Anti-money laundering and market abuse trends in the UK
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In recent years, many of the leading arbitral institutions have amended their rules in order to make arbitration more responsive to users’ needs. A key development has been the introduction of emergency arbitrator procedures, which enable parties to obtain urgent relief before the substantive tribunal is formed. For good reason, these new mechanisms are receiving significant attention from parties and arbitrators. However, have enforcement mechanisms kept pace with these developments?
An important consideration for many parties is the ability to obtain immediate interim relief once a dispute arises to either to preserve the status quo or prevent the other side from continuing the breach in question pending final resolution of the dispute. In the arbitration context, there are a number of avenues for obtaining interim relief.
Courts in most jurisdictions retain residual authority to grant interim measures in support of arbitration. Obviously, some of the benefits of arbitration – such as confidentiality and efficiency – may be lost if a party is forced to pursue interim relief in open court. Some parties therefore prefer to seek interim measures within the arbitral process.
A tribunal once appointed also will generally have wide powers, akin to those of a court, to grant interim relief.
The difficulty that can arise is that in some instances the appointment of the substantive tribunal can take months, particularly if one party is obstructive or raises challenges to the nominated arbitrators.
In response, many leading arbitral institutions have introduced emergency arbitrator procedures which seek to close that gap by allowing parties, in situations of emergency, to obtain urgent arbitral relief before the substantive tribunal is formed. Under emergency arbitrator procedures, a sole arbitrator is appointed by the arbitral institution on an expedited basis to determine applications for interim relief that cannot wait for the formation of the substantive tribunal. Arbitral institutions that have adopted emergency arbitrator mechanisms include the ICC, ICDR, SIAC, SCC, and LCIA.
Generally, the relevant arbitral rules provide that decisions of emergency arbitrators are interim‑binding, in that they can later can be varied or suspended by the substantive tribunal once formed. In some instances, such interim measures may expire by default after a certain period of time.
Depending on the applicable arbitral rules and/or law, an emergency arbitrator (and/or arbitral tribunal) may grant interim relief in a number of ways; in the form of a preliminary order, a procedural order, a direction, or an interim or partial award. The ICC, for example, requires that an emergency arbitrator decisions take the form of an order, thus avoiding the ICC’s “scrutiny” process for awards, which would delay the issuance of the emergency decision. By contrast, the SCC and ICDR rules permit a decision in the form of either an order or an award.
Despite the interest and seeming demand for such relief, there are some questions over the enforceability of arbitrator interim measures. Key questions arise from the very nature of the relief; that it is interim binding and, in the case of emergency arbitrator decisions, is made by someone other than the substantive tribunal. The form of the relief can also play a part — particularly where arbitrator interim relief is in the form of an order rather an award.
In international commercial arbitration, the key enforcement mechanisms are the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) and the applicable domestic arbitration laws, many of which are based on the UNCITRAL Model Law on International Commercial Arbitration (the Model Law).
The New York Convention is silent on the question of arbitrator interim awards and orders. On the face of it, the convention applies only to “awards”, thereby seemingly excluding arbitrator orders, interim or otherwise. Moreover, there is no definition of “award”, but finality is considered an essential characteristic of an award in many jurisdictions — not least because the convention provides that a party may resist enforcement of an award on grounds that it is not yet “binding”. As such, this raises questions over the enforceability of orders and awards that are only interim‑binding.
Unlike the New York Convention, the original Model Law does expressly address interim relief, in that it empowers a tribunal to order interim measures. However it does not address the enforcement of such measures, instead leaving it open to national courts whether or not to provide assistance in that regard. The Model Law was updated in 2006 to address, among other things, the enforceability of arbitrator interim measures. The amended Model Law empowers tribunals to grant interim relief in both the form of an award as well as in “another form”, and provides that such measures will be binding and enforceable as any other award. Save that, if made in the form of a preliminary order, although binding on the parties such an order will not be subject to enforcement by a court (and does not constitute an award).
The amended Model Law offers some helpful clarity. But it does not perfectly resolve all issues. Firstly, it fails to define “arbitral tribunal”, which leaves open the question of whether an emergency arbitrator falls outside the definition. More importantly, the 2006 amendments have not been widely adopted. Over one hundred jurisdictions implemented domestic arbitration laws based on a version of the Model Law, but less than half of those have adopted the 2006 revisions. Among those that have are Australia, Belgium, the Canadian province of Ontario, the state of Florida, New Zealand, and several Latin American countries. Add to that, a number of domestic arbitration laws, including those in some of the leading seats of arbitration (England, France, the United States), are not based on the Model Law at all. In actuality, few domestic arbitration laws address the enforceability of emergency arbitrator relief.
In the absence of express provisions (such as those adopted in Hong Kong and Singapore), it is up to the domestic courts to determine whether an emergency arbitrator decision, be it in the form or an award or an order, is enforceable.
The approach taken by domestic courts to this question has varied across jurisdictions. In some, courts have found that where arbitrator interim measures finally dispose of certain issues, they are enforceable as awards. In the United States, for example, arbitrator interim measures have been held to be enforceable as an award provided the ruling containing the interim measure finally and definitely disposes of a self‑contained issue (see e.g. Island Creek Coal Sales Company v City of Gainesville Florida (1985), 729 F2d 1046, U.S.C.A., 6th Circuit).
Some courts that follow this approach will look at the substance of the measure, and not its form, enforcing both arbitrator order and awards.
The question of whether interim relief granted by an emergency arbitrator is enforceable in the same fashion as interim relief ordered by the substantive tribunal, also remains a live issue. Again taking the United States as an example of the high water mark; generally US courts have applied the same approach to emergency arbitrator decisions as to interim measures issued by the substantive arbitral tribunal (see e.g. Yahoo! v Microsoft Corporation, 983 F. Supp. 2d 310 (S.D.N.Y. 2013)).
There are encouraging signs that other jurisdictions are following suit and taking a pro‑enforcement approach to arbitrator interim relief. A decision of an emergency arbitrator appointed under the SCC rules was enforced by the courts of Ukraine in the context of an investor‑state dispute under the Energy Charter Treaty (JKX Oil & Gas plc, Poltava Gas B.V. and Poltava Petroleum Company JV v Ukraine).
But not all jurisdictions are heading in the same direction. The Swiss Federal Tribunal, for example, has characterized it as “dangerous” to treat interim measures as an award (see Judgment of April 13, 2010, DFT 136 III 200).
And, of course, not all interim measures will “finally” resolve some part of a dispute. That leaves enforcement of such measures uncertain even in otherwise pro‑enforcement jurisdictions.
The bigger issue for users, however, is that in many jurisdictions there have been no or too few court decisions to reliably predict how emergency arbitrator decisions will be treated.
Given the current patchwork approach globally, enforcement of interim measures issued by arbitral tribunals remains uncertain and uneven. Until more proceedings to enforce emergency arbitrator decisions come before courts, or until legislators decide to deal with the issue in domestic legislation, questions over the enforceability of arbitrator interim relief remain.
The uncertainties associated with enforcement is an important issue for users to take into consideration when deciding whether to seek relief from an emergency arbitrator or from a court. It is critical that, prior to deciding, parties obtain local law advice from the jurisdiction/s where enforcement will be sought.
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