Access to English Courts for Interim Measures under Threat?
Author: Yelyzaveta Kovalska
Source: The Ukrainian Journal of Business Law. – May 2017. – p.36-37

Obtaining injunctive relief from court may not be possible in cases where emergency arbitration is available

The High Court of England and Wales (the Court) by its recent judgment in Gerald Metals SA v Timis [2016] EWHC 2327 (Ch) refused to grant injunctive relief on the basis that emergency arbitration procedure was available to the applicant.

This approach, if further upheld, raises concerns that the ability of English courts to grant injunctions in support of arbitration might be severely restricted where the emergency arbitration procedure is available to the parties in accordance with arbitration rules.

Facts of the case

Gerald Metals SA (Gerald Metals) entered into an offtake contract with Timis Mining Corp (SL) Limited (Timis Mining) for supplies of iron ore. To secure the contract, Timis Trust, the holder of the business interests of Timis Mining, provided Gerald Metals with a guarantee.

Following a default under the offtake contract, Gerald Metals commenced LCIA arbitration to enforce the guarantee.

Application for an emergency arbitrator

First Gerald Metals applied for appointment of an emergency arbitrator seeking an order to prevent the disposal of Timis Trust's assets. In turn, the trustee of Timis Trust voluntarily provided Gerald Metals with an undertaking not to dispose of any assets other than for the full market value and at arm's length, and to give written notice to Gerald Metals prior to any material disposal.

In light of the undertaking, the LCIA rejected the application of Gerald Metals for emergency relief, apparently for lack of emergency.

After that, Gerald Metals sought an injunction from the Court.

Powers to grant injunctive relief

Under English law, both courts and arbitral tribunals may grant injunctions in support of arbitration proceedings.

Under section 44(3) of the Arbitration Act 1996 (the Act), "if the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets."

At the same time, section 44(5) of the Act provides that "in 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."

In turn, under the 2014 LCIA Arbitration Rules (the LCIA Rules), any party may apply to the LCIA for the expedited arbitration in the case of exceptional urgency (Article 9A) or for the immediate appointment of an emergency arbitrator in the case of emergency (Article 9B). Nevertheless, pursuant to paragraph 9.12 of Article 9B of the LCIA Rules, Article 9B shall not prejudice any party's right to apply to a state court or other legal authority for any interim or conservatory measures before the formation of the arbitration tribunal, and it shall not be treated as an alternative to, or substitute for, the exercise of such a right.

Findings of the court

The key issue before the Court was whether the availability of emergency relief under the LCIA Rules somehow affects the grant of interim relief by the Court, i.e., whether emergency relief is additional or alternative to a court injunction.

The Court rejected the request of Gerald Metals for interim relief, finding that the court is entitled to grant injunction under section 44 of the Act only in the cases "so urgent" that even the power to appoint an emergency arbitrator is insufficient. For example, if the application is one that needs to be made without notice (meanwhile, under Article 9B of the LCIA Rules, emergency relief cannot be granted ex parte).

Thus, the Court came back to the generalized formula: it is only in cases where the powers of an arbitral tribunal are inadequate (including the power to grant emergency relief), or where there is no practical ability to exercise those powers, that the courts may act under section 44 of the Act.

The Court also dismissed the applicant's argument that in cases that are neither of exceptional urgency (Article 9A of the LCIA Rules), nor an emergency (Article 9B of the LCIA Rules), but that are nevertheless urgent within the meaning of section 44(3) of the Act, a party is unable to obtain interim relief from the LCIA because there is a gap in the LCIA Rules, therefore the only option for the party is to apply to court. The Court stated that it would be "uncommercial" and "unreasonable" to interpret the LCIA Rules as creating such a gap. In the mentioned cases of urgency an arbitral tribunal is empowered to apply interim measures because the obvious purpose of Articles 9A and 9B of the LCIA Rules is to reduce the need to invoke assistance of the court by enabling the tribunal to act quickly.

With regard to paragraph 9.12 of the LCIA Rules, the Court acknowledged that it is clear from this paragraph that Article 9B does not prevent a party from applying to the court for an injunction. Nevertheless, the Court concluded that Article 9B does not preclude the powers of the court to rule on such applications from being limited as a result of the very existence of Article 9B.

It should be noted that in spite of specific facts of the case in question (i.e., Gerald Metals applied for an emergency arbitrator, but its application had been rejected), the Court did not appear to limit its decision to these particular facts and concluded on the general matter of jurisdiction under section 44 of the Act.

Impact of the judgment

Emergency relief has been quickly gaining popularity in arbitration. Arbitration rules of many institutions, including the LCIA, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the International Centre for Dispute Resolution and others, envisage provisions for an emergency arbitrator. It has apparently been a common understanding that the introduction of emergency relief into the LCIA Rules should serve as an additional option for a party, rather than a substitute for the party's right to seek interim relief from courts.

The Gerald Metals judgment, however, apparently rejects this "additional option" approach and reduces the access of parties to pre-arbitration injunctive relief from courts under English law.

A party to the proceedings will probably be able to seek interim relief before the court only in certain exceptional circumstances of "so urgent" need that even the ability to appoint an emergency arbitrator is insufficient. Notably, the Court gives only one example of such urgency and does not elaborate on any criteria to be applied to assess those "so urgent" circumstances or distinguish them from other cases of urgency and emergency.

Moreover, the example provided by the Court, i.e., if the application is one that needs to be made without notice, appears to be such that it falls rather under the criterion of the lack of practical ability of the tribunal than the extreme urgency, given that the LCIA Rules do not provide for ex parte emergency relief. In any event, the need for the application to be made without notice seems to be more a matter of practical en-forceability than urgency.

The Court's position in the case in question, if upheld further, does not seem to be limited only to the LCIA Rules but appears to extend to other arbitration rules and agreements providing for the emergency arbitration procedure.

Finally, it should be noted that the Court previously touched in passing on the matter of interaction of the emergency proceedings and section 44 of the Act in Seele Middle East FZE v Drake & Scull International SA CO [2014] EWHC 435 (TCC).

In Seele, the dispute between the parties was subject to arbitration proceedings under the ICC Rules. Prior to the constitution of the tribunal, Seele applied to the court seeking a negative interim injunction restraining Drake & Scull from making use of certain documents on Seele's website.

While ruling on the injunction sought, the Court noted that under section 44(5) of the Act the court shall only act if and to the extent that the arbitral tribunal has no power or is unable to act effectively. However, this had no further bearing on the case since the matter before the Court was subject to the older version of the ICC Rules which did not envisage emergency arbitration. The ICC arbitration had been commenced but the tribunal was not yet in a position to act at the time of the application for an injunction. The Court, therefore, concluded that it had jurisdiction to rule on the matter of interim measures.

What's next?

So where does the Gerald Metals judgment actually leave the parties that are considering an English seat of arbitration and/ or intending to apply for interim measures to English courts?

It appears that the parties may, in fact, have to choose whether to sacrifice emergency arbitrator provisions for the access to English courts for interim measures. Thus, while drafting an arbitration agreement, they should consider opting out of the emergency relief provisions in the relevant arbitration rules. For example, under paragraph 9.14 of Article 9B of the LCIA Rules, the parties may opt out of the emergency arbitrator provisions. At the same time, the mere opting out of emergency arbitrator provisions could still not be enough to secure one's right to seek interim measures from an English court. It seems that as long as an expedited arbitration is available according to applicable arbitration rules, there is still a risk that the court could reject interim relief, finding that the arbitral tribunal has adequate powers to grant relief, and there is practical ability to exercise those powers. Therefore, the parties could also consider excluding provisions on the expedited formation of the tribunal. On balance, the core question for the parties to decide appears to be what price they may be willing to pay for the ability to obtain relief in English courts.

Another available option could be to specify expressly in the arbitration agreement which cases should be considered as "so urgent" that the parties are entitled to seek interim relief from a court.

However, none of these approaches has yet been tested in court and so they remain rather theoretical at this stage.

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