedure within two weeks of the filing of the application. The decision and its form Other than the criteria for applications ( measures that cannot await the constitution of the tribunal ) and the tribunal s general powers to grant appropriate interim relief under Article 28, the ICC is silent as to the kind of orders the EA can grant. The ICDR Rules give the EA the power to order or award any interim or conservancy measure the EA deems necessary, including injunctive relief and measures for the protection or the conservation of property. ACICA s 2011 Rules are even more expansive, tracking the tribunal s powers. Under Article 28.2, the EA can order a party to: maintain or restore the status quo pending determination of the dispute; take action to prevent or refrain from taking action likely to cause current or imminent harm; preserve assets which may satisfy a subsequent award; preserve evidence; or provide security for costs. There is no provision for ex parte orders in any of the institutions surveyed. For this type of relief, an applicant will still have to go to a national court. Of its 21 cases to date, the ICDR has had four construction cases, where the EAs awarded specific performance or ordered a party to maintain the status quo. Under the SCC Rules, the EA in a construction case enjoined a party from calling a performance bond and yet another EA enjoined a party from removing disputed equipment from a work site. An Indian counsel in a multimillion dollar dispute with a Belgian contractor was eager to avoid lengthy proceedings in Indian CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 2 June

4 courts and applied for emergency measures at SIAC. The EA granted the interim order and that, according to counsel, led to an early settlement of the entire case at a reasonable cost. In two more of SIAC s EA cases, settlement has followed closely on the EA procedure. Of course, not all the measures requested are granted. An EA in Stockholm refused an order enjoining a party from calling in performance guarantees saying he had no jurisdiction over the payor bank and, in addition, the damage was not irreparable as the applicant could claim reimbursement later if the tribunal found that the guarantee had been abusively called. The ICC EA s decision is in the form of an order, while ICDR Rule 37(5) provides that EAs may order or award, and shall give reasons in either case. In both procedures, the EA may begin with a decision on jurisdiction. The EA may make an order conditional or may require security, and may later modify, terminate or annul the order. The characterisation of the EA s decision as an order rather than an award was a conscious decision on the part of the ICC. To date, there have been no EA procedures under its Rules but the ICDR has had some experience with enforcement of its EA decisions. Enforcement What if a party decides to disregard the EA s award or order? If an applicant has obtained an interim award under the ICDR system, can the applicant then obtain enforcement in a state court? Even ICDR, with its 21 cases, has no experience as regards this issue. However, two authors have provided an interesting analysis of the likelihood of successful enforcement in US Federal Court by analogy with an interim award of a tribunal. 1 Many US courts consider that only final awards can be confirmed or vacated under the Federal Arbitration Act or the New York Convention. Yet all EA orders may be varied, overturned or cancelled by the arbitral tribunal once it is constituted. Observing that some courts will consider some interim awards such as orders to provide security for costs or preliminary injunctions temporary in fact, but final in law, the authors concluded that US courts would probably take a pragmatic approach, recognizing that even a temporary award could be necessary to support the arbitral process. 2 The authors were optimistic about the fate (at least in US courts) of EA decisions, even those labelled as orders: It is not the role of the courts to undermine the comprehensive grant of authority to arbitrators by prohibiting an arbitral security award that ensures a meaningful final award. 3 As for other jurisdictions, the prognosis could be quite different. A state which does not recognise an arbitral tribunal s power to grant interim measures at all is bound to give an EA s order short shrift. For example, Italy and Greece reserve interim relief to their state courts. The New York Convention speaks of the enforcement of awards not orders, although some national courts, such as France, will interpret the Convention widely so as to give effect to orders. Since the EA procedure is young and as yet untried in the courts, it is interesting to recall a decision concerning a decision by an ICC Pre-Arbitral Referee. A Paris court heard an application to annul the decision and looked at whether it was an award and thus capable of being set aside. The ICC does not refer to the referee as an arbitrator. The court found that the referee was not able to make final decisions, so its decision was not an award and thus could not be set aside. 4 This raises the serious consideration of whether the EA s decision is in fact an arbitral award, even in the broadest sense. Does calling it an award (as is possible under ICDR) make it an award? Surely not. Is the EA really an arbitrator? The tribunal comes later; that is why the EA is called upon for pre-arbitral relief. Can there be two arbitrators in the same case? This may be akin to asking how many angels can dance on the head of a pin but someone, somewhere, someday is going to raise it as a defence to enforcement of an EA s decision. This was no doubt one consideration in the minds of the ICC Commission when it made the conscious decision that the EA s decision would be an order and not an award, thus allowing any potential enforcement courts to duck the question. A related practical consideration is that all ICC awards must go through the scrutiny process, which adds at least a few days to the delivery of the EA decision. Orders are not scrutinised by the ICC Court. The EA s power generally ends with the constitution of the arbitral tribunal, which is not bound by the EA order. Under Schedule 1 42 CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 2 June 2012

5 of the SIAC Rules, for example, the EA s jurisdiction continues until the constitution of the tribunal or until 90 days from the grant of interim relief. The tribunal thus may leave the order in place or may modify or terminate it but upon the constitution of the tribunal, the EA will have no further powers. As a rule, the EA may not subsequently act as arbitrator in a case relating to the one where he or she served as an EA. Cost The cost of EA proceedings varies, as will be evident from Table 1 above. Most institutions have a set fee for the procedure, although the ICDR does not charge an administrative fee and its EAs charge at their normal hourly rate. Conclusion The ICC and ICDR saw the need for EAs as early as the 1990s. The prototypes met with little success; only by incorporating the EA procedures into their Rules (with an optout provision, to be sure) could institutions ensure that parties would be able to use them. The SCC s survey confirmed that the arbitration community needed the service, although it has only been in the last few years that parties have started having recourse to EA procedures. In the six years since the ICDR s first EA procedure, there have been fewer than 40 EAs appointed. EA orders are efficient and reports from users indicate that they frequently lead to early settlement. So far, parties seem to consider the procedures a valuable service, although it is certainly not one they need for every case. The elephant in the room is of course the question of enforceability. If a party decides to ignore or flout the order of the EA, will the courts enforce it? And if they will not, what other sanction is available? If the courts will not act, only the tribunal can make an order which may or may not repair any damage done by the disobedient party. By agreeing to the rules of institutions, parties are contractually bound to comply with awards, and awards are customarily carried out as ordered. Thus, an EA s decision will in most cases be a useful and practical way of solving an immediate problem. Everyone in the construction industry employers, contractors, subcontractors, designers and engineers should be aware of the potential of the EA. Those who are drafting contracts, or amending standard form contracts, may wish to consider the availability of EA procedures in choosing the institution to administer their future arbitration cases. Notes 1 G Lemenez and P Quigley, The ICDR s Emergency Arbitrator Procedure in Action, Dispute Resolution Journal, November 2008/January Ibid, 3. 3 See Banco de Seguros del Estado v Mutual Marine, US 2nd Circuit Court. 4 Paris Court of Appeal decision of 29 April Louise Barrington JD LLM CIArb (Chartered) is Principal of Aculex Transnational Dispute Resolution Services, Hong Kong, Paris & Toronto. Thanks to research assistant Carine Dong. CONSTRUCTION LAW INTERNATIONAL Volume 7 Issue 2 June