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Emergency relief in arbitration: are you limiting your options?

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Summary: A recent judgment highlights that a party’s ability to seek emergency relief from the English Court is restricted in circumstances where the tribunal is able to provide timely and effective relief and may lead to parties opting out of the emergency provisions in arbitration rules in order to preserve their ability to go to Court.

Emergency relief in arbitration

It was commonly thought that the provisions for emergency relief under the LCIA Rules 2014 increased a party’s options, in that there was a choice between applying to the arbitral tribunal or the English Court for such relief. However, the recent judgment in Gerald Metals SA v Timis & Ors [2016] EWHC 2327 (Ch) strongly indicates that the Court’s powers and parties’ options are in fact restricted in circumstances where the tribunal is able to provide timely and effective relief under the LCIA Rules.  

Gerald Metals had entered into a contract with Timis Mining Corp (SL) Limited, under which Gerald Metals advanced US$50 million to Timis to finance the development of an iron ore mine in Sierra Leone. As part of the arrangement, Gerald Metals required a guarantee to be provided by Safeguard Management Corp, who was the trustee of the trust through which Mr Timis pursued his business interests. The guarantee provided for disputes to be referred to arbitration under the LCIA Rules in London. 

Following alleged defaults by Timis under the contract, Gerald Metals initiated arbitration proceedings against Safeguard under the guarantee. Before the tribunal was fully constituted, Gerald Metals applied to the LCIA Court for the appointment of an emergency arbitrator in order to seek relief preventing Safeguard from disposing of the trust’s assets.

Article 9B of the LCIA Rules allows a party to apply to the LCIA Court for the appointment of an emergency arbitrator prior to the formation or expedited formation of the tribunal in cases of “emergency”. Article 9.12 goes onto state that Article 9B does not prejudice a party’s right to apply to a state court for interim or conservatory measures before the formation of the tribunal and that Article 9B should not be treated “as an alternative to or substitute for the exercise of such right”. 

Safeguard responded to the application by providing undertakings not to dispose of any assets except in certain circumstances. After those undertakings were provided, the LCIA Court rejected Gerald Metals’ application to appoint an emergency arbitrator.

Gerald Metals then applied for urgent relief in the Commercial Court under Section 44 of the Arbitration Act 1996 (the “Act”), seeking a freezing order against the trust and provision of information in relation to the trust’s assets. Section 44 provides that the English Court can make orders in support of arbitration proceedings in urgent cases for the purposes of preserving assets or evidence (Section 44(3)). This is subject to the proviso in Section 44(5) that the Court can only act to the extent that the arbitral tribunal has no power or is unable for the time being to act effectively.

The Court rejected the application on the following grounds.

  • The Court noted that it was common ground that the test for urgency under Section 44 of the Act was to be assessed by reference to whether the tribunal had the power and practical ability to grant effective relief within the appropriate timescale.
  • The Court decided that Articles 9A and 9B of the LCIA Rules should be interpreted in a similar way, namely that the test for exceptional urgency under Article 9A must be whether effective relief could not otherwise be granted within the relevant timescale.
  • Similarly, the Court held that the test for what counts as an emergency under Article 9B of the LCIA Rules must be whether relief is needed more urgently than the time it would take for the expedited formation of a tribunal.
  • The Court held that Article 9.12 of the LCIA Rules does not prevent the Court’s powers from being limited as a result of the existence of Article 9B.
  • The Court decided that it could therefore only exercise its powers in cases where the tribunal’s powers were inadequate, or where the practical ability was lacking to exercise those powers.

What is the impact of the decision?

Some commentators have expressed surprise at the decision.  Emergency relief provisions, particularly provisions for the appointment of an emergency arbitrator, have been introduced into most of the major arbitration rules and are generally seen as broadening, not restricting, the options for parties requiring urgent interim relief.  However, by choosing to arbitrate, parties are limiting the powers of the Court to grant urgent relief and, under English law, a Court shall only act if the arbitral tribunal has no power or is unable to act effectively. If timely and effective relief may be granted by an expedited tribunal or emergency arbitrator, the Court will have no power to act. 

This judgment is a strong indication from the Court that, if the seat of the arbitration is in London and it is possible for you to obtain effective relief within the necessary time under the emergency provisions in the LCIA Rules, you should apply to the LCIA Court for such relief rather than to the Court. An exception to this would be if you needed urgent relief and cannot give notice to the other side, for example, to avoid the dissipation of assets, as it is not possible to make without notice applications for emergency relief under the LCIA Rules. Another exception would be if you needed a freezing order to bind a party who was not a party to the arbitration agreement.

BLP perspective

Although this case was in relation to the LCIA Rules, a similar interpretation could be given to emergency relief provisions in other institutional rules, such as the ICC or SIAC rules, in arbitrations with a London seat or seated in jurisdictions with equivalent provisions to Section 44 of the Act, such as Singapore and the Netherlands.

You should consider the implications of this decision carefully when including arbitration agreements in your contracts. If you are considering including the LCIA Rules in your arbitration agreement, the seat is in London and you want to preserve your right to go to Court for urgent interim relief, you may want to consider opting out of the emergency arbitrator provisions and you could agree to exclude the provisions relating to the expedited formation of the tribunal. 

 

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