Source: https://www.liv.asn.au/LIV-Home/Practice-Resources/Law-Institute-Journal/Archived-Issues/LIJ-July-2005/Arbitrating-international-disputes
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Arbitrating international disputes - Law Institute of Victoria
Cite as: (2005) 79(7) LIJ, p. 40
Former English Law Lord Professor Lord Mustill has used the analogy of a relay race to explain the complementarity between the roles assumed by arbitral tribunals and the courts in various stages of arbitrable disputes.[1] However, this relationship is more problematic when considering the role and operation of interim measures in international arbitration.
The power of an arbitral tribunal to grant interim measures of protection and the possibility of a regime for ex parte measures has been the subject of extended debate since the United Nations Commission on International Trade Law’s (UNCITRAL) Working Group on Arbitration decided in 1999 to address these matters as priority items as part of its evaluation and review of various ideas and proposals for the improvement of arbitration laws, rules and practices. The Working Group’s most recent report, which records states’ current views about and progress with the drafting of a revised Art 17 of the Model Law on International Arbitration of 1985 (the Model Law), is further evidence of the painstaking creep towards consensus in relation to the key principles for the exercise of these powers.
While interim or injunctive measures are a typical feature of domestic litigation in common law jurisdictions, their place and role in arbitral determination is far from resolved. This is despite the potential benefit of a more effective arbitral process which could be achieved by arbitral tribunals using a consistent and principled approach to how such measures may be applied, in what circumstances and under what conditions, particularly in situations where ex parte applications may be required.
The work of the UNCITRAL
The UNCITRAL was created to enable the United Nations “to play a more active role in reducing or removing legal obstacles to the flow of international trade”[2] and address the problems with international commercial transactions that result from conflicting state laws. The work of the UNCITRAL’s Secretariat in developing the Arbitration Rules of 1976, the Model Law on International Arbitration of 1985 and the Conciliation Rules of 1980[3] and their subsequent widespread adoption[4] have had a fundamental influence on the design of the key architecture for international arbitration. Together with the New York Convention of 1958,[5] the Model Law and the Arbitration Rules are key pillars in the worldwide system of arbitral determination.[6]
Interim measures of protection: the current and draft Article 17
The current Art 17 of the Model Law provides that unless otherwise agreed by the parties, an arbitral tribunal may at the request of a party order interim measures of protection as it considers necessary in respect of the subject matter of the dispute. The Model Law text “deliberately omits legal terms or concepts specific to certain jurisdictions and, instead, relies on descriptive language, embodying the generally recognised principles and utilising the usual phrases and industry jargon of international arbitration”.[7] The term “interim measures of protection” used in the Arbitration Rules and the current Art 17 of the Model Law is not defined in either instance. The Working Group has retained this terminology in its approach to draft Art 17, which reflects a deliberate choice to preserve the tribunal’s ability to adopt a flexible approach to interim measures through the interpretation of a generic concept guided by broad purposive objectives rather than articulating a detailed definition. These objectives include preserving the status quo to ensure the effective enforcement of the award and preventing action that is likely to cause “imminent harm”. Measures directed towards these objectives would be to conserve or not remove property or assets, which form the subject matter of the dispute or are assets against which the award may be enforced. Interim measures may also seek to stabilise the legal relations between the parties throughout the arbitration proceeding or protect evidence that would otherwise be unavailable at a later stage of the arbitration. Draft Art 17 specifically states the temporary nature of an interim measure of protection and that these measures may be in the form of an award or another form made prior to the issuance of the award by which the dispute is finally decided. A party requesting an interim measure is required to satisfy the tribunal as threshold criteria that “harm not adequately reparable by an award of damages is likely to result” and that there is “a reasonable possibility that it will succeed on the merits”. This is consistent with the approach adopted in many common law domestic jurisdictions as a basis for granting injunctive relief.
Ex parte interim measures of protection and draft Article 17(7)
The power of arbitrators to order interim measures is generally recognised in most arbitral rules, including the Model Law, and is adopted in practice. However, the proposed extension of these powers to include ex parte measures has proved to be contentious, notwithstanding general acceptance of the practical imperative for ex parte measures in situations where urgency, secrecy and an effective sanction are required if the interim relief sought is to be effective. This need is particularly compelling in circumstances where the subject matter of the dispute is under threat, third parties are involved or there is a real risk that the party against whom the order may be sought will not comply with it. As a result of the divergent views expressed by several delegations about the desirability of permitting an extension of powers to order interim measures on an ex parte basis as set out in draft Art 17(7), the Working Group has not yet decided as a matter of policy whether this provision will be included in the final text and has left that decision until after the main features of the provision are determined.[8] However, the Working Group has noted that these powers “would constitute a useful addition to the text and meet the needs of arbitration practice”.[9]
The power over interim measures of protection (particularly in the form of ex parte injunctions, including Mareva orders and Anton Pillar orders) has traditionally been exercised by courts as “part of the surfeit of powers of intervention and supervision exercised by them over arbitration and arbitrators”.[10] The role of the courts in the effectiveness of the arbitral system has long been recognised by both domestic legislation and international treaties, including the New York Convention and the Geneva Protocol of 1923.[11] Instances where a party may clearly request an interim measure of protection from a court include seeking “anti-suit injunctions” or setting an award aside on the grounds specified in the New York Convention. Article 9 of the Model Law recognises that “[i]t is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure”. Prior to the constitution of the arbitral tribunal, a party has little choice but to approach a court for interim relief.[12] However, there are obvious limits in the exercise of such a power as courts are reluctant to grant interim measures that require a determination concerning the matters at the core of the arbitral dispute and within its particular competence.
While a party may have a theoretical choice between approaching a court or the arbitral tribunal for interim measures of protection, once a tribunal has been constituted, wherever practical the power to grant interim measures should be exercisable by the tribunal rather than the courts as part of governing its own process. Pursuant to s23 of the International Arbitration Act 1974 (Cth), an arbitral tribunal in Australia has all of those powers specified in Art 17 to order interim measures and any associated security for such orders. The ability to obtain ex parte measures within the confines of an arbitration is not inconsistent with the principle of international arbitration, which is to provide a consensual dispute resolution process that reflects the parties’ agreement to resolve their disputes privately rather than in court, in a neutral forum or before a select tribunal with particular experience in relation to the subject matter of the dispute, and in a less costly and more expedient manner. Given that parties are generally more likely to comply with an arbitrator’s interim orders and allay any risk of prejudicing the arbitrator against them in making a final award, the argument that the coercive powers of the court are required to provide any efficacy to ex parte orders is not necessarily compelling in every instance.[13] Ex parte arbitral powers could potentially operate in conjunction with and be supported by the powers of the court, which would recognise and enforce such measures that have been granted by an arbitral tribunal and sanction any dilatory conduct or abuse of such powers by parties, if required.[14]
A decision by the parties to use an arbitral process may also reflect a pragmatic response to situations where a court in the jurisdiction where the interim measure is to take effect or be enforced may not be authorised to grant ex parte relief or interim measures in support of a pending arbitration,[15] or the substantive law applicable to the dispute may impose limits through, for example, mandatory rules of public policy which require a party to seek interim relief from a domestic court[16] or the interpretation of the concept of an award. By way of example of the latter situation, in Australia in the Resort Condominiums case,[17] orders contained in an interim award were characterised as “clearly of an interlocutory and procedural nature ... which in no way purport to finally resolve the disputes or any of them referred by Resort Condominiums International for decision or to finally resolve the legal rights of the parties ... They are provisional only and liable to be rescinded, suspended, varied or reopened by the Tribunal which pronounced them”. Accordingly, the “Interim Arbitration Order and Award” was not an award for the purposes of the New York Convention and not capable of enforcement on this basis or on the grounds of public policy. Accordingly, parties’ express decisions to empower arbitrators to order interim relief in such circumstances are reinforced by the provisions of draft Art 17 and further supported by draft Art 17 bis, the draft provision on the recognition and enforcement of interim measures of protection, which provides that an interim measure (as distinct from a preliminary order in Art 17(7)) that satisfies Art 17 shall be binding and enforceable on application to a competent court.
The power to order ex parte measures is ostensibly incompatible with the orthodox arbitral premise that to ensure procedural fairness between the parties an arbitrator has an obligation to be independent, impartial and avoid any prejudgment of issues and the parties have a reciprocal obligation not to make unilateral contact with an arbitral tribunal. As a result, the overriding corollary to any sensible debate in favour of ex parte powers being extended to arbitrators has and will continue to proceed on the basis that appropriate and adequate procedural safeguards are also put in place to limit the scope of any abuse of such increased power. Draft Art 17(7) specifies that immediate notice of the order is to be provided by the tribunal after it has been made, a party against whom the order has been made has an opportunity for a hearing inter partes at the earliest possible time if they wish to object, and the duration of operation of the ex parte relief is limited to 20 days unless confirmed, extended or modified by the tribunal in the form of an interim measure of protection. The Working Group also agreed that it “should be made clear that preliminary orders [in draft Art 17(7)] had the nature of procedural orders and not of awards [and] that no enforcement procedure would be provided for [them] in Art 17 bis”.[18] As a result, any enforcement by a court is to be limited to interim measures of protection made after an inter partes hearing, which will operate as a further procedural and substantive safeguard against any abuse of these powers.
Even proceeding on this basis, opponents of ex parte measures also argue that it may not be possible to incorporate adequate safeguards to ensure that the requesting party is full and frank in its disclosure to the tribunal. The imposition of a continuing obligation on the party requesting relief to provide the tribunal with such information may not entirely ameliorate this concern because it is difficult to envisage how such an obligation could be monitored, regulated and enforced if necessary. The risk of significant prejudice to one party where the same arbitral tribunal is to hear any interim applications and the substantive proceeding – such that an arbitrator may not be able to avoid prejudging the issues – appears to be overstated. This risk could be removed if the parties agree in their arbitration agreement that any interlocutory applications are to be determined by a separate arbitrator. Ex parte applications and decision making is also a feature of dispute resolution in domestic courts where a single “docket” judge may make interlocutory injunctive orders and a final determination. This process is appropriately managed by the judiciary through reliance on strict standards of procedural fairness and parties’ obligations of full and frank disclosure. While there is a risk that the latter consideration may not be complied with to a similar degree in an arbitral context, it would appear to do a disservice to arbitrators to suggest that they are unable to perform these functions appropriately.
Underpinning all of the concerns about procedural fairness is the issue that ex parte powers appear to contradict the fundamental consensual nature and dynamics of the arbitral process by granting potentially far-reaching relief after an ex parte hearing, which may undermine a party’s faith in the process.[19] Unfortunately, even the inclusion of an opportunity for parties to have access to a prompt inter partes hearing, as provided for in draft Art 17(7), may not prevent this from occurring, especially where the only available forum to conduct an inter partes hearing to review the ex parte measure is before the same arbitrator. If it is also implicit in the parties’ agreement to submit their disputes to arbitration that the process be effective, not granting ex parte powers to arbitrators may undermine their ability to ensure that the process is not rendered futile by the conduct of one of the parties[20] and thus negate the object of arbitration, which is to facilitate the parties resolving their disputes outside the court system. Draft Art 17(7)(a) attempts to address the tension between the principle of equal treatment and the effectiveness of the arbitral process by explicitly stating that the basis for a preliminary order is “where prior disclosure of an interim measure ... risks frustrating [its] purpose”. However, for opponents of ex parte measures this is not an adequate safeguard.
Ex parte measures are also subject to inherent practical and jurisdictional limitations by the nature of the arbitral process, which in one sense is a further safeguard against any potential abuse of such powers, particularly insofar as they may concern third parties. Third party rights cannot be bound by an arbitrator per se as the tribunal has no power to issue orders beyond the ambit of the agreement according to the law applicable at the place of arbitration and any procedural rules that the parties have agreed on and incorporated into their agreement. Nor is it likely that a court would enforce orders which might be made against third parties without their agreement. Procedural fairness considerations assume even greater significance in this situation because third parties have no standing before arbitral tribunals and are not afforded the protection inherent in any application made before a court for similar orders, such as undertakings as to damages and a requesting party’s obligation to make full and frank disclosure of all matters relating to the granting of any such relief.
As the need for international arbitration continues to expand into new subject areas, such as bilateral investment treaties, intellectual property and environmental law, the need for a principled approach concerning the use of interim measures, particularly on an ex parte basis, to respond to these situations will gather momentum. This may become more acute in Australia where interim measures of protection are not dealt with outside the current Art 17 of the Model Law and the practical ramifications of the Resort Condominiums case persist.
However, the most controversial impediment to progressing the drafting process for draft Art 17 remains the inclusion of ex parte measures. Any consensus concerning the extension of arbitral powers to include ex parte measures should only proceed on the basis that appropriate procedural safeguards are included in draft Art 17(7). Accordingly, the terms of the current draft Art 17(7) provide a sound basis for state parties and stakeholders in the arbitration process to advance this debate. However, even assuming that these considerations are common ground, significant further work will be required to achieve a consensus among the delegations on any approach to govern the exercise of the ex parte measures and assuage fears that such powers will undermine the fundamental consensual nature and traditional dynamics of the arbitral process based on a principle of equal treatment. Unfortunately, continuing opposition may only prove to be a pyrrhic victory at the cost of a more effective arbitral process that is able to ensure that the parties’ objective of establishing an effective process to resolve disputes outside the court system is not rendered futile by the conduct of one of the parties.
NICOLE BIGBY LLM (Public and International Law) is a senior associate with Minter Ellison, practising in dispute resolution and international arbitration.
[1] Professor Lord Mustill, Comments and Conclusions in Conservatory and Provisional Measures in International Arbitration, ICC International Court of Arbitration (1993 edn), pp118-119.
[2] UNCITRAL at 3, UN Sales No. E.86.V.8 (1986).
[3] Arbitration Rules of 1976 (GA Res 31/98 (1976), the Model Law on International Arbitration of 1985 (GA Res 40/72 (1985) and the Conciliation Rules of 1980 (GA Res 35/52 (1980).
[4] Legislation based on the Model Law has now been enacted in over 48 jurisdictions, including Australia.
[5] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 21 UST 2517, 330 UNTS 3 (the New York Convention).
[6] Holtzmann, H, The Conduct of Arbitral Proceedings. Reports submitted to ICCA Interim Meeting at Lausanne in UNCITRAL’s Project for a Model Law on International Commercial Arbitration, (1984) 2 ICCA Congress Series 159.
[7] Slate, W et al, “UNCITRAL: Its workings and international arbitration and a new model conciliation law” 6 CDZJCR 73, 84.
[8] Montineri, C and Musolino, F, “UNCITRAL’s current work on interim measures of protection granted by arbitral tribunals and their enforcement” (2004) 23 The Arbitrator & Mediator 1, 7.
[9] Working Group Report, 35th Session, at para 77.
[10] Associate Professor Lawrence Boo, “Interim measures and the arbitral institution: a Singapore perspective”. Paper delivered at the Singapore International Arbitration Centre Symposium, February 2005.
[11] Protocol on Arbitration Clauses, 24 September 1923, LNTS 158 (Geneva Protocol) and Redfern, A, “Arbitration and the courts: interim measures of protection – is the tide about to Tide?” (1995) 30 Tex Int’l LJ 71, 74.
[12] The Pre-Arbitral Referee Procedure adopted by the ICC in 1990 is a specific exception.
[13] The Working Group is also continuing its work on a draft provision on the power of the courts to order interim measures of protection in support of arbitration for insertion as a new article of the Model Law, tentatively numbered 17 ter.
[14] Castello J, “Arbitral ex parte interim relief the view in favor” (2003) 58 OCT Disp Resol J 60, 68.
[15] See, for example, US jurisdictions that follow the “McCreary doctrine”, being the decision in McCreary Tire & Rubber Co. v CEAT 501 F2d 1032 (3rd Cir 1974).
[16] Fry, J, “Interim measures of protection: recent developments and the way ahead” (2003) 6(5) Int ALR 153, 154.
[17] UNCITRAL, Report of the Working Group on Arbitration and Conciliation on the Work of its Forty-second Session, New York, 10-14 January 2005, A/CN 9/573, 8.
[18] Resort Condominiums International Inc v Ray Bolwell and Resort Condominiums (Australasia) Pty Ltd (1993) 118 ALR 655, 664 (Supreme Court of Queensland).
[19] Castello, note 14 above, p68.
[20] Fry, note 16 above, p155.