Emergency arbitrator provisions limit access to urgent relief from courts

This Commercial Court ruling suggests that the availability of emergency relief (for example to appoint an emergency arbitrator, or an expedited tribunal) under the LCIA (and other) arbitration rules may limit a party's ability to obtain urgent interim relief from the English court in support of arbitral proceedings. In this instance, the court rejected the claimant's application for urgent interim relief in circumstances where its applications for urgent and emergency relief under the LCIA Rules had been rejected.

The claimant, Gerald Metals, a Swiss company engaged in commodities trading, entered into an agreement with Timis Mining Corp, under which Gerald Metals advanced USD 50 million.  This was secured by a guarantee given by the trustees of the Timis Trust (the Trust), which owned Timis Mining Corp, among various other business interests of Mr Timis.  The guarantee was governed by English law and provided for arbitration under the rules of the London Court of Arbitration (the LCIA Rules). Timis Mining Corp defaulted under its agreement with Gerald Metals and, ultimately, the latter commenced arbitration against the trustees to enforce the guarantee.

Application for emergency arbitrator rejected

Gerald Metals had applied under Article 9B of the LCIA Rules for the appointment of an emergency sole arbitrator, seeking an order preventing the trustees from disposing of the Trust's assets.  In response, the trustees provided undertakings to the effect that they would not dispose of any assets other than for full market value and at arm's length, and that they would give seven days' notice to Gerald Metals before disposing any asset worth more than GBP 250,000.  The LCIA rejected Gerald Metals' application for the appointment of an emergency arbitrator.  It appears from parties' submissions (although it is not expressly stated) that an application for expedited tribunal formation was also made and rejected by the LCIA.

Court applications for emergency relief

Subsequently, Gerald Metals sought, in the English court, a worldwide freezing order against Mr Timis and a freezing injunction against the Trust. This note deals with the latter, although it is worth noting that the worldwide freezing order against Mr Timis was refused.

Framework of the Act and the Rules

Section 44 of the Act provides that:

• the court has the power to make orders in relation to arbitral proceedings, including interim injunctions; and
• if the case is urgent, the court can make orders as it thinks necessary to preserve evidence or assets.  The test of urgency is whether the tribunal had the power and the practical ability to grant effective relief within the relevant timescale.¹

Section 44(5) of the Act provides that, "[i]n any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral 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" (emphasis added).

The current version of the LCIA Rules, which came into force in 2014, provide for the expedited formation of an arbitral tribunal in cases of "exceptional urgency" under Article 9A, while Article 9B allows a party, in the case of an emergency prior to the (expedited) formation of the tribunal to seek the appointment of a sole arbitrator (usually referred to as an "emergency arbitrator") to decide emergency proceedings.  Article 9B was first introduced into the LCIA Rules 2014, some years after s44 of the Act appeared on the statute book. 

Scope of Court's powers under s44 in light of the LCIA Rules

The key issue before the court was whether it had the power to act under s44 of the Act, or whether this jurisdiction was limited by the existence of Articles 9A and 9B of the LCIA Rules.

It was common ground that there are situations where the relief required was so urgent that the court could properly act under s44 because the power to appoint an emergency arbitrator would not be sufficient to grant effective relief.  The example given was of an application for a freezing injunction that needs to be made without notice. Gerald Metals contended, however, that the LCIA Rules create a gap in the relief framework for cases that are not "exceptionally urgent" or emergencies for the purposes of Articles 9A or 9B but are, nevertheless, cases of urgency within the meaning of s44(3) of the Act.

Leggatt J rejected this submission, holding that "it would be uncommercial and unreasonable" to give such an interpretation to the LCIA Rules. The clear purpose of Articles 9A and 9B is "to reduce the need to invoke the assistance of the court in cases of urgency by enabling an arbitral tribunal to act quickly in an appropriate case".  The test to determine under the LCIA Rules whether a situation either constitutes an "emergency" or is "exceptionally urgent" is a functional one, just as it is under s44(3) of the Act: is the situation one in which effective relief could not otherwise be granted within the "relevant timescale", ie the time to constitute the tribunal in the ordinary manner?

The judge ruled that, on the facts, he could not infer that the LCIA Court had taken a narrower view of its powers. It appeared to him that the LCIA Court had simply not been persuaded – in light of the trustees' undertakings – that the application was urgent enough to require the appointment of an emergency arbitrator.

Gerald Metals' application under s44 of the Act was, therefore, dismissed on the basis that there was, at that stage, no power under s44 of the Act.  Permission to appeal has been denied so the decision cannot be overturned by the Court of Appeal unless the same issue comes back to the court in a different case.

Comment

In recent years, many of the leading arbitral institutions (including the International Chamber of Commerce, the Stockholm Chamber of Commerce, the Hong Kong International Arbitration Centre and the Singapore International Arbitration Centre, as well as the LCIA, of course) have introduced provisions for the expedited constitution of the tribunal and/or the appointment of emergency arbitrators. Many also seek to preserve parties' rights to approach the national courts for interim measures or relief. The introduction of such provisions was usually with a view to broadening the options for a party seeking urgent relief. 

This judgment, however, determines that the availability of such recourse under an institution's rules –whether a party actually seeks to exercise it or not – may have the opposite effect and limit the powers of the court to act in support of arbitration under s44 of the Act. It does, however, make clear that there are still situations, such as where applications need to be made without notice or where relief against third parties is required, in which the court can still grant relief. 

The decision suggests that there is a hierarchy of routes to obtain interim relief for a party to an arbitration under the LCIA Rules:

• ordinarily, interim relief should be sought once the tribunal has been constituted;. 
• if it is a matter of "exceptional urgency", a party should ask for expedited tribunal formation under Article 9A;  
• if the matter is an emergency, meaning that expedited formation will take too long, a party should apply for an emergency arbitrator under Article 9B; and  
• only if that will not be effective or is unavailable, should a party approach the courts to obtain interim relief.

It should be noted that the impact of this judgment is not limited to arbitrations under the LCIA Rules, although the above "hierarchy" may look slightly different depending on the provisions of the applicable rules – for example, whether expedited formation is available.

Parties may wish to consider, particularly in circumstances where they are considering arbitration with an English seat or it is anticipated that interim relief from the English courts may nevertheless be required, whether they want to carve out the emergency arbitrator provisions (and expedited formation of tribunal provisions, to the extent they exist) of arbitral rules so as to prevent those provisions from curtailing access to the national courts to obtain emergency or interim relief.  Particularly in light of the ambiguity regarding the enforcement of emergency arbitrator decisions, parties may consider access to English courts for interim relief to be a preferable option.   

Leggatt J stated that even if his interpretation of s44 was wrong, he did not think it appropriate to grant the orders sought by Gerald Metals where Safeguard had given certain undertakings and voluntarily responded to requests for information by Gerald Metals.  Therefore, the court agreed with the LCIA's assessment of the urgency of Gerald Metals' application.  It remains to be seen if, where their assessments do not match, the court would be willing to go behind an arbitral institution's decision to determine whether the application was sufficiently urgent and what relief would be provided in such situation.

Footnote:

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards at amy.edwards@allenovery.com.​