Emergency Arbitration in Asia: A Survey of Recent Developments

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I.  THE RACE FOR INNOVATION: THE EMERGENCE OF EMERGENCY ARBITRATION

 

At its core, emergency arbitration is a procedural innovation. Its existence rests upon two underlying motivations.  First, it arises from the need for reduced dependence upon local courts for interim relief in arbitration proceedings. Second, emergency arbitration seeks to remedy the perceived shortcomings of existing methods of tribunal ordered interim relief.

Fundamentally, the decision to seek international commercial arbitration in lieu of civil litigation is a decision to reduce dependence on local courts in the resolution of a multi-jurisdictional dispute. However, as with any dispute resolution mechanism, there is a need to protect each parties’ interests that otherwise might be harmed through the destruction of key evidence or the dissipation of valuable assets. Such protection is predominantly achieved through interim measures, which seek to preserve the status quo subject to the final arbitral award.

Prior to emergency arbitration, parties had two primary options in safeguarding their interests. Before the formation of the arbitral tribunal, parties must apply to local courts for Mareva orders, freezing orders, conservatory measures and other general injunctive relief. Post formation, parties may apply for tribunal ordered interim relief under Art 17 of the UNCITRAL Model Law.[2]

However, each of the above options presents a key limitation. First, certain jurisdictions lack a robust, efficient or corruption-free judicial system. Given that parties choose arbitration primarily to decrease reliance on domestic courts, it is counter-intuitive to have local courts step in during such a crucial time. Conversely, although parties have recourse to interim relief from the arbitral tribunal, the time spent in referring a matter to arbitration, as well as the requirement for the tribunal’s proper constitution defeats the rationale for urgent interim relief.

In recognition of the above shortcomings, arbitral institutes in Asia have introduced emergency arbitration procedures. Emergency arbitration is procedurally novel since emergency arbitrators are appointed prior to the constitution of the arbitral tribunal and by the arbitral institute. This is a key departure from tribunal ordered interim relief, since the appointment process does not rely upon both parties’ mutual consent. Emergency arbitration therefore overcomes the above two limitations; first, by reducing reliance on national courts, and second, by expediting the granting of interim relief prior to the formal constitution of the arbitral tribunal.

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II.  KEY DEVELOPMENTS AND RECENT TRENDS IN EMERGENCY ARBITRATION

As the previous section demonstrates, interim arbitral awards are a natural development from civil litigation. Emergency arbitration then, is a progressive development from interim arbitral awards. This next section discusses some key developments in emergency arbitration in various Asian countries, as well as the common trends across the region.

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A.  Singapore

The Singapore International Arbitration Centre (‘SIAC’)[3] was the first to introduce emergency arbitration. It is among the foremost in terms of maturity and enforceability. Due to this, Singapore is also where the emergency arbitral process is most rigorously tested.

Enforceability and Recognition of Emergency Arbitral Awards – AQZ v ARA[4]

Enforceability is described as the “Achilles heel” of emergency arbitration.[5] This is because previously an emergency arbitrator is not classified as an arbitral tribunal under Singaporean law. Consequently, an emergency award is not final and binding.[6] Under the New York Convention, only final awards are afforded recognition and enforcement.[7] In response, Singapore’s International Arbitration Act[8] was amended in 2012 to expressly include emergency arbitrators as falling within the definition of an “arbitral tribunal.”[9] This resulted in emergency awards possessing the same level of enforceability and recognition as final awards.

However, this did not mean emergency awards are immune to challenge in the courts. The 2015 AQZ decision by the Singapore High Court considered the terms of the arbitration agreement against the SIAC terms of emergency arbitration. Specifically, the applicant argued that the SIAC provisions for the appointment of a sole arbitrator did not reflect the original arbitration agreement, which provided for arbitration to be undertaken “in accordance with the rules of… the (SIAC) by three arbitrators”. This, the applicant claimed, deprived the interim order of its status as an arbitral award under Article 34(2)(a)(iv) of the UNCITRAL Model Law. Accordingly, the award should be set aside as “the composition of the arbitral tribunal … was not in accordance with the agreement of the parties.”[10]

The court ruled against the applicant, finding that the composition of the single arbitrator emergency tribunal was valid. Significantly, the court gave emphasis to the incorporation of the SIAC rules into the contract, in particular, the rules which specifically give the SIAC president discretion to appoint more than one emergency arbitrator where necessary. This, along with a purposive construction of the contract, meant that the “commercially sensible approach was that the parties, in referring to the SIAC rules, also implicitly agreed to the discretion of the president in appointing the specific number of arbitrators.[11] Prakash J thus deemed the emergency arbitral award enforceable, provided that the discretion was exercised properly.

The court also dismissed the applicant’s alternative argument that the non-existence of the SIAC emergency arbitration provisions at the time of contracting means the parties cannot be bound retrospectively. However, Prakash J relied upon an existing presumption that references to arbitral rules referred to in a contract are to be construed as the rules applicable from the “date of commencement of arbitration”.[12]

Concluding thoughts

The AQZ decision reveals that the Singapore courts are willing to recognise emergency awards retrospectively in line with the parties’ intentions. It also confirms Singapore’s pro-arbitration stance. Indeed, SIAC statistics reveal parties are indeed making use of the new procedures. From its conception in July 2010 to 31 December 2015, emergency arbitration has received no less than 47 applications.[13] Of those, 19 were made in 2013, 12 in 2014 and 5 in 2015.[14]

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B.  Hong Kong

Along with Singapore, the Hong Kong International Arbitration Centre (‘HKIAC’)[15] is another a key innovator of emergency arbitration. Like Singapore, the HKIAC provides for emergency arbitration in its institutional rules. In 2013, Hong Kong also enacted the Arbitration (Amendment) Ordinance 2013,[16] allowing the courts to enforce interim relief orders from emergency arbitrators.

In 2014, HKIAC received two applications for emergency arbitration.[17] One reason for the lower number is because emergency arbitration provisions in HKIAC are not retrospectively applied. Therefore, applications are projected to increase in coming years.

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C.  China

China International Economic and Trade Arbitration Commission’s (‘CIETAC’) introduction of emergency arbitration provisions

Of all the jurisdictions in Asia, CIETAC is one of the most conservative in terms of interim relief and emergency arbitration. However in 2015, even CIETAC introduced provisions on emergency arbitration, allowing emergency arbitrators to grant interim relief under Art 23 and Appendix III of its institutional rules. Appendix III specifies that parties may apply for urgent interim relief through an emergency arbitrator. This is done through mutual agreement of the parties or alternatively, under the law of the arbitral seat. The provisions also allow parties to apply concurrently to the courts for interim relief.

Unfortunately, it appears the above provisions only apply to emergency arbitration administered by CIETAC outside mainland China, such as CIETAC Hong Kong. Nonetheless, the provisions demonstrate that in limited circumstances, if permitted by the lex arbitri, CIETAC arbitrations contain some scope for emergency arbitration.

Pre-arbitration preservation measures in China’s amended Civil Procedure Laws (‘PRC CPL’)

In mainland China, parties can only apply for interim relief if there exists the potential for litigation (Art 93 of the PRC CPL). Therefore, any contractual agreement displacing litigation in favour of arbitration means any application for interim measures (including emergency arbitration) can only be made post-constitution of the arbitral tribunal. Even then, the application must be forwarded to a court of competent jurisdiction.

However, in 2013, an amendment of the PRC CPL gave parties pre-arbitration preservation measures. For the first time, parties may apply directly to the courts for preservation of evidence and/or property and assets under Arts 81 and 101 respectively.

Translated, the new Art 81 specifies that:

 “Where under an emergency event where it is likely that evidence may be destroyed or become difficult to obtain later on, an interested party may, prior to instituting a lawsuit or applying for arbitration apply to the people’s court at the place where the evidence is located, the domicile of the party against which the application is made or the competent people’s court with jurisdiction over the case to preserve the evidence.” (Emphasis added)

(第八十一条: 因情况紧急，在证据可能灭失或者以后难以取得的情况下，利害关系人可以在提起诉讼或者申请仲裁前向证据所在地、被申请人住所地或者对案件有管辖权的人民法院申请保全证据)[18]

Similarly, the new Art 101 specifies that:

“Where an interested party whose legitimate rights and interests, due to an emergency, would suffer irreparable damage if the party fails to petition for property preservation promptly, may, before instituting a lawsuit or applying for arbitration apply to the people’s court at the locality of the property, the domicile of the party on which the application is made, or the competent people’s court with jurisdiction over the case, for the property preservation measures.” (Emphasis added)

(第一百零一条: 利害关系人因情况紧急，不立即申请保全将会使其合法权益受到难以弥补的损害的，可以在提起诉讼或者申请仲裁前向被保全财产所在地、被申请人住所地或者对案件有管辖权的人民法院申请采取保全措施)[19]

 

Remaining issues

Despite the encouraging developments, two issues remain. First, local commentary has highlighted the difficulties in reconciling the amended laws with existing procedural requirements that distinguish between pre and post arbitration. [20] This is because although the amendments address the issue of direct court applications pre-arbitration, they remain silent on the legality of direct interim applications to the court post-commencement of arbitral proceedings. Indeed, since Art 23(2) of the CIETAC rules continue to specify that interim applications must first be made to the arbitral commission, upon which it is then forwarded to the local courts,[21] it appears that China has retained the “two-step” process for interim relief once the arbitral application is lodged (see also Art 272 of the PRC CPL).

Second, there remains uncertainty as to whether the pre-arbitration preservation measures are applicable to foreign arbitral proceedings. Specifically, the characters under the amended Arts 81 and 101 are the general characters for arbitration(“仲裁”). These characters may be interpreted as referring to “domestic arbitration” (which excludes foreign arbitration) or “arbitration taking place in China” (which includes foreign arbitrations). Contextually, the phrase “foreign related arbitration” has been used in articles of specific applicability(“涉外仲裁”) such as Arts 271 and 272. Nonetheless, the ambiguity in Arts 81 and 101 can still specify a general applicability. In any case, confirmation will arrive by way of a court ruling or a guidance note.

Concluding thoughts

The above developments are significant for interim measures in China’s arbitration space. It also signifies the pro-arbitration stance of the government. As noted by Yu Jianlong, the secretary-general of the CIETAC at a recent conference on interim measures, “there is still room for improvement…[and] CIETAC will continue to lobby …for a more supportive attitude towards interim measures.”[22] The developments therefore provide an encouraging glimpse into the future.

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D.  Japan

The Japan Commercial Arbitration Association (‘JCAA’) is the key arbitral institute for arbitrations in Japan. The 2014 amendments to the JCAA’s Commercial Arbitration Rules[23] provide for emergency arbitration procedures under Ch V Section II. Specifically, r 70(1) provides that:

“Before the arbitral tribunal is constituted, or when any arbitrator has ceased to perform his or her duties, a Party may apply in writing to the JCAA for Interim Measures by an emergency arbitrator (“Emergency Measures”)”[24]

As of the beginning of 2016, the Japanese Arbitration Law (Law No .138 of 2003) does not expressly recognise or enforce emergency arbitral awards under Ch VIII Arts 45 and 46.[25] It remains to be seen whether legislative amendment will give effect to JCAA’s new rules.

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E.  India

On 1 January 2016, the Arbitration and Conciliation (Amendment) Act 2015 (‘India Amendment Act’) was notified in the Official Gazette.[26] The India Amendment Act came into force on 23 October 2015, and covers many of the recommendations from the report of the 246^th Law Commission. In particular, the amendments clarified several aspects of the Arbitration and Conciliation Act 1996  (‘1996 Act’),[27] including the removal of the distinction between domestic arbitrations and arbitrations outside of India for the availability of interim measures. In essence, the original 1996 Act only recognised enforcement for tribunal ordered interim measures for domestic arbitrations. The Amendment Act specifies in Art 2(II) that the interim measure provisions now:

 “also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.”[28] (Emphasis added)

Regrettably, despite the Law Commission’s recommendation for an emergency arbitration provision, it was not included in the India Amendment Act. As such, for now, India remains a step behind its neighbours. However, it is worthwhile to note that the amendments were instituted through an ordinance (temporary legislation), before being promulgated by the government. This is due to the current administration lacking a majority in the Lok Sabaha of India’s bicameral parliament. In choosing to bypassing the usual legislative mechanisms, it reveals the current government’s pro-arbitration stance and intention to bring India in line with global arbitration standards.

F.  South Korea 

The Korean Commercial Arbitration Board’s institutional rules[29] allow interim orders only upon constitution of the arbitral tribunal, and therefore does not currently provide for emergency arbitration.

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III.  GENERAL TRENDS

Finally, the phenomenon of voluntary (or spontaneous) [30] compliance provides for a compelling reason for the effectiveness of emergency arbitration. It occurs when parties voluntarily honour awards by interim (and emergency arbitrators) in the absence of  recognised enforcement under domestic legislation. Evidence from the International Centre for Dispute Resolution suggests that in most cases where an order was given, parties complied with the emergency arbitrator.[31]

Such compliance may be attributable to several factors, and is supported by both anecdotal evidence and institutional feedback.[32] First, parties voluntarily comply because of the importance in continuing a commercial relationship. Second, compliance facilitates the natural progression towards the actual arbitration, upon which arguably more is at stake. Finally, a party that has engaged in “serious cases of strategic abuse” through the initial interim period may justify the “[formal] tribunal…penalising non-compliance.”[33] As such, it is often in the parties’ mutual interest to voluntarily comply with emergency arbitration awards. Therefore, because of this, they are likely to remain effective even in jurisdictions which do not expressly provide for their enforcement.

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IV.  CONCLUSION

 

There is no doubt that emergency arbitration is increasing in prevalence and use in the Asia arbitral landscape. Enforceability however remains a key hindrance to greater regional adoption. Notwithstanding this, parties continue to voluntarily comply with orders. This, in conjunction with a pro-arbitration outlook by governments, provide a glimpse into emergency arbitration’s future potential to become the dominant procedure for parties seeking urgent interim relief.

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This article may be cited as follows: Edmund Bao, “Emergency Arbitration in Asia: A Survey of Recent Developments “International Arbitration Asia (28 March 2016) <http://www.internationalarbitrationasia.com/emergency_arbitration_in_asia>.