This blog was first published by Practical Law Company on 2 March 2017
Deciding upon which institutional rules are incorporated into a contract may have its advantages. One consideration is whether the institutional rules cut down the power of the court to assist the parties in arbitral proceedings. In particular regarding flexibility, privacy, speed and whether a court order may be easier to enforce than a decision of an arbitrator.
The Arbitration Act 1996 (AA 1996) provides the courts with various powers to support arbitral proceedings seated in England or elsewhere, whether it be a case of “urgency” under section 44(3) or in non-urgent cases under section 44(4). However, pursuant to section 44(5) and Ikon International (HK) Holdings Public Co Ltd v Ikon Finance Ltd, the courts may only intervene where the:
“… arbitral tribunal or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively”.
Institutional rules such as, among others, article 29 of the International Chamber of Commerce (ICC) Rules 2012 and 2017, articles 9A and 9B of the London Court of International Arbitration (LCIA) Rules 2014, and schedule 1 of the Singapore International Arbitration Centre (SIAC) Rules 2016 provide a mechanism to appoint an emergency arbitrator. In doing so, the institutional rules have cut down the courts’ power to intervene under section 44. Accordingly, the court will, under institutional rules, have to decide whether an emergency arbitrator would be able to act effectively for the purposes of section 44(5) before the court is able to assist a party in arbitration.
In Gerald Metals SA v Timis (Vasile Frank), Leggatt J gave guidance on the availability of the courts’ powers to grant interim relief in support of arbitral proceedings where similar relief may be available through institutional rules. This included the power to grant interim relief in the form of a freezing injunction under section 44(2)(e). In this context, “urgency” has been assessed by reference to whether the arbitral tribunal has the power and practical ability to grant the appropriate relief in the appropriate timeframe (see, for example, the London Maritime Arbitration Association decision in Starlight Shipping Co v Tai Ping Insurance Co Ltd).
The arbitration in Gerald Metals was governed by English law and the LCIA Rules. Gerald Metals SA applied to the LCIA for the appointment of an emergency arbitrator to provide interim relief to prevent Safeguard (the guarantor) from disposing of trust assets. As a consequence of Safeguard’s undertakings, the LCIA rejected Gerald Metals’ application. Thereafter, Gerald Metals issued proceedings in the court seeking, inter alia, a freezing injunction.
In dismissing Gerald Metals’ application Leggatt J noted that:
“… the obvious purpose of Articles 9A and 9B is to reduce the need to invoke the assistance of the court in cases of urgency by enabling the arbitral tribunal to act swiftly in an appropriate case”.
Leggatt J held that the courts will act under section 44 of the AA 1996 only in circumstances where the powers of a tribunal constituted are inadequate.
To assess whether institutional rules provide the power to act, the court will consider and interpret the relevant provisions of the institutional rules and apply the same functional test applied to the concept of “urgency” under section 44(3). Therefore, in circumstances of exceptional urgency, justifying the expedited formation of the tribunal under article 9A of the LCIA Rules, the court held that the test is whether effective relief could be granted in the “relevant timescale” if court relief were not granted. In these circumstances, the “relevant timescale” is the time taken for an arbitral tribunal to be appointed in the normal course. In turn, for the appointment of an emergency arbitrator under article 9B, the appropriate question was whether or not relief was required “more urgently than the time that it would take for the expedited formation of an arbitral tribunal”.
Leggatt J considered why the LCIA had rejected Gerald Metals’ emergency arbitrator application. He held that the LCIA had considered that there was not sufficient urgency to require the appointment of an emergency arbitrator before the appointment of the full arbitral tribunal. As a result, this was not a case where the LCIA had considered that it was unable to act per se; therefore, the court held that it lacked jurisdiction to grant the interim measures requested by Gerald Metals.
Leggatt J made it clear that where institutional rules provide parties with quick relief through the arbitral process, they also have the effect of limiting the English courts’ ability to use their powers to support the arbitral proceedings. Furthermore, the English courts will be reluctant to intervene in situations where the institutional rules have effective powers. This shall be the case even though a tribunal may choose not to use those powers.
When revising the London Maritime Arbitration Association (LMAA) terms, due to come into force on 1 May 2017, the LMAA aimed for a “light touch” and “if it ain’t broke, don’t fix it” approach. The revised terms set out a framework, covering key aspects of LMAA arbitration, whilst leaving considerable scope for the parties and tribunals to adopt procedures to suit the particular case. The LMAA’s approach was that a proliferation of new rules and guidelines would be likely to detract from the efficiency and cost effectiveness of LMAA arbitration. The LMAA took the view that some procedures such as a mechanism for appointment of an emergency arbitrator were not appropriate for the LMAA.
The LMAA considered that its system of appointing a tribunal was efficient and quick, thereby dispensing with the need for emergency arbitrators.
In summary, the LMAA has avoided cutting down the courts’ power to intervene under section 44. Where institutional rules contain a mechanism for the appointment of an emergency arbitrator, the parties remain at liberty to opt out of that mechanism if it prefers a court’s decision to support the arbitration.