Liability for interim measures: can tribunals mitigate risk?

Legislation on interim measures
Interim measure provision
Comment

Early in 2011 the Commerce Code was amended. The changes included the provision that an arbitral tribunal and a party that requests interim measures are liable for such measures and any damages that they may cause to the other party (for further details please see "Commerce Code changes on judicial intervention in arbitration"). The new provision represents a risk for arbitral tribunals and may deter them from granting interim measures. This update analyses the solutions that some experts have suggested.

Legislation on interim measures

The code's provisions on arbitration essentially follow the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. In connection with interim measures, the code states that:

• regardless of the existence of an arbitral agreement, the parties may ask a judge to grant interim measures;
• the judge has full discretion in connection with the adoption of interim measures;
• all interim measures granted by an arbitral tribunal are considered binding and must be enforced if a request is brought before a competent judge; and
• a judge who is called upon to rule on the recognition or enforcement of an interim measure may request appropriate security from the requesting party if the tribunal has not already ruled on the matter of security or if the judge considers security to be necessary to protect the rights of third parties.

Moreover, the code states that recognition or enforcement of an interim measure can be denied only:

• at the request of the party against which it is invoked, if the court is satisfied that:
  • such refusal is warranted on the grounds set forth in Articles 1492(I)(a), (b), (c) or (d) of the code;
  • the relevant party has not complied with the tribunal's decision with respect to the provision of security in connection with the interim measure; or
  • the interim measure has been terminated or suspended by the tribunal or, where so empowered, by a court of the state in which the arbitration took place or under the law whereby the interim measure was granted; or
• if the court finds that:
  • the interim measure is incompatible with the powers conferred upon the court, unless the court decides to reformulate the interim measure to the extent necessary to make it consistent with its powers and procedures for the purposes of enforcing it, without modifying its substance; or
  • any of the grounds set forth in Article 1462(II) apply to the recognition and enforcement of the interim measure.

The code also provides that:

• the court where recognition or enforcement is sought may not, in making a determination on recognition or enforcement, review the substance of the interim measure; and
• the arbitral tribunal and the party that requests an interim measure are liable for damages caused by the interim measure - this is termed the 'interim measure provision'.

The UNCITRAL Model Law states that a party which requests an interim measure is liable for costs and damages caused thereby if the tribunal later determines that the measure or order should not have been granted in the circumstances. The model law does not contain provisions regarding the tribunal's liability for granting interim measures.

Interim measure provision

The interim measure provision has been criticised as a disincentive to the granting of interim measures and, by extension, to arbitration as a whole. Certain experts have interpreted the provision to mean that the tribunal is liable only when an illicit act takes place, as it is a non-contractual liability.

One solution is to argue that arbitrators are protected by the internal rules of their arbitral institution, which typically limit arbitrators' liability. For example, Article 43 of the Rules of the Arbitration Centre of Mexico states that the centre, its general council and its secretary general are not liable for acts or omissions in connection with arbitration proceedings conducted under its auspices. The rules thus provide that a tribunal is not liable for damages caused by interim measures.

Some experts have suggested that parties waive the interim measure provision in the arbitration agreement. It has been argued that there is a basis for such a waiver in Article 6 of the Federal Civil Code, which states that private rights can be waived, provided that they do not affect public order and that the waiver does not negatively affect third parties' rights.

Unlike a court, which may issue injunctions or orders, an arbitral tribunal cannot issue orders against third parties because an arbitral agreement is effective only between the parties; therefore, it cannot affect the rights of third parties and is unlikely to affect public order.(1)

However, other experienced practitioners consider that the interim measure provision cannot be waived, as there is no certainty that the measures granted will not affect the rights of third parties when the provision is waived. Thus, such a waiver would breach Article 6 of the code. Moreover, such experts argue that pursuant to Article 11 of the code, the waiver is invalid unless it is expressly permitted by the provision. However, they acknowledge that, in practice, it is highly unlikely that an arbitral tribunal will be held liable for the granting of interim measures, provided that the issuance of such measures requires a judicial proceeding in which the parties have the opportunity to file their arguments and defend themselves.

Furthermore, some experts argue that even if the interim measure provision is in place, it is highly unlikely that a judge would find an arbitral tribunal liable, given that the parties must provide security in order to cover any damage caused. In the case of ex parte interim measures, the party affected may have an additional defence if it argues that it was not notified or that it was not given the opportunity to oppose the granting of such measure.

Comment

Theoretically, the interim measure provision may represent a deterrent to the granting of interim measures in an arbitration procedure. However, in practice an arbitral tribunal has a range of arguments at its disposal that may limit or exclude its liability. It is important to interpret the interim measure provision in a way that does not affect the scope of the tribunal's decision-making powers.

For further information on this topic please contact Luis Alberto Aziz Checa or Rebeca Sanchez Perez at SAI Abogados by telephone (+5255 59 85 6618), fax (+5255 59 85 6628) or email ([email protected] or [email protected]).

Endnotes

(1) Bañuelos Rizo, International Commercial Arbitration, Mexico, 2010.