'A Funny Thing Happened on the Way to the Forum': Where to Turn for a Remedy Before Arbitration Proceedings Have Commenced, EDO Corpn v Ultra Electronics Ltd

12.06.09

 

This article was written by Andrew Manning Cox, partner, and Helene Adlard, associate, in Wragge & Co's Commercial Litigation team

This casenote, which appears in (2009) 75:4 Arbitration, is reproduced here with the kind permission of the Chartered Institute of Arbitrators.

Introduction

You are a UK manufacturer (M), with an overseas supplier (S). The supply agreement between you and S provides that any disputes arising between you will be resolved by arbitration seated in London, under - let's say - the arbitration rules of the International Chamber of Commerce (ICC).

Scenario A: Out the blue, S threatens to cease supply unless you agree to a price increase that you consider to be onerous and unjustified. To stop your production line grinding to a halt, you need an injunction to force S to resume supply.

Scenario B: You suspect that S is disclosing confidential information about your products to your competitors. You need immediate disclosure from S of relevant documents, to enable you to assess your position and take whatever steps may be necessary and appropriate to protect your business.

Since no arbitration proceedings are yet in place in either scenario, where do you turn for an immediate remedy?

Arbitration clause subject to ICC rules

Under Article 23 of the International Chamber of Commerce (ICC) rules:

"unless the parties have otherwise agreed, as soon as the file has been transmitted to it [i.e. after the parties have gone through the prescribed formalities of instigating the arbitration and the tribunal has accepted the appointment], the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate".

Article 23(2) goes on to state that if any interim measure is required before the file has been transmitted to the tribunal, the parties may apply to "any competent judicial authority for interim or conservatory measures". So, you apply to a court in both scenarios? Not necessarily.

In EDO Corpn v Ultra Electronics Ltd, the court held that it had no power to grant a pre-action disclosure application under the Supreme Court Act 1981 s.33(2) or Civil Procedure Rules, Rule 31.16, where the relevant agreement between the parties was subject to an arbitration clause. These rules empower the court to make a pre-action disclosure order against "a person who appears to the High Court to be likely to be a party to subsequent proceedings in that court". This requirement was not satisfied because, in light of the arbitration clause, the respondent to the pre-action disclosure application was not likely to be a party to subsequent court proceedings.

The judge found that the ICC Rules Article 23(2) did not assist the party seeking pre-action disclosure because: the arbitral proceedings had not yet commenced, so the ICC rules did not yet apply; a pre-action disclosure order was not an "interim or conservatory measure"; and the ICC rules could not in any event confer additional powers upon the English Court, over and above those provided in the Arbitration Act 1996. Under s.44 of that act, the court has the power (subject to contrary agreement) to make certain orders in support of arbitration proceedings. These include, among others, interim injunctions and orders to preserve evidence. The judge did not, however, consider that s.44 gave the court the power to make an order for pre-action disclosure in support of arbitration proceedings.

There are aspects of this decision that bear some clarification. In particular, if the ICC rules do not apply until arbitration has commenced, under what circumstances will Article 23(2) ever apply? Further, if a pre-action disclosure application is not an "interim or conservatory measure", what are the implications in terms of the tribunal's power to "order any interim or conservatory measure it deems appropriate" once the arbitration has commenced?

Applying this judgment, however, an English court would presumably accept that it had the power to grant an order in our Scenario A, to be followed by a handover of the dispute to the tribunal at the appropriate point; but in our Scenario B, M would presumably be obliged to go through the process of instigating an ICC arbitration - which can take some time - in order to establish a forum in which its application may be heard.

Arbitration clause subject to other rules

Would the outcome be different if M and S had agreed in their arbitration clause to adopt the rules of another arbitral institution? The table below summarises how the rules of the major institutions deal with the issue of pre-arbitration interim measures.

The future

The complexity involved in obtaining interim relief - including, of course, the question of enforcement of interim awards - is widely considered to be one of the disadvantages of arbitration in comparison to litigation. Availability of pre-arbitration measures without recourse to the court is currently very limited. In many cases that jurisdiction can only be conferred by consent - which is very unlikely to be forthcoming after the event.

There is clearly an appetite among the arbitration community to address this; and recognition of the need to make available pre-arbitration measures. Hence the amendment of the ICDR rules in spring 2006 to make provision for an emergency arbitrator; the review of interim relief in the UNCITRAL Model Law around the same time; and the current SCC consultation.

It seems doubtful, however, that an emergency arbitrator would be inclined to make a specific disclosure order in our Scenario B. The existing ICDR rules and proposed SCC rules make it clear that the emergency procedure is, as the name suggests, intended to address genuine emergencies. It also bears remembering in this context that parties' disclosure obligations in arbitration proceedings are generally less onerous than under the Civil Procedure Rules, albeit that point does not appear to have been argued in EDO v Ultra.

Even under our Scenario A, an application to an emergency arbitrator would almost certainly have to be on notice, which in many such cases is not appropriate or practical.

Thus, whichever rules are adopted, arbitration is still some way from offering a "one-stop method of adjudication for the determination of all disputes" for parties who - for reasons of confidentiality or otherwise - choose arbitration over litigation as their preferred dispute resolution mechanism. There are certainly positive moves afoot but it remains to be seen whether the concept of "emergency arbitration" will become a standard option in the arbitration process; and to what extent it will be used in the spectrum of pre-action dispute resolution.

Securing a remedy on the way to the forum: hints and tips

At the drafting stage:

1. Consider the arbitration clause in the context of the whole agreement and the likely nature of any disputes which will arise.
2. Give careful consideration to the rules and procedure that will underpin the arbitration of any dispute and whether any "optional" rules should be specifically adopted.
3. Be alive to attempts from other contracting parties to restrict the court's power to make orders in support of arbitration proceedings.

If your agreement is subject to an arbitration clause, and you need to apply for an emergency remedy before arbitration proceedings have been commenced:

1. Review whether an application to court is appropriate. Is there any scope to apply to the administering institution (if any) for an emergency remedy or - in appropriate cases - to seek expedited appointment of the tribunal?
2. Consider carefully the nature of the application you should make and how this should be framed. Is there a risk that the court will find that it falls outside its powers under the Arbitration Act 1996 s.44? In our Scenario B, for example, an application for a prohibitory injunction may be more appropriate and may elicit some or all of the information sought.

Andrew Manning Cox, FCIArb, chartered arbitrator, senior litigation partner, Wragge & Co LLP
Helene Adlard, associate, Wragge & Co LLP

For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785, Rebecca Davies on +44 (0)121 685 3819, Gayle Redding on +44 (0)121 685 2708 or Rebecca Lum on +44 (0)121 260 9973

This published article may contain information of general interest about current legal issues, but does not give legal advice.