Legal Eye Arbitration Bulletin - Bristows

October 2012

Legal Eye
Arbitration Bulletin

Welcome to the latest bulletin from Bristows' Commercial Disputes Forward to a colleague
team. This bulletin has been prepared by the Arbitration group within
the team. The Team is led by Partner, Mark Brown. In this issue

Should you have any comments on this bulletin, we would be delighted Anti-enforcement injunctions
to hear from you. Please click HERE email your comments to us. –a useful alternative to anti-
suit injunctions?

Anti-enforcement injunctions –a useful More Efficient and Cost-
alternative to anti-suit injunctions? Effective Arbitration: Changes
made to the ICC and Swiss
Rules in 2012

Mark Brown and Sarah Ruthven ICC Encourages Arbitrations
Involving States and State
Parties

    Mark Brown
Partner
The little known anti-enforcement injunction has the potential to +44 (0)20 7400 8000
provide an alternative means of protection for a party whose
contractual rights to arbitrate are being ignored by the other party to About Us
the agreement issuing court proceedings without following the
contractually agreed escalation processes. Click HERE to find out about
Bristows' Commercial
This article discusses the foreign policy considerations involved with Disputes practice
the issuing of an anti-suit injunction, and why there is some feeling that
an anti-enforcement injunction could lead to a more satisfactory Click HERE to see previous
outcome for all those concerned. Legal Eye - Arbitration
Bulletins
Anti-suit injunctions
 

An anti-suit injunction is intended either to prohibit a party from  
commencing a court action or from continuing with a court action which  
is already ongoing.  The injunction is directed at the party and not the
court in question but there is still controversy about whether such
injunctions should be issued against a party acting in breach of its
obligation to submit a dispute to arbitration under a binding arbitration
agreement.  This controversy is particularly prevalent in civil law
jurisdictions and within the EU.

State courts in civil law jurisdictions are generally reluctant to issue anti
-suit injunctions.   While courts in common law jurisdictions have been

more willing to issue anti-suit injunctions, such orders have been found
to be incompatible with EU law.  They have also been held to
contradict the rule under the UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958 that the individual court
seised of an action has the right to determine whether or not to refer
the parties to arbitration.

It may be possible in certain circumstances to obtain an anti-suit
injunction from the arbitral body itself.

Anti-enforcement injunctions –background

An anti-enforcement injunction is a particular type of anti-suit injunction
and is one of the many provisional measures that can be issued by a
court or an arbitral tribunal.  It is an order by a court or arbitral tribunal
which prevents a party to an arbitration agreement from enforcing an
award or a court judgment when its obligations to arbitrate have not
been exhausted.

It is considered that anti-enforcement injunctions can be a useful
alternative to an anti-suit injunction to protect a party’s interest in the
enforceability of the exclusive and binding nature of an agreement to
arbitrate, particularly in situations where arbitral tribunals or courts are
reluctant to issue an anti-suit injunction. For reasons of comity and
foreign relations there can often be a reluctance by a tribunal or court
to grant an anti-suit injunction where parallel court proceedings have
been issued in a jurisdiction which is known and respected for having a
reliable justice system.  The resulting inherent assumption of such an
injunction can be that the foreign court in question is incapable of
dealing with jurisdiction question competently.

An anti-enforcement injunction is felt to better respect the court’s
authority to rule on its jurisdiction and also to do less to restrict the
rights and the interests of the other party.  An anti-enforcement
injunction also enables a better harmonisation of the arbitration
proceedings and the state court proceedings.   Following an anti-
enforcement injunction, the tribunal’s final position on the parties’
substantive rights and on the breach of one party of the arbitration
agreement need only be set out in the final award.  

The tribunal can also order the party applying for the order to provide
security so as to ensure that the interests of the other party involved
are protected.  

It should be noted that it can be difficult to enforce an anti-enforcement
injunction if it is not complied with voluntarily.  However, there is the
possibility for the arbitral tribunal to award damages, allocate costs,
and order penalties for this breach if these remedies are available
under its procedural law.  Breaching a court’s anti-enforcement order
could even result in imprisonment for contempt of court.  In addition
anti-enforcement injunctions are potentially enforceable under local law
at the place of enforcement.

Anti-enforcement injunctions in action

Despite the fact that an anti-enforcement injunction can be found being
issued by the English Courts in a case as early as 1928 (Ellerman
Lines, Limited v Read and Others [1928] 2 K.B. 144 (CA)), such
injunctions have not received much attention and there are limited
published decisions to use as precedents to aid analysis of their
effectiveness.  However, a relatively recent decision by a Swiss ICC

arbitral tribunal (ICC case no. 17176) hints at an increased acceptance
of anti-enforcement injunctions issued by arbitral tribunals.

In this March 2011 case, the arbitral tribunal issued an anti-
enforcement injunction against a respondent in a pending arbitration
ordering both them and their subsidiary to refrain from enforcing a
German state court judgment before the final award in the arbitration
was rendered.

The arbitral tribunal in question held that an anti-enforcement
injunction is “inherently less invasive”than an anti-suit injunction since
it does not directly interfere with the state court’s “sovereign power of
ruling on its jurisdiction”.   Indeed this same principle was cited in the
issuing of an anti-enforcement injunction in the 1928 English judgment
where it was stated that “the principle upon which an English Court
acts in granting injunctions is not that it seeks to assume jurisdiction
over the foreign Court, or that it arrogates to itself some superiority ...
or that it seeks to criticize the foreign Court or its procedure; the
English Court has regard to the personal attitude of the person who
has obtained the foreign judgment...it will restrain him, not by issuing
an edict to the foreign court, but by saying that he is in conscience
bound not to enforce that judgment.”  It is considered that this type of
injunction is not seen as casting aspersions on the competence of
another court (as the pre-emptive nature of an anti-suit injunction can
be interpreted as doing) but rather that it directly prevents the
individual respondent from enforcing a handed-down judgment,
pending a final resolution of the dispute between the parties in the
arbitration, a procedure to which the parties had contractually bound
themselves. 

Future application of anti-enforcement injunctions?

There is some thought that the reasoning given by the Swiss ICC
arbitral tribunal in explaining its application of the anti-enforcement
injunction highlights the potentially considerable advantages of this
type of order.  However, given the fact this appears to be a reiteration
of the very similar, if not the same, principles and advantages stated by
the English Court in 1928 without a body of case law demonstrating
the utility of such an injunction in the interim period, it remains to be
seen whether as a result of this more recent judgment these benefits
will be recognised more widely and lead to an increase in the use of
anti-enforcement injunctions going forward.

More Efficient and Cost-
Effective Arbitration: Changes
made to the ICC and Swiss
Rules in 2012

Claire Davies

In recent years, arbitral institutions have faced criticism over mounting
costs and delays, problems which have been exacerbated by the
increasing complexity of proceedings. This year, both the International
Chamber of Commerce Rules of Arbitration (“ICC Rules”) and the
Swiss Rules of International Arbitration (“Swiss Rules”) have been
revised to meet these challenges, with the primary aim of making
arbitration proceedings more efficient. To this end, several provisions

have been included to save time and costs. Provision has now been
made for an emergency arbitrator where interim relief is needed but
the arbitral tribunal has not yet been constituted. Both sets of Rules
also aim to deal effectively with complex proceedings, providing for
situations such as the consolidation of multiple arbitrations, the joinder
and intervention of additional parties and claims arising out of multiple
contracts.

Emergency Arbitrator: ICC Rules and Swiss Rules

Both the ICC and the Swiss Rules now provide for the appointment of
an emergency arbitrator. This is intended to reduce the involvement of
state courts where parties wish to apply for urgent interim measures
prior to the constitution of the arbitral tribunal. Under the ICC Rules
(Article 29 and Appendix V), a party in such circumstances can apply
to the Secretariat and the President of the ICC Court may then appoint
an emergency arbitrator within as short a time as possible, normally
within two days of the Secretariat's receipt of the application (Appendix
V, Article 2(1)). Similar provisions are also found in Article 43 of the
Swiss Rules. Although the decision of the emergency arbitrator binds
the parties, it is not binding on the arbitral tribunal once constituted
(Article 29(3) ICC Rules and Article 43(8) Swiss Rules).

Making proceedings more efficient

ICC Rules

The new Article 22(1) obliges the arbitral tribunal and the parties to
“make every effort to conduct the arbitration in an expeditious and cost
-effective manner, having regard to the complexity and value of the
dispute.”Parties are strongly incentivised to comply with this duty as
the extent to which they have done so may be taken into account by
the arbitral tribunal when it makes decisions on costs (Article 37(5)).
The arbitral tribunal, meanwhile, must inform the Secretariat and the
parties of the date on which it expects to submit its draft award to the
Court. The “timeliness”with which the tribunal does so, in addition to
factors such as the arbitrators’"diligence and efficiency" and the
“rapidity of proceedings”will be considered by the Court when setting
the arbitrators' fees (Appendix III, Article 2(2)). These provisions
therefore encourage both the parties and the arbitral tribunal itself to
conduct proceedings more quickly.

As part of its endeavour to “respond to today’s business needs”, the
ICC has implemented several further provisions designed to save time
and costs. For instance, more detail must now be provided in the
Request for Arbitration and the Answer (Articles 4 and 5), which keeps
both parties better informed of the other’s position and may help to
encourage early settlement. Jurisdictional challenges will now
generally be decided directly by the arbitral tribunal (Article 6(3)), and
the ICC Court has also been given increased powers in relation to the
appointment of arbitrators (Articles 13(3) and 13(4)), both of which may
help to minimise delays.

The revised provisions relating to case management are also designed
to make proceedings more efficient. The arbitral tribunal must now
convene a case management conference when drawing up the Terms
of Reference or as soon as possible thereafter (Article 24(1)) and case
management conferences may also be held later on in the proceedings
to "ensure continued effective case management" (Article 24(3)).
Appendix IV, which emphasises that in simple, low value cases, time
and costs should be proportionate to what is at stake in the dispute,
sets out several examples of case management techniques. These

include identifying issues that can be resolved by agreement between
the parties or their experts and establishing reasonable time limits for
the production of documents. Limits may also be placed on the length
and scope of written submissions and written and oral witness
evidence in order to “avoid repetition and maintain a focus on key
issues.”

Swiss Rules

The expedited procedure already in place under the 2004 Swiss Rules
(Article 42) has proved successful, and the revised Rules aim to further
improve the efficiency of proceedings. Article 15(7) states that all
participants in the arbitral proceedings should “make every effort to
contribute to the efficient conduct of the proceedings”, which includes
avoiding unnecessary costs and delays, and the parties must
undertake to comply with any award or order made “without delay.”
Although there is no explicit costs penalty for a failure to comply with
this provision, it is possible that the arbitral tribunal may take this into
account when apportioning the costs of the arbitration among the
parties under Article 40(2).

The Arbitration Court, established this year by the Swiss Chambers’
Arbitration Institution, has also been granted extensive powers when
exercising its role of supervising arbitral proceedings, many of which
are intended to minimise delays. It can make a prima facie
determination of whether the parties have agreed to arbitrate according
to the Swiss Rules (Article 3(12)) and may shorten or extend time limits
(Article 2(3)), enabling it to expedite proceedings if this is appropriate
in the circumstances. The Arbitration Court can also decide on
challenges to arbitrators (Article 1(4)), intercede where there has been
a failure in the constitution of the arbitral tribunal (Article 5(3)) and
approve or adjust the tribunal's determination on costs (Article 40(4)),
thereby helping to resolve disputes which occur in this context.

Several other key provisions have also been introduced in order to
expedite proceedings. Where arbitrators are to be appointed by the
parties, they must now be nominated in the Notice of Arbitration or the
Answer (Articles 3(3)(h) and 3(7)(f)), whilst all documents and other
evidence relied upon by the parties must "as a rule" be attached to the
Statement of Claim or the Statement of Defence (Articles 18(3) and 19
(2)). Thus, as with the ICC Rules, more detailed information must now
be provided early on in the proceedings. In relation to challenges
against arbitrators, a deadline of 15 days after the circumstances
giving rise to the challenge became known to that party has been
introduced (Article 11(1)), and if all the parties agree, the tribunal has
the power to “take steps to facilitate the settlement of the dispute”,
(Article 15(8)). This enables the tribunal to exercise its discretion and
to implement the measures necessary to resolve matters efficiently.

Complex Arbitrations

ICC Rules

The revised ICC Rules aim to deal with the challenges posed by
increasingly complex arbitrations whilst saving time and costs, and to
this end, changes in relation to third party involvement in arbitral
proceedings have been introduced. According to Article 7(1), parties
may now join additional parties to the arbitration by submitting a
Request for Joinder to the Secretariat. They must do so prior to the
confirmation or appointment of any arbitrator, unless all parties,
including the additional party, agree otherwise. This time limit
encourages parties to consider who should be involved in the

arbitration at an early stage, which should minimise delays later on in
the proceedings. However, in contrast to the Swiss Rules (see below),
a claim must be made against the additional party, and the ICC Rules
also differ from the Swiss Rules in that they do not deal with requests
by third parties to participate in the arbitration proceedings.

Express provision has also been made for claims involving multiple
parties and multiple contracts. In an arbitration involving several
parties, claims may be made by any party against any other party
(Article 8(1)) whilst claims arising out of or in connection with multiple
contracts may be made in a single arbitration, even if the claims are
made under more than one agreement to arbitrate under the ICC
Rules (Article 9(1)). Nonetheless, under both Article 8 and Article 9, if
parties wish to make further claims once the Terms of Reference have
been signed or approved by the Court, they must be authorised by the
arbitrators, who will consider the nature of the new claims, the stage of
the arbitration and other relevant circumstances (Article 23(4)). By
avoiding additional arbitration proceedings in appropriate
circumstances, these provisions may help to increase efficiency.

The provisions relating to the consolidation of related arbitrations have
also now been extended. The ICC Court may now, at the request of a
party, consolidate two or more pending arbitrations into a single
arbitration if one of the three conditions outlined in Article 10 applies:
the parties must agree (Article 10(a)); all of the claims must be made
under the same arbitration agreement (Article 10(b)); or the parties
must be the same, the disputes in the arbitrations must arise in
connection with the same legal relationship, and the Court must find
the arbitration agreements to be compatible (Article 10(c)). In order to
make its decision, the ICC Court will consider all relevant
circumstances, including whether any arbitrators have been confirmed
or appointed and whether any such arbitrators would also act in the
consolidated arbitration. No time limit is imposed on the submission of
a request to consolidate.

Swiss Rules

Like the ICC Rules, the revised Swiss Rules aim to deal effectively with
complex proceedings and also provide for the involvement of additional
persons. Under Article 4(2), the arbitral tribunal has the power to
determine whether one or more “third persons”may be joined to
pending arbitral proceedings, following a request to this effect by one
or more such third persons or by a party. The tribunal must consult
with all of the parties, including the person or persons to be joined, and
take into account all relevant circumstances when making its decision.
By replacing the term “third party”with “third person”, the revised Swiss
Rules make it clear that a claim need not be made against the third
person, who may be involved for an entirely different purpose. This
contrasts with the ICC Rules.

The new Swiss Rules also deal with the consolidation of arbitration
proceedings. Where a Notice of Arbitration is submitted between
parties involved in pending arbitral proceedings which are governed by
the Swiss Rules, the Arbitral Court may decide, after consulting with
the parties and any confirmed arbitrator in all proceedings, that the
new case should be consolidated with the pending arbitral
proceedings. The Arbitration Court may then revoke the appointment
and confirmation of arbitrators and appoint arbitrators itself (Article 4
(1)). This gives the Arbitration Court a broad scope for exercising its
discretion in relation to the consolidation of proceedings.

Conclusion

The revised ICC Rules and the Swiss Rules deal with the rising costs,
delays and increasing complexity of modern arbitration proceedings in
a variety of similar ways.

The appointment of an emergency arbitrator in appropriate
circumstances may assist in facilitating the smooth progression of
arbitration proceedings by decreasing the role played by state courts.

Both sets of rules also oblige everyone involved in the proceedings,
including the arbitral tribunal, to conduct the arbitration in an efficient
and cost-effective manner, minimising delays where possible, and
introduce provisions such as case management techniques and
potential costs penalties in support of this objective. New procedures
allowing for third persons to become involved in arbitration
proceedings and for proceedings to be consolidated may also help to
improve efficiency. Provision has also been made for claims involving
multiple parties and multiple contracts to be dealt with effectively.

Many of the revisions introduced this year should therefore make
arbitration proceedings easier and cheaper, helping to facilitate the
resolution of disputes in a more efficient way.

ICC Encourages Arbitrations
Involving States and State
Parties

Andy Hill

The International Chamber of Commerce (“ICC”) Commission has
recently published a report highlighting the suitability of the ICC
arbitration system for the resolution of disputes involving states or state
parties (hereafter, “state entities”). The report inevitably reads in part
as something of an advertisement for the ICC’s services; but in the
process also serves as a useful reminder of the special considerations
applicable to arbitrations to which state entities are party.

These considerations are no less relevant to those who have
relationships with state entities (typically pursuant to commercial
contracts relating to construction, maintenance and the operation of
facilities/systems or arising from bilateral investment treaties (“BITs”))
as to the state entities themselves. In the context of the current
economic climate in which many states’finances are more precarious
than might be the norm, it is especially prudent for those contracting
with state entities carefully to consider the various dispute resolution
options that are available to them. The inclusion of a clear arbitration
clause covering any potential disputes is one effective means of
avoiding complex preliminary issues as to whether the state entity has
effectively submitted to the forum and/or has waived any right to state
immunity, such as those which arose in the Capital Ventures
International v The Republic of Argentina litigation in which this firm
recently successfully acted.

The report acknowledges that ICC arbitration is relatively underused in
disputes involving state entities (e.g. compared toThe International
Centre for Settlement of Investment Disputes (ICSID)) but is at pains to
stress that this is an issue of perception/ publicity rather than a
reflection of theICC Rules of Arbitration (the “ICC Rules”) failing to

provide for such disputes. Indeed, the overriding theme of the report is
that the existing ICC Rules (in particular as amended as the 2012 ICC
Rules) already amply cater for arbitrations involving state entities and
so a separate set of rules for such disputes is unnecessary.

In summarising below some of the recommendations, rules and
practices that the report identifies as having been developed in the ICC
arbitration system to take into account the participation of a state
entity, we also consider some of the specific issues that are particularly
relevant to such arbitrations.

The Arbitration Agreement

As is the case for other arbitrations, in order to provide for ICC
arbitration in relation to disputes involving state entities a provision
should be incorporated into the relevant contract, BIT, investment
treaty or domestic investment law, etc.  However, the report
recommends that various amendments are made to the standard ICC
contractual arbitration clause for the purpose of disputes involving
state entities in order to:-

• expressly provide for a three-member arbitral panel –otherwise
the ICC Court decides whether there should be one or three
arbitrators, three generally being preferred by parties to
arbitrations involving state entities for reasons of neutrality;
 

• have the president of the three-member tribunal nominated by the
party-nominated arbitrators or by the parties themselves –for
similar reasons as the default position is that the ICC Court
decides, which removes control from the parties;
 

• extend the default thirty-day time limit for nominating an arbitrator
–state entities can have unwieldy decision-making procedures
and often require more time;
 

• provide that the arbitration remains confidential –often preferred
by state entities in relation to investment arbitrations (although in
certain circumstances state entities may want to display greater
transparency);
 

• directly address the crucial question of the state entity’s immunity
from enforcement (as above).

Practices of the Court in ICC Arbitrations Involving State Entities

The report also seeks to highlight various provisions added to the 2012
ICC Rules and practices adopted by the ICC to take into account the
particular circumstances of ICC arbitration involving state entities.
Once again, it will be seen that many of these provisions and practices
are intended to address concerns in relation to neutrality which are
especially relevant in relation to such arbitrations.

Role of the Court and ICC National Committees

The report recognises that state entities have raised particular
concerns about the role of the Court and ICC National Committees in
ICC arbitration and seeks to address these concerns at length by
pointing out that:-

• (perhaps somewhat troublingly) the members of the Court are
usually private practitioners of international arbitration with no
personal interest in the outcome of the disputes brought before the
Court;
 

• during the scrutiny of a draft award by the Court, the Court’s
practice is to exclude from the session any Court member who
may be interested in the case, including, for example, the Court
member proposed by the ICC National Committee in any state
involved in the case;
 

• the Court no longer needs to appoint a sole arbitrator or the
president of an arbitral tribunal upon a proposal from an ICC
National Committee (accepted by the report to be perceived to
lack neutrality owing to the fact that they are often composed of
leading companies and business associations in their respective
countries).

Constitution of the Arbitral Tribunal & Fixing the Place of the
Arbitration

Where the parties fail to make adequate express provision in the
arbitration agreement as suggested above, the report is keen to point
out that it is in any case the Court’s practice to:-

• submit disputes involving state entities to a three-member arbitral
tribunal;
 

• when appointing a co-arbitrator on behalf of a state entity that has
failed to make a nomination, generally to appoint an arbitrator
either from that state or from a state with which that state has
“cultural affinities”;
 

• fix the place of the arbitration in cases involving state entities in a
neutral location situated in a country that has ratified the New York
Convention.

Scrutiny of draft awards

When an ICC arbitral tribunal submits its draft award to the ICC for
approval, the Counsel in charge of the case at the Secretariat of the
Court reviews it and may offer comments or observations or revise the
draft before it is submitted to the Court, which then deliberates and
decides whether or not to approve the award. The Court not only may
satisfy itself that all formal requirements have been met, such as
whether reasons have been given and all issues have been
addressed, but can also make comments on the substance of the
award “without affecting the arbitral tribunal’s liberty of decision”. For
example, if it finds that there are problems of computation or
contradictory findings of fact or law or that the arbitral tribunal has
failed to apply or make reference to the applicable law it can invite the
tribunal to amend and reissue its award for approval.

The report fairly describes such scrutiny of draft awards as an
important and attractive feature of ICC arbitration (scrutiny improves
the quality of and confidence in the award) and the advantages of
scrutiny are strengthened in respect of arbitrations involving state
entities because it is the Court’s practice to scrutinize draft awards
given in such arbitrations at its plenary sessions.

Conclusion

In many cases (particularly for those dealing with state entities, rather
than those entities themselves) the choice of dispute resolution
mechanism or arbitration institution may not be something over which
a party has any influence. Indeed, the report appears to be directed
more at state entities themselves, who will of course generally be in a
better position to dictate the provisions of the relevant contract, BIT,
investment treaty or domestic investment law.

However, assuming the report does its intended job in promoting ICC
arbitration among those with the power to dictate terms, parties may
well increasingly find their disputes involving state entities played out
under the ICC Rules. It is of some comfort then that those Rules and
the practices adopted by the ICC are sufficiently flexible to
accommodate the special circumstances arising from arbitrations of
this nature and, in particular, effectively address the key issues of
neutrality and scrutiny.

Nevertheless, it remains for the non-state entity party itself to be
vigilant in addressing the crucial question of the state entity’s immunity
from enforcement.

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