Interim relief in construction arbitration

Comparing the courts and arbitration

Publication May 2019


Introduction

With most major institutional arbitral rules now providing avenues for interim relief via emergency arbitrators, expedited arbitral appointment or expedited proceedings, when is it still worth looking to the courts for interim relief in construction arbitrations?

There are a number of scenarios in which national courts may offer advantages. In cross-border construction disputes, enforcement is often the most important driver for a claimant’s strategy from the outset. In many jurisdictions, the courts will be the best route to freezing assets to ensure any award obtained will be worth something in the end. Many courts have enviable powers with bite, such as the power to grant a world-wide freezing order and provide for the most serious penalties (such as jail time) if breached. 

When will the courts intervene

The United Kingdom

The English courts are constrained by the Arbitration Act 1996 from intervening in arbitrations unless the tribunal cannot act, and then only to the extent necessary.

If the arbitration is conducted under the London Court of International Arbitration (LCIA) Rules, for example, parties are able to access interim relief within the arbitral process and prior to formation of the tribunal by appointing an emergency arbitrator or expediting formation of the tribunal to deal with urgent interim relief sooner. In light of the constraints of the Arbitration Act, the availability of these remedies within the arbitral process will often result in ousting the English courts’ powers to intervene to grant interim relief, save in circumstances where effective interim relief is not available.

The English courts are however willing to accept jurisdiction over interim relief applications where a tribunal cannot grant the same relief or it would not be as effective in emergencies. Generally this will be because either

  • The tribunal lacks the power
    • A tribunal has not been constituted and even if this was expedited or an emergency arbitrator was appointed, it would be too late.
    • The relief sought is against a third party, who will necessarily be outside the tribunal’s reach because it is not a party to the arbitration.       

or

  • An order of the tribunal would not be effective
    • The existing tribunal cannot hear or act on the application sufficiently quickly.
    • There are other issues, such as enforceability issues in the relevant jurisdiction/s.

In October 2018 in Recydia Atik Yönetimi & Ors. v Mr Richard Mark Collins-Thomas, Environmental Power International Limited & Ors. [2018] EWHC 2506, the English court upheld a without notice world-wide freezing order under section 37 of the Senior Courts Act 1981 which had been granted by the court before the arbitral tribunal had been constituted. The dispute arose out of a joint venture to develop and commercialize technology for a waste-to-energy plant. The seat of the arbitration was Zurich but the assets were in the UK. When seeking the order, the claimant had not yet filed a request for arbitration with the ICC but it satisfied the High Court that it had a good case and there was a real risk that the defendant, who had control over the JV’s assets and had stopped funding the JV, would put its assets beyond reach. After the assets were frozen, the defendant applied to set aside the court order, but the court refused it and decided the order should stand until final disposal of the claimant’s arbitration.

Australia

Australian courts have the power to intervene and grant interim relief where necessary in international commercial arbitrations (see section 7(3) of the International Arbitration Act 1974 and Articles 8 and 17J of the UNCITRAL Model Law that applies to international arbitrations seated in Australia).

In Duro Felguera Pty Ltd v Trans Global Projects Pty Ltd (in liq) [2018] WASCA 174, the Court of Appeal of Western Australia upheld a freezing order over the assets of a subsidiary of a troubled global parent which had been granted prior to the commencement of arbitration. The Court of Appeal held that the freezing order would remain in place even after the arbitral tribunal was constituted until ‘further order’.

These facts are not uncommon. Parties are often concerned of actions to dissipate assets at an early stage, when the dispute has crystallized but arbitral proceedings are not yet or only just on foot. A contractor with liquidity issues may demobilize and take steps to remove any assets from a jurisdiction on a failing project. Without parent company guarantees, subsidiaries of global companies may be the only asset in a jurisdiction and urgent steps may be needed to preserve the status quo pending resolution of the dispute.

Should parties expedite proceedings or seek appointment of an emergency arbitrator?

There are benefits to seeking interim relief within the arbitral process. These include, for example, the ability to avoid airing confidential matters publicly, and having the ultimate decision-makers of the dispute also determine issues of interim relief and therefore being fully appraised of the issues if/when, for example, adjustments need to be made to any order for relief. However, there will be instances when court relief offers clear advantages.

Time constraints can be an issue in practice. The process of constituting an arbitral tribunal takes time, particularly where a three-member tribunal is to be appointed. Fast-tracking that process under expedition provisions can still take time: for example, the application of expedition must be made, arbitrators must undergo conflicts checks and accept appointment, and consensus subsequently sought as between party-appointed tribunal members in order to appoint the chairperson. The parties then still need to put their application for interim relief to the tribunal once appointed. Where very urgent relief is needed, that may still take too much time and so parties may need to resort to other options.

Emergency arbitrator provisions, although useful, may not always be the answer. Arbitral institutions and the arbitrators themselves are not always immediately available on very short notice. In urgent circumstances, by the time a party applies for an appointment, an arbitrator clears conflicts and accepts the appointment, reads into the papers and/or hears the evidence, and issues a decision, it may be too late. However, in many jurisdictions, court judges will be on call to hear urgent injunction applications at very short notice and at any time, for example, on a Sunday night.

More significantly, often the last thing an applicant wants to do is give the defendant warning that an application for interim relief is in process, particularly if an asset freezing order is needed. Yet, unlike the court system, many institutional rules do not allow for without notice applications for relief and require the other party to be given a reasonable opportunity to respond or at least be notified of the application. So again, in these instances seeking relief from the courts may be the best option. A further practical point to consider is that tribunals are not able to make orders under a penal notice, so any interim relief ordered by a tribunal will not have the same bite as that of a court. In practice, most orders are complied with. However, in some instances, the only thing ensuring compliance with the order is the serious ramifications of breaching an order under a penal notice.

Drafting tips

In some jurisdictions (such as the UK) the fact that interim relief is available within the arbitral process will limit or even oust the court’s ability to intervene. To preserve the ability to seek interim court relief may mean choosing to opt out of emergency provisions in the relevant arbitration rules. Parties should therefore be alive to these issues, consider at the outset what relief might be needed (by whom, against whom, where, and over what), and the arbitration agreement must be carefully crafted to avoid inadvertently excluding the preferred mechanism, whether court or tribunal.


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