The Enforceability of Emergency Arbitrator’s Decisions under the New York Convention

Erika Donin, Isabelle Bueno e Vitoria Campos
Young Arbitration Review
10/05/2018

The emergency arbitrator is a growing institute in international arbitration which is used whenever an urgent matter arises prior to the constitution of an upcoming arbitral tribunal. International arbitration providers have been increasingly including provisions in their rules in order to make such mechanism available for the parties in a way that assures a reasonable level of reliability and legal certainty. Arbitration providers are more and more adopting an opt-out system, in which the emergency procedure would be applicable by default, in substitution to the previous opt-in method of choice for emergency arbitrators.
The institute was first inserted in a set of rules in 1990, by the International Chamber of Commerce¹.The said ICC Rules for a Pre-Arbitral Referee Procedure comprised the criteria to indicate an emergency arbitrator, including the need for such provision to be expressly provided for in the contract. Although such innovation has been warmly welcomed, it has remained seldom explored until 2012, when ICC reformed its rules in order to update the dispositions related to the emergency arbitrator’s activity.
Nowadays, the emergency arbitrator mechanism has reached broader proportions. Since the avant-garde attitude of ICC, other relevant international arbitration providers, such as International Center of Dispute Resolution (ICDR), London Court of International Arbitration (LCIA) and Singapore International Arbitration Center (SIAC) have adopted specific provisions in their rules for emergency arbitration procedures.
Nevertheless, the system has its advantages and flaws. An example of its advantages is that the choice for an emergency arbitrator allows the requesting party to submit the dispute to a private jurisdiction, thus being consistent with the arbitration clause and avoiding an unwanted appreciation of such matters by a State Court. on the other hand, despite being a practical solution, an emergency arbitrator’s activity is not free from risks of unenforceability – in fact, risks abound under the following perspectives, depending on the jurisdiction of (i) the seat of the arbitration (lex fori); (ii) the place of performance and (iii) the place the award can be enforced.
From the moment the feature of the emergency arbitrator was created, in the early 1990s, the enforceability of its decisions under the New York Convention (NY Convention) has been controversial. The main reason why concerns to a possible conflict between the nature of the decision and the NY Convention’s² criteria for enforcement of the emergency arbitrator’s award. In the sense that Article V, item 1, “e”, of the NY Convention supposedly requires an award to be final and binding as a condition precedent to its recognition and enforcement; and item 1, “b”, of the same Article, prevents the enforcement of an award when one of the parties was unable to present its case (ex-parte decisions_.In this concern, there are scholars’ position³ advocating that an emergency arbitrator’s decision woukd not fulfill the requirements above referred, being, therefore, unenforceable.
In order to sort those issues out, this analysis will be divided into two parts, both corresponding to the two outward requirements of the pre-arbitral interim measures’ enforceability: (i) the definitiveness and biding nature of the arbitral award; and (ii) the necessity to allow the other party to present its case (which might end up precluded in the nonunnusual case when the emergency arbitrator is required to issue an ex-parte interim measure).
Regarding the first aspect, it is relevant to highlight that the NY Convention uses the expression award, rather than measure or decision, demonstrating the tone of conclusion that it bears4. In this sense, the interpretation of Article V of the NY Convention can be summarized in three largely and traditionally accepted premises: for an award to be enforceable, it has to be (i) issued by an arbitrator with jurisdiction for such act; (ii) binding on all the parties; and (iii) final to the procedure5.
However, an emergency arbitrator can only grant interim measures. That is, the decisions to be rendered in these scenarios may in no case be deemed final6 for the relevant proceeding nor will bind the parties permanently. There is solid understanding that this aspect, by itself, would be enough to lead any emergency arbitrator’s decision to unenforceability7.
The Court of the Southern District of New York analysed the said characteristics of pre-arbitral interim measures in Yahoo! v. Microsoft case, in a decision that has been widely discussed8 because it helped to set the limits of an emergency arbitrator’s jurisdiction. Parties entered into an agreement to merge their search systems in order to better strive with google, their main competitor in the market. For that to take place, Yahoo! was to change its search systems and search ads to those used by Microsoft in accordance with the contracted schedule. In 2013, Yahoo! felt that the transactions programmed for 2014 – which were already in delay according to the parties’ original plan – were threaded by an announced change in Microsoft’s board of directors. Yahoo!, then, decided unilaterally to cease the agreed transitions. Microsoft was notified on September, 2013 and requested an emergency arbitration under American Arbitration Association (AAA) provisions9 to compel Yahoo! To complete the system merger.
As a requirement to the analysis of the merits of Microsoft’s request, the emergency arbitrator found necessary to study the contract that originally bound the parties. The conclusion was that Yahoo! was in breach of the contract when it refused to finalize the systems’ merger. Therefore, the emergency arbitrator granted an interim measure determining Yahoo! to perform its obligations under the agreement. Yahoo!, then filed a motion to set aside the award arguing that it overcame its limits on the analysis of the merits of the dispute. But how could the arbitrator render a decision if not analyzing the merits? The request concerned the merits in the first place.
The Court then managed to interpret the emergency arbitrator’s activity as “sufficiently final to warrant review in federal district court when it finally and definitively disposes of a separate independent claim”10. Such understanding is based on the idea that, when analyzing a specific interim measure request, the emergency arbitrator takes into consideration all the pertinent information to resolve the merits of that request, as the arbitrator of the main procedure does with the main requests11. There would be, therefore, a final and biding decision in what relates to the interim measure requested, and not a final decision, obviously, in what concerns the entire proceeding to be conducted by an indicated arbitral tribunal in a later stage.
Adopting the interpretation above, there are grounds for claiming the enforceability of an emergency arbitrator decision on a preliminary basis, in the sense that, despite of its content, an interim measure is subject to enforcement since it fulfills the NY Convention’s criteria of being biding over the parties and final to its procedure. Therefore, one may reach the conclusion that the emergency arbitrator is part of the main arbitral procedure12, and only the arbitral tribunal nominated by the parties can revoke its orders.
Following the same understanding, the United States District Court of Columbia very recently revisited the matter in the Civil Action No. 17-1648, showing receptivity to enforce emergency arbitrator’s decisions, similarly to New York District Court, as discussed above.
The case’s decision dated of November 13th, 2017 involved the enforceability of a SIAC emergency interim award (as the Court named it). The parties, hisense International (Claimant) and Sharp electronics Corporations (Respondent) engaged into a trademark-license agreement.
In the analyzed case, Sharp Corporation unilaterally terminated the contract, under allegations that hisense would have incurred in regulatory violations and would have decreased the quality of its product. Hisense then requested the installation of the arbitral procedure and emergency measure, claiming for Sharp Corporation to (i) continue to comply with the agreement during the arbitration and (ii) refrain from maligning and making public statements about the dispute.
In regard to Hisense`s claims, the emergency arbitrator, in less than thirty days granted the interim measure to refrain Sharp Corporation from terminating the contract and from making public statements about Hisense. In its request for declaratory and injunctive relief, Sharp Corporation argued the measure granted by the emergency arbitrator constituted a violation of its freedom of speech13, qualifying as a public policy violation.
The SIAC Rules adopted by the parties in that case resembles ICC’s 2012 Rules, as mentioned above. The provisions for emergency arbitration of SIAC Rules contain the following standard criteria: (i) the emergency arbitrator must be impartial, (ii) both parties should be heard before the grating of the interim measure and (iii) the decision rendered should refer all the legal grounds sufficiently explained to reach to a valid pre-arbitral decision.
The State Court decided to dismiss the motion and uphold the award as there was no harm in Sharp Corporation’s right to free speech. In fact, according to the applicable law in that case, a harm to such a primary right implies the evocation of the First Amendment Rights by a state action, which is the only way to address issues related to individual rights14. As a matter related to an individual right would not be within the jurisdiction of a District Court deciding an issue related to a private contract, the request had no grounds. In addition, in relation to the merits of the dispute, the Court also understood that there was no shade of harm of any rights by the request granted in the interim measure15.
What is relevant to consider is that the Court did not revisit the merits of the emergency arbitrator’s decision. In fact, the Court reinforced an aspect already pointed out above: a decision rendered by an emergency arbitrator should be seen as final and binding in its procedure.
Such conclusion, however, may not be a consequence of a natural movement, but a product of an interpretation process, which is not, necessarily, equal in all jurisdictions.
In what concerns the second aspect under discussion, there are understandings in the sense that interim measures granted by emergency arbitrators can constitute violations of the due process of law principles. Despite the fact that a State Court can understand an interim measure as final for enforceability purposes, it cannot do the same when dealing of one of the most basic law principles16.
When it comes to claims for enforcerment in international procedures, there is a difficulty in sustaining a broad or maybe soft interpretation in what relates to due process requirements. They are truly mandatory principles17 in the ruling of international arbitration, disposed in the New York Convention expressly, which are essential to balance the freedom of choice given to the parties in international arbitration proceedings. Due process principles are certainly among them.
In this sense, when the measure is granted without the hearing of the counter-part (ex-parte), the risk of unenforceability strongly increases. Even though it would seem logical that, because interim measures are urgent, sometimes there will be no sufficient time to allow the counter party to present its arguments and, after that, to timely issue an useful interim decision18. Article V, item 1, “b” of the NY Convention provision prevents the recognition and enforcement of a decision in the event the defendant is not granted plenty of opportunity to present its case, which may be seen as a breach of the right to be heard the no-surprise rule and the adversarial system in a number of jurisdictions. 19. To be noted that the right to be heard and the adversarial system are contained in the due process of law20. Due process of law is one of the essential requirements for enforceability and recognition of arbitral awards21. It is a matter of procedural public policy.22 Besides, arbitration providers expressly provide for the protection of due process of law23.
Therefore, a pre-arbitral interim decision can be considered perfectly valid and enforceable under the NY Convention, provided that the due process of law principles are duly observed and reflected in the emergency arbitration award. The challenge here is for arbitrators and scholars to establish a true international concept of due process of law, which is adaptable to different applicable laws and jurisdictions. If, on one hand, the institute of emergency arbitration is an useful tool for the parties to explore a private jurisdiction in a pre-arbitral stage, the resort to an emergency arbitrator must be preceded by the consent of the parties both to the interim measure and to the ex parte decision.
Erika Donin, Isabelle Bueno and Vitória Campos
1 BORN, Gary, International Commercial Arbitration.2nd edition. London: Kluwer Law International, 2014, p. 2450: “The ICC Rules for a Pre-Arbitral Referee Procedure were an early example of such efforts. These rules provided a specialized procedure for provisional measures, issued by a “referee” appointed solely for the purpose of issuing emergency relief prior to constitution of the arbitral tribunal.”
2 SHAUGHNESSY, Patricia. Prearbitral urgent relief: the new SCC emergency arbitrator rules. Journal of International Arbitration, Kluwer Law International, volume 27, issue 04, pp. 337 a 360, 2010, p. 341: “Perhaps the ultimate test of the nature of emergency arbitration and the enforceability of decisions by emergency arbitrators is whether the international arbitration community, and importantly, state courts, are willing to accept emergency arbitration as a procedure resulting in a final and binding decision that can be enforced as an arbitral interim measure or as an arbitral award.”
3 SANTENS, Ank A.; KUDRNA, Jaroslav Kudrna. The state of play of enforcement of emergency arbitrator decisions. Journal of International Arbitration, Kluwer Law International, volume 34, issue 01, pp. 1 a 16, 2017. p. 01: “When the first emergency arbitration provision, the pre-arbitral referee procedure of the International Court of Arbitration of the International Chamber of Commerce (ICC), was introduced in 1990, commentators immediately questioned the enforceability of any resulting decisions under the New York Convention.”
4 New York Convention. Article V – Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that.: […] (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. (emphasis added)
5 SANTACROCE, Fabio. The emergency arbitrator: a full-fledge arbitrator rendering an enforceable decision? Arbitration International. Volume 31. oxford: oxford University Press, 2015, p. 303: “it is necessary to look at case law and scholarly works to understand what constitutes an enforceable arbitral award under the above-mentioned instruments. A perusal of these sources shows that the New York Convention and the most advanced national laws embrace a similar concept of enforceable arbitral award: a decision issued by (i) a body that qualifies as an arbitrator that is, at the same time, (ii) binding upon the arbitrating parties, and (iii) final.I”
6 BEECHEY, John; KeNNY, Gareth. How to control the impact of time running between the occurrence of the damage and its full compensation: complementary and alternative remedies in interim relief proceedings. In: LY, Filip de; LÉVY, Laurent (org.). Interest, auxiliary and alternative remedies in international arbitration: dossiers of the ICC Institute of world Business Law. Volume 5. Kluwer Law International: International Chamber of Commerce, 2008. p. 113: “An interim remedy, by definition, is not intended finally to resolve any point in dispute. It is to the substance of the relief furnished, rather than the form of its presentation, that a court called upon to enforce an “award” granting an interim measure is likely to have regard. The absence of finality is inconsistent with the requirements of the New York Convention, which stipulate that an award must be “binding on the parties”
7 SHROFF, Pallavi. Due Process in international arbitration: balancing procedural fairness and efficiency. In MENAKER, Andrea (org.). International arbitration and the rule of law: contribution and conformity, ICCA congress series. Volume 19. Kluwer Law International, 2017, p. 814: “[…] institutional rules typically provide that the relief granted by the emergency arbitrator lapses once the arbitral tribunal is constituted. Therefore, any such relief cannot be construed to be final and would not be enforceable under the New York Convention.”
8 SANTENS, quoted. SHROFF, Pallavi. Due Process in international arbitration: balancing procedural fairness and efficiency. In MENAKER, Andrea (org.). International arbitration and the rule of law: contribution and conformity, ICCA congress series. Volume 19. Kluwer Law International, 2017, pp. 797 a 822; SILLS, Robert. The continuing role of the courts in the era of the emergency arbitrator. Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, Volume 18, pp. 278-295, 2015..
9 American Arbitration Associaion provisions: R-38., (b): emergency Measures of Protection: A party in need of emergency relief prior to the constitution of the panel shall notify the AAA and all other parties in writing of the nature of the relief sought and the reasons why such relief is required on an emergency basis. The application shall also set forth the reasons why the party is entitled to such relief. Such notice may be given by facsimile or e-mail or other reliable means, but must include a statement certifying that all other parties have been notified or an explanation of the steps taken in good faith to notify other parties.
10 SANTENS, quoted, p. 4.
11 WERDNIK, Rainer. The award and the courts: the enforceability of emergency arbitrators’ decisions. In KLAUSEGGER, Christian; KLEIN, Peter (org.). Austrian Yearbook on International Arbitration 2014. Manz’sche Verlags- und Universitätsbuchhandlung, 2014. p. 275: “The decision of the emergency arbitrator is the “merit” decision in the proceeding before him, whereas the arbitral tribunal fulfils its tasks in its “merit” award.”
12 WERDNIK, quoted, p. 273: “This seems evident if emergency arbitrators’ provisions have been included in the arbitration rules. Further, also the using of the term “arbitrator” confirms this”; SHAUGHNESSY, Patricia. The emergency arbitrator. In TUNG, Sherlin (org.). The powers and duties of an arbitrator: liber amicorum Pierre A. Karrer. Kluwer Law International, 2017.p. 341: “There have been discussions on whether an emergency arbitrator is an arbitrator at all, but given the broad acceptance of emergency arbitration by the arbitration community, this controversy may become increasingly less relevant.”
13 ‘US No. 2017-19, Sharp Corporation et al. v. Hisense USA Corporation et al., United States District Court, District of Columbia, Civil Action No. 17-1648 (JEB), 13 November 2017’, in Albert Jan van den Berg (ed), Yearbook Commercial Arbitration 2018 – Volume XLIII, Yearbook Commercial Arbitration, Volume 43 (© Kluwer Law International;2018) pp. 1 – 31. “In a nutshell, Sharp contends that the emergency order issued by the SIAC arbitrator is unenforceable because it violates a fundamental U.S. public policy: freedom of speech and the right to petition the government as enshrined in the First Amendment.”
14 State Action Requirement: “The state action requirement stems from the fact that the constitutional amendments which protect individual rights (especially the Bill of Rights and the 14th Amendment) are mostly phrased as prohibitions against government action. For example, the First Amendment states that “[c]ongress shall make no law” infringing upon the freedoms of speech and religion. Because of this requirement, it is impossible for private parties (citizens or corporations) to violate these amendments, and all lawsuits alleging constitutional violations of this type must show how the government (state or federal) was responsible for the violation of their rights. This is referred to as the state action requirement. Avaiable at: https://www.law.cornell.edu/wex/state_action_requirement, accessed on April 5th, 2018.
15 ‘US No. 2017-19, Sharp Corporation et al. v. Hisense USA Corporation et al.,quoted: “Put simply, there is no free-floating, penumbral public policy protecting free speech. The principle underlying the First Amendment – that citizens shall be free from government acts infringing upon their rights of expression and petition – is inherently tied to the state-action requirement. Because Sharp can make no showing of such government involvement, and because all of its counts rely upon the alleged violations of First Amendment policies, the Court will grant Defendants’ Motion to Dismiss.”
17 SHROFF, quoted, p. 799: “At all times, certain mandatory principles of fairness, neutrality and equality – what may be, collectively, described as principles of “due process” or “natural justice” – must be met. […] these principles are generally contained in national arbitration statutes, and have been effectively codified in the New York Convention (which permits national courts to deny recognition to international arbitration awards issued in violation of the due process principles)”
18 BEECHEY, quoted. p. 110: “In order for an interim measure to be effective, it may be necessary on some occasions to maintain an element of surprise in order to avoid a real risk of potential harm and to ensure that the remedy is effective.”
19 WERDNIK, quoted, p. 253. “Some authors argue that ex parte interim measures are necessary when the other party acts in bad faith or when any hearing or notice implicates risk for loss of evidence.”; SEGESSER, Georg von; BOOG, Christopher. Interim Measures. In GEISINGER, Elliott; VOSER, Nathalie (Org.). International arbitration in Switzerland: a handbook for Practitioners. 2nd edition, Kluwer Law International, 2013. pp. 116 e 117: “Although ex parte measures are regularly granted both in civil and common law court systems, whether arbitrators may and/or should order interim measures on an ex parte basis is a highly contentious issue in international arbitration.”; SANTACROCE, Obra citada, p. 286: “Arguably, under traditional enforcement regimes such as the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention), the enforcement of ex parte emergency decisions will be denied irrespective of whether an arbitral decision on interim relief is considered an enforceable award. Indeed, recognition or enforcement of an award is generally refused where the resisting party was denied an opportunity to be heard. “.DONOVAN, Donald Fracis. The scope and enforceability of provisional measures in international commercial arbitration: a survey of jurisdictions, the work of UNCITRAL and proposals for moving forward. In BERG, Albert Jan van den (org.). International commercial arbitration: important contemporary questions: ICCA congress series. Volume 11. Kluwer Law International, 2003. p. 147: “[…]ex parte interim measures encroach on the fundamental right to be heard, and the right to be heard is protected in the enforcement article of the Model Law and in corresponding provisions of the New York Convention. ” ; COUCEIRO, Roberta Menezes. Da concessão pelo juiz brasileiro de tutela cautelar antecedente à instituição de arbitragem com sede fora do brasil: the granting of interim measures by the Brazilian Court Judge before the institution of the arbitration with a foreign seat Revista de Arbitragem e Mediação. Revista dos Tribunais, volume 52, pp. 123 a 139, jan/mar 2017, p. 126: “
Firstly, it is not possible to obtain – even in cases of exceptional urgency – ex-parte measures in arbitration and, consequently, not before the emergency arbitrator. This could prevent the requesting party from obtaining an injunction, since the mere fact that the other party is aware of the measure is sufficient enough to undermine the right that the claimant seeks to safeguard ”
20 GAILLARD, Emmanuel; FOUCHARD, Philippe; GOLDMAN, Berthold. Fouchard, Gaillard, Goldman on international commercial arbitration. The hague: Kluwer law International, 1999, P. 948,: “The principle of due process is also closely related to the principle of equal treatment of the parties. Due process implies that the parties should be given an equal opportunity to present their case. However, some laws on arbitration treat breaches of “the principle of equal treatment of the parties” and breaches of their “right to be heard in adversarial procedure” as separate violations. 335 The principle of equal treatment is capable of covering more than just an equal right to be heard.”
21 JULIAN, M. Lew, QC. The Tribunal’s Rights and Duties: what do parties and arbitrators bargain for? In: HANOTIAU, Bernard; MOURRE, Alexis (eds.). Players Interaction in International Arbitration. Dossiers of the ICC Institute of world Business Law. Kluwer Law International, International Chamber of Commerce (ICC), chapter 5, 2012, v. 9, p.47.
22 GAILLARD, FOUCHARD; GOLDMAN, cited. p. 861: “In virtually every country, an award can be set aside or denied recognition if it is contrary to international public policy. This is acknowledged by arbitration statutes,397 as well as by international treaties. Most significantly, in all countries which have ratified the 1958 New York Convention, an award contravening the requirements of international public policy can’t be refused recognition and enforcement.”; WAHAB, M.S.A. Iura Novit Arbiter in International Commercial Arbitration: the known unknown. In: ZIADÉ, N.G. (ed.). Festschrift ahmed sadek el-kosheri. Kluwer Law International, 2015, pp. 21-22.
23 For instance, ICC Arbitration Rules – Appendix V, Article 5 (2); SIAC Rules – Schedule 1, Article 7.