Pushing Boundaries With Ex Parte Emergency Arbitration – the Challenges
1.Introduction
The approach for ex parte emergency arbitration [“EA”] is fairly divergent. The Rules of Singapore International Arbitration Centre [“SIAC”], International Chamber of Commerce [“ICC”], Swiss Chamber of Commerce and the Arbitrators’ and Mediators’ Institute of New Zealand [“AMINZ”] have differing approaches to ex parte EA. Ex parte EA in the Memo is broken down into three types for better analysis. First, are the EAs where no notice is sent to the Respondent and a decision of the EA is rendered. This is required as an element of surprise is considered as a formidable advantage in circumstances where notice to the Respondent would render the relief infructuous. Naturally, there are concerns of due process and natural justice that are involved in such decisions. This type of ex parte EA is highly contentious among practitioners and institutions alike. Second are the ex parte EAs where the notice is sent to the Respondent, however, a decision is rendered prior to giving the Respondent a chance to reply. There is some consensus regarding such an ex parte EA. Through this memo, it would be my argument that the first and second type of ex parte EA are alike and thus should be accepted by practitioners and institutions. In any case, institutional rules should reflect an acceptance of the second type of ex parte EA. Finally, the third type is ex parte EAs where the Respondent, post a notice, does not participate in the EA. There is widespread acceptance for such kind of ex parte EA. However, through this memo, I also highlight a few instances where the courts have been scrutinised such awards before enforcement to see if notice was appropriately served.
The hesitation of courts globally stems from the adequacy of notice. Assuming EA award is enforceable like an award, it would get almost universal recognition due to the New York Convention [“NYC”].[1] This is also a major advantage of EA. However, its enforceability has been subject to some debate in the courts that have struggled to fit an EA award within the definition of an award under the NYC. This is especially due to lack of enforcement provisions in major global jurisdictions (with the exception of Singapore[2] and Hong Kong[3]). Further, there are also issues with time constraints. An EA has to be appointed, arguments and written submissions exchanged before a decision can be made. This sometimes can take longer than national courts[4], which have the powers to proceed ex parte as well, if necessary. Finally, EA awards do not bind third parties.
The analysis in this memo will be restricted to permissibility of ex parte EA by institutions, enforcement of EA awards and ex parte awards to see what challenges lie for EA moving forward. In Part II, an analysis is undertaken of the approaches of different institutions to ex parte EA. The idea is to elucidate the considerations for institutions that arise while proceeding with the EA ex parte. Major institutions have showed their hesitation in accepting such EAs for fear that such orders may not be enforceable. In Part III, instances of ex parte awards are considered where the Respondent refused to participate. This is done to highlight the importance of notice that is attached by the domestic courts. An analysis of domestic court decisions enforcing EAs is undertaken in Part IV. Not all jurisdictions have procedures to enforce EA awards. Reliance is placed on Indian jurisprudence due to its close connection with SIAC and for being a jurisdiction that is arguably pro-arbitration. Finally, before concluding in Part V, a recommendation is made that the SIAC should adopt ex parte EA.
2.Ex – parte Emergency Arbitration
At the outset, it would be pertinent to elucidate in greater detail the differences between the three types of ex parte EAs. First, are ex parte EA orders where exigent circumstances warrant that no notice be sent to the Respondent. In such cases, without an element of surprise, the remedy sought may be defeated. Such remedies are in the nature of freezing injunctions, preventing the Respondent from parting with its assets. Further, as mentioned above, there is also another category of ex parte EA orders where notice is sent to the Respondent, however, pending a reply, an order is passed ex parte. Such orders are primarily in the nature of status quo orders. Third, due to the non-participation of the Respondent, the tribunal has no other option but to proceed ex parte in order to maintain the efficacy of the arbitration process. The argument in this part is that the third kind of arbitration must proceed ex parte. There are court decisions globally that accept such a proposition. For the first and second category, there is some consensus that such decisions are otherwise enforceable as long as the Respondent is quickly given a chance to present its case. Ideally, such decisions are merged with a final EA award and hence are rarely independently enforced. Finally, commentators have frowned on the practice where no notice is given to the Respondent, arguing that such decisions go contrary to the basic tenets of arbitration.
Justin D’Agostino is one such critic who strongly opposes ex parte EA.[5] D’Agostino acknowledges that this is a significant limitation on the powers of EA. However, the opportunity of being heard being provided to each party is central to arbitration, including the enforceability of the award that results from such arbitration. It would be pointless to permit ex parte EA when such awards are unenforceable. There is a greater concern for enforceability of ex parte EA awards, rather than of permissibility by the institutions. Under the NYC, one of the criterion for refusing recognition and enforcement is that the ‘party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case’.[6] Even under the UNCITRAL Model Law, the ex parte interim relief (as the Model does not mention EA) is not subject to enforcement by courts.[7] Thus, D’Agostino prefers that ex parte order be reserved for national courts.
Keeping aside the enforceability of such ex parte EA awards, there is a need for urgent interim ex parte relief. The ICC Commission Report on Emergency Arbitrator Proceedings [“ICC Task Force”] admits that there may be situations where the EA might need to proceed ex parte.[8] Though ultimately, the ICC Task Force rejected ex parte EA, arguing that it would make the discussion academic because the ICC Rules do not permit it. Yet, some members reasoned that if EA is to be an alternative to the national courts, it is must accept ex parte application. This is especially considering some forms of interim measures are only feasible with the element of surprise that comes with ex parte decisions.[9] If there exists a fear that the Respondent may dispense with the assets, it may be rather damaging to first hear the Respondent. Naturally, the limit of ex parte relief would then be restricted only to those instances where, on the face of the record, it would cause irreparable harm to the Claimant if notice were sent to the Respondent. The relief sought would also need to be interim and proportional, taking into account the adverse impact of such an order (of status quo or injunction) on the Respondent. An ex parte freezing injunction against a Respondent that can be enforceable would be extremely attractive.
Institutions have taken divergent views on ex parte arbitration. ICC Rules, as mentioned above, do not permit ex parte EA as the Secretariat is bound to share with the Respondent the Claimant’s EA application along with annexures.[10] Commentators argue that the right of the Respondent to be heard is expressly stated under the ICC Rules and hence the EA would not be authorised to grant relief ex parte.[11] The ICC Rules require that the arbitrator act impartially and in a manner where ‘each party has a reasonable opportunity to present its case’.[12] SIAC Rules on the other hand are silent on ex parte EA. Yet, the SIAC Rules similarly require that the Claimant send the EA application to all the other parties at the same time that the application for emergency relief is filed.[13] So, it can be inferred that an ex parte EA may not be permissible under the SIAC Rules.
The principal justification for such a rule is that the EA may not be aware of the entire consequences of ordering a freezing injunction or even a status quo order. There may be a valid countervailing reason for the Respondent to act urgently, which may be superior to the Claimant’s request for status quo. Thus, without hearing the Respondent, prejudice may be caused to the Respondent. The second justification stems from the enforceability of such decisions under the NYC.
This is in contrast with the other institutional rules like Swiss Rules of International Arbitration [“Swiss Rules”] that permit ex parte EA relief.[14] The Swiss Rules read:
“In exceptional circumstances, the arbitral tribunal may rule on a request for interim measures by way of a preliminary order before the request has been communicated to any other party, provided that such communication is made at the latest together with the preliminary order and that the other parties are immediately granted an opportunity to be heard.”
(Emphasis supplied)
The Swiss Rules have had six applications for interim relief till 2016, of which two were requests for interim ex parte relief.[15] Of the two ex parte requests, relief was granted in one case, but rejected in the other.[16] Further, the Arbitrators’ and Mediators’ Institute of New Zealand [“AMINZ”] also permits EA to provide relief without giving notice or an opportunity of being heard to the Respondent.[17] The requirement for notice can be waived if notice would ‘defeat the entire purpose of the application’.[18] At the stage of application for EA, the Claimant must specify, “(d) whether or not the application is to be heard on notice to the other Parties, and if not why not”.[19] A determination is then made by the AMINZ Court of Arbitration on whether to accept the EA application. Thus, there is some acceptance and practical applicability to the first type of ex parte EA. The Swiss and AMINZ Rules, to be compliant with NYC do require that the Respondent be immediately given a chance to present its case.
For the second type of ex parte EA, the ICC Task Force contemplates a scenario where the EA may pass a preliminary order pending the response from the Respondent but after sending a notice under the ICC Rules.[20] The Secretariat acknowledges that “it is conceivable that the emergency arbitrator might issue an initial order (e.g. a freezing order or an order otherwise maintaining the status quo) before the responding party has filed its response”.[21] In fact, the ICC Task Force, in its review of the emergency arbitrations undertaken by the ICC, noted one instance where an interim order was rendered pending a reply from the Respondent.[22] In the case, an injunction was prayed against the Respondent to prevent it from encashing a letter of credit. A status quo was ordered against the Respondent pending its reply. Finally, the status quo order was merged with a final EA award.[23]
It is argued that the first and second type of ex parte EAs are alike. An ex parte EA order rendered without notice to the Respondent or one that is rendered immediately after issuing notice to the Respondent has the same effect. Assuming a stretched situation where the order is sent via email a minute after notice of EA is sent, would have very similar consequences. If an order is passed before the Respondent is given an opportunity to reply post the notice, it is as if the Respondent never received the notice. The idea of notice is to give an opportunity to the other side to present its case. If that is not happening, the purpose of giving the notice fails.
The concern regarding the enforceability of ex parte EA orders may also be overstated. These orders are temporary and are ultimately merged with the final EA award. The compliance thus is expected to be voluntary as if there were non-compliance from the Respondent, it would permit the tribunal to draw adverse inferences.[24] This presumption is dehors whether the other side was given an opportunity to be heard. There is an opposing view that this hostility from the tribunal may be immaterial if irreparable harm is caused to the Claimant by non-compliance of the EA award and thus, it is necessary for EA awards to be enforceable. I would disagree as in the ICC example as discussed above; the Respondent was merely restrained from encashing a letter of credit. The harm caused in commercial cases can in most instances be remedied with compensation, higher or lower, depending on the harm caused. Thus, the downside of adverse inferences by the Tribunal would be significant enough to require that the Respondent voluntarily complies with the order, pending a hearing.
3.Conclusion
In conclusion, a review of ex parte EA cases by the ICC Task Force showed that Claimants struggled with seeking their desired relief and at the same time meet the obligation of sharing that information with the Respondents. Thus, the ICC Task Force noted that it should not be ‘unusual’ for EA to be able to grant or at least be permitted to consider an order ex parte. Though such permission must be restrictively worded for fear that it may result in a slippery slope dealing with questions on the extent of ex parte orders that can be granted and its enforceability under the NYC.
[1] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 UNTS 3, [“NYC”].
[2] Singapore Arbitration Act 2001 (Chapter 10), section 2(1); Singapore International Arbitration Act 2004 (Chapter 143A), section 2(1).
[3] HK Arbitration Ordinance 2011 (Cap. 609), Part 3A.
[4] For example, in a median of three days, a party may obtain an ad-interim relief from the Delhi High Court in an application for urgent arbitral interim relief. See, Rishab Gupta and Aonkan Ghosh, Choice Between Interim Relief from Indian Courts and Emergency Arbitrator, Kluwer Arbitration Blog, arbitrationblog.kluwerarbitration.com/2017/05/10/choice-between-interim-relief-from-indian-courts-and-emergency-arbitrator/, (last accessed Mar. 17, 2021).
[5]Justin D’Agostino, First aid in arbitration: Emergency Arbitrators to the rescue, (Nov. 15, 2011) KluwerArbitration Blog, http://arbitrationblog.kluwerarbitration.com/2011/11/15/first-aid-in-arbitration-emergency-arbitrators-to-the-rescue/ (last accessed Mar. 17, 2021)
[6] NYC, supra note 6, Article V(1)(b).
[7] UNCITRAL Model Law, Article 17-B(1) read with Article 17-C(5).
[8] ICC Commission Report on Emergency Arbitrator Proceedings (2019), at 4, https://iccwbo.org/content/uploads/sites/3/2019/03/icc-arbitration-adr-commission-report-on-emergency-arbitrator-proceedings.pdf (last accessed Mar. 17, 2021). [“ICC Task Force”]
[9] ICC Task Force, supra note 11, para 106.
[10] ICC Rules 2021, Article 1(5) of Appendix V.
[11] Suraj Sajnani, Emergency Arbitration in Asia: Threshold for Grant and Enforcement of Emergency Relief, 86:3 The Int’l J. Arb., Med. & Dispute Mgmt. 293.
[12] ICC Rules 2021, Article 5(2) of Appendix V.
[13] SIAC Rules 2016, Sch. 1 para 1.
[14] Swiss Rules 2012, Article 26(3) (as amended in 2019).
[15] Grant Hanessian & E. Alexandra Dosman, Songs Of Innocence And Experience: Ten Years Of Emergency Arbitration, 27 The Am. Rev. Int’l Arb. 215.
[16] Id.
[17] AMINZ Rules 2017, Art. 52.2.
[18] AMINZ Rules 2017, Art. 50.2.
[19] AMINZ Rules 2017, Art. 50.4.
[20] ICC Task Force, supra note 11, para 110.
[21] Jason Fry, et. al., The Secretariat’s Guide to ICC Arbitration (ICC, 2012), at para 3-1058(d).
[22] ICC EA Case No. 21.
[23] ICC Task Force, supra note 11, para 113.
[24] Gary Born, International Commercial Arbitration, 2448 (2d ed., 2014).