Editor: How do English courts treat requests to support the arbitral process?
Maples : It is worth recognizing why parties choose to arbitrate rather than to litigate their disputes. They may see it as a more confidential process and they may prefer it for having a more flexible procedural regime. However, one of the disadvantages is that arbitral tribunals don't possess the same level of coercive power that a court does. There may be instances where a party to an arbitration, or indeed the tribunal itself, wishes to seek assistance from the court to provide some element of compulsion, or to make an order affecting third parties.
It may be useful to think of a couple of examples of those instances. One is where a party or the tribunal wishes to secure the attendance of a witness to give evidence in an arbitration. Another may be where the claimant has reason to believe that the respondent may be dissipating his assets in order to render any award nugatory. In the first of those examples, the English court can order a witness to give evidence and in the second, it can issue what is called a freezing injunction (formerly called a "Mareva" injunction in England).
It is also worth mentioning that the English court can make other orders in support of an arbitration, for example upholding the jurisdiction of the tribunal to hear the disputes by granting what is called an anti-suit injunction.
Shankland : The source of those powers is the Arbitration Act of 1996. The backdrop to that Act was a long and very detailed report about the uses of arbitration in dispute resolution. The Act tries to minimize the intervention of the courts in the arbitral process unless the power of the court is being invoked to support the proceedings by one of the parties or, less commonly, by the arbitral tribunal. In particular, section 44 of the Act provides our courts with the capacity to act in support of arbitration proceedings. However, in order to preserve the intergrity of the arbitral process, the court can only grant relief under section 44 if the tribunal itself cannot.
Under section 44, the court has the same power that it does in respect of legal proceedings to, amongst other things, take witness evidence, preserve evidence or grant an interim injunction. One of the powers to grant interim injunctions that is most often invoked is the power to grant freezing injunctions. Provided the parties have a sufficient connection to England, our courts are prepared to make orders which freeze assets anywhere in the world. So, the combination of the ability of the English court to grant worldwide freezing relief and section 44 of the Arbitration Act in the context of an international arbitration is a very powerful weapon. The English court is very much pro-arbitration and has been increasingly so since the passing of the Act in 1996.
Editor: Does it require the arbitral tribunal or the other party or parties to agree before a party can seek the assistance of the court?
Maples : Only if the case is not an urgent one. The powers of the court under Section 44 are split into two categories. Where the relief is urgently required, the applicant is not required to obtain the consent of the tribunal or other parties, but only a more limited class of relief is available (orders for preserving evidence or assets). In non-urgent cases, the court may grant the full set of orders under Section 44, but it may only do so in circumstances where either all the parties to the arbitration proceedings agree, or where the arbitral tribunal agrees. For obvious reasons, in many cases that is simply not going to happen. It is often important therefore to establish whether your case is an urgent one and whether the relief you seek may properly be characterised as an order for the preservation of assets or evidence.
Editor: How frequently are applications of this kind made in the English courts with the approval of the arbitral tribunal in your experience?
Shankland : It is very common indeed for people to make urgent applications that don't require the tribunal or the parties to agree. In fact it is a commonly used tactical device to put pressure on the other side. Some people perceive arbitration as a process lacking teeth. So quite often if parties think they have the grounds, they would make an application to the court very early in the process for a freezing injunction, so that they have an order which exercises the coercive powers of the English court against one or more of the parties.
It is less common to see these orders being brought at the behest of a party with the agreement of the tribunal, because most of the arbitral systems now permit the tribunals to make interim orders of their own. Although the tribunal isn't able to back those orders with the same sort of powers as the English court can (contempt of court, for example), the tribunal is able to make it difficult for a party who is refusing to comply with an interim or a procedural award to make much headway in the substance of the claim. Tribunals nowadays behave as if they have significant powers, and most serious parties who are arbitrating in front of such a tribunal will not want to have the courts involved.
Editor: If you get an interim order in an arbitration seated in Brussels, for example, would the English court consider using its coercive powers under Section 44 of the Act?
Maples : Section 44 allows the English court to act in support of both domestic and foreign arbitrations. The only caveat is that the court will not act in support of a foreign arbitration where it would be "inappropriate" to do so. For example, where the seat of the arbitration is abroad, say the United States, and a witness is in England, then one could apply under Section 44 for the taking of that witness's evidence in England for use in the arbitral proceedings in the United States. That is a case where, absent other factors, it is appropriate for the court to exercise its power, because the witness in question is within its jurisdiction. So, subject to confirming that it is appropriate to do so, the court may make orders under Section 44 where the seat of the arbitration is foreign.
Editor: That is a very helpful clarification. Tell me how this all works with Section 44 within the context of the EU. Are you unique in the EU on this?
Shankland: The courts of most jurisdictions, whether inside the EU or not, are able to act in support of arbitration proceedings to some extent, even if only to assist in the taking of evidence. However, I think it is fair to say that the jurisdiction of the English court is at the more "helpful" end of the spectrum. In the EU context, you should also note that orders granted in one member state are generally enforceable in another.
Editor: That enhances the desirability of a London-sited arbitration when you combine Section 44 assistance from English courts with enforcement by the courts in the rest of the EU, which may not otherwise have those same statutory powers in their domestic law. Have the Unidroit Principles on commercial dealings been used in arbitration proceedings?
Shankland : No, not often in our experience. Even in ad hoc arbitrations we tend to find express governing law provisions and express designations of the seat of arbitration. So really what you end up with is a complete package of a system of laws and procedural laws.
Editor: Another admonition to the draftsman is to be complete, thorough and precise in putting together the arbitration clause.
Shankland: Yes, I think that is right and nowadays the package is usually complete.
Editor: A corollary question that straddles the divide between the procedural and the substantive law: Some have referred to the burgeoning number of bilateral investment treaties as forming the basis for a new body of private international law, at least when it comes to investment disputes. Has that popped up in your practice and do you have a comment you'd like to offer on it?
Maples: Absolutely. Bilateral investment treaties and the rights and obligations they create are an increasingly important part of international investment dispute resolution. These treaties often contain agreements to refer disputes to arbitration under ICSID. In this context, it is worth sounding a note of caution as Ecuador has recently given notice of its withdrawal from ICSID, following Bolivia's example.
Shankland : Our colleagues in the firm's International Arbitration Group, including Guillermo Aguilar-Alvarez and Eric Ordway, have a huge amount of experience in treaty arbitration. One of the big areas of concern is whether a tribunal will have the confidence to make awards of damages that are even approaching what commercial parties perceive as being lawfully owing. On the other hand, in some recent cases, awards have been made that materially affect the overall economic situation of the respondent state. There is a question developing in public international law about the extent to which treaty arbitrations may be perceived by the citizens of some countries as interfering with the economics and governance of the nations themselves. Put bluntly, if you are an emerging economy and your government is suddenly hit with an enormous award in respect of an arbitration that it subjected itself to, you may well start to question whether it is appropriate for your country to be party to these treaties, irrespective of whether they attract foreign investment.
Editor: Yes, does ICSID have a meaningful purpose? That is the hot question isn't it? When people sign up for these treaties, and when the award is not to their liking, they either ignore it or claim to retroactively pull out.
Maples : There is certainly some concern at the moment that treaty awards will not voluntarily be complied with and that successful parties may have difficulty enforcing their awards.
Editor: Tell our readers how the English courts, in the hypothetical case of a treaty arbitration award, would receive a request for enforcement.
Shankland : We acted in the first challenge to a BIT award in the English courts: Ecuador v Occidental Exploration & Production Co [2007] 2 Lloyd's Rep. 352. In that case, the Court of Appeal refused Ecuador's challenge and upheld the award. In our view this is indicative of the English courts' robust approach to the enforcement of treaty awards. With respect to ICSID awards, because the UK is a member of ICSID, the English court is bound to enforce ICSID awards as if they were English judgments. However, the convention does not derogate from national laws concerning sovereign immunity and, as the recent case of AIG Capital Partners Inc v Republic of Kazakhstan [2006] 1 AER 284 demonstrated, a state may use English sovereign immunity laws to prevent enforcement of a treaty award against certain assets.
Editor: Thank you very much, and we shall look forward to future updates.
Published August 5, 2009.
