On 30 May 2023, Freshfields organised, jointly with HKA, a construction roundtable event focusing on new trends and challenges in global projects disputes. The event took place in Freshfields’ Rome office and included in-house counsel, arbitrators, experts, representatives of arbitral institutions as well as external counsel.
One of the areas of discussion related to the use of emergency arbitration proceedings in construction disputes and their interplay with other remedies that may be available to parties from domestic courts. In this blog we cover some of the key takeaways from these discussions.
Emergency arbitration and construction disputes
Essentially, emergency arbitration provides parties with a mechanism to seek urgent interim or conservatory measures that cannot wait the constitution of the arbitral tribunal. It is now available under a variety of arbitration rules, including ICC, LCIA, SIAC, DIAC, HKIAC as well as the new SCCA rules published earlier this year. Some rules (e.g., the ICC rules) allow parties to commence emergency arbitrator proceedings even prior to filing a request for arbitration with the condition of starting an arbitration shortly thereafter (10 days under the ICC rules). This is aimed at providing parties with immediate access to an emergency arbitrator to address time-sensitive issues.
Unsurprisingly, emergency arbitration is particularly important for construction disputes where parties often require immediate measures to preserve their position (e.g., prevent an abusive call on a performance bond or a contractor from abandoning the site or even take note of the status of, or suspend, the works on site). Indeed, according to a 2019 ICC Report, half of the first 80 applications filed after the introduction of emergency arbitration provisions under the ICC rules (in 2012) related to the construction, engineering and energy sectors. Preserving the status quo and requests for specific performance made for most of the applications filed (74 of 80). This trend continued in more recent years.
Three practical questions arise. Is the process fast enough? Sufficiently effective? And how does it impact parties’ ability to seek urgent relief from the domestic courts?
Getting a decision quickly – but how quickly?
Arbitration rules provide for accelerated procedures for emergency arbitration but vary when it comes to the foreseen durations. For example, under the ICC Rules, the emergency arbitrator must render an order within 15 days from the date of receipt of the file (this time limit can be extended by the President of the ICC Court either at the request of the EA or on the president’s motion). Practice confirms that this deadline is generally adhered to. According to the same 2019 ICC Report, in 65 of the 69 cases that resulted in orders by the emergency arbitrator, those was issued in less than 19 days (35 in less than 15 days). The ICDR reported 14 days on average, while the SCC reported an average of 5 to 8 days. But the time-limit for rendering an order does not mean that parties cannot benefit from a more urgent relief from an emergency arbitrator.
Indeed, parties can request emergency arbitrators to issue interim/temporary orders (e.g., to maintain the status quo) pending determination of the main application. For example, in a recent case in which Freshfields acted for a contractor, within hours from appointment, the emergency arbitrator issued an initial temporary freezing order (on an ex parte basis) preventing the encashment of a performance bond pending determination of the emergency arbitration application. That initial order remained in place until the emergency arbitrator issued its order (2 weeks later).
A related question is then how fast an emergency arbitrator can be appointed. Under the ICC rules, the President of the ICC Court must appoint an emergency arbitrator within as short a time as possible, normally within two days from receipt of an application. In practice, it is important for parties and counsel to liaise with arbitral institutions when preparing to file a request for emergency arbitrator proceedings (even before filing the request). This can facilitate an even faster appointment, even in a matter of hours.
Enforceability: Achilles’ heel of emergency arbitration?
Decisions of emergency arbitrators are generally embodied in an order or decision, not an award. Although several states have enacted legislation providing that emergency arbitration decisions may be enforced by courts (e.g. Singapore, New Zealand, Hong Kong), the enforceability of such orders in most jurisdictions remains unsettled. This can dissuade users from referring urgent matters to emergency arbitrators. According to a recent Queen Mary University’s survey, 46% of respondents indicated that they would rather seek emergency relief from domestic courts than from emergency arbitrators, with 79% of respondents citing enforceability concerns as their main reason for preferring domestic courts.
That said, emergency arbitrator decisions, even if not directly enforceable, often influence local courts to issue interim measures in support of the emergency arbitrator’s findings. For example, in a recently reported case, where the emergency arbitrator order not to draw on performance bonds was not respected by the responding party, who called the bonds (and the bank honoured the call), the applicant successfully seized the courts of the counter-guarantor bank, asking that the counter-guarantor be ordered not to pay the first rank guarantor bank. This was largely based on the findings of the emergency arbitrator. Moreover, not complying with an emergency arbitrator’s order will likely have consequences in the underlying arbitration (including damages from the non-complying part and adverse cost awards).
Interplay between emergency arbitration and domestic courts
It is often thought that emergency arbitration and recourse before domestic courts are mutually exclusive. That is not, however, the case. Most international arbitration rules (e.g., ICC, LCIA, ICDR, HKIAC, SIAC) expressly specify that an application for the appointment of an emergency arbitrator does not preclude access to national courts for interim relief. So, in other words, if you are looking to stop or challenge an abusive bond call, you can usually get two bites at the apple and initiate both emergency arbitration proceedings and seek preventive measures before domestic courts. It is also important to remember that remedies sought in the emergency arbitrator proceedings and those that may be available before domestic courts are not always the same (or do not always relate to the same parties). For example, in the context of an abusive bond call, it is likely that the jurisdiction of an emergency arbitrator will be limited to orders binding the parties to the construction contract (rather than the banks that issued the bonds) while the domestic courts may be in a position to issue interim measures directly binding the banks.
Understanding the scope of measures that may be available from the emergency arbitrator and those that may be granted by the domestic courts is important in deciding what strategy to adopt. In a recent case where Freshfields acted for a contractor, despite securing an interim order from an emergency arbitrator preventing encashment of a performance bond following an abusive call, the issuing bank refused to comply noting that the order did not have any binding effects on the bank. That led to a parallel application before domestic courts that used the emergency arbitrator’s interim order as evidence to issue an attachment order binding the bank.
But multiple applications before arbitral tribunals and domestic courts can also undermine an applicant’s case for urgent relief. For example, in the 2016 English law case of Gerard Metals S.A. v. Timis, the English High Court declined to grant a freezing injunction under Section 44 of the Arbitration Act 1996, where the claimant had previously applied for an emergency arbitrator order and was denied by the LCIA. In that case, the Court held that the test of “urgency” – a pre-requisite for the granting of the relief – pursuant to the LCIA Rules was the same as that under Section 44. Given that the LCIA had already rejected the applicant’s request for the appointment of an emergency arbitrator, the court was not entitled to intervene as a result of Section 44(5) of the Act, which prevents a court from acting unless an arbitrator/tribunal “has no power or is unable for the time being to act effectively”. Experienced counsel is needed in this area to combine the different mechanisms in the most effective way.
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