International Commercial Arbitration Lecture 7: National Courts in Arbitration by Feruza Bobokulova

National Courts in Arbitration The relationship between national courts and ATs is something between forced cohabitation and true partnership Despite ‘party autonomy’, arbitration is wholly dependent on the underlying support of the courts, who alone have to power to rescue the system when one party seeks to sabotage it

The state also determines other limitations upon the arbitral process National Courts in Arbitration The state prescribes the boundaries of arbitration and enforces these boundaries through its courts The state also determines other limitations upon the arbitral process National courts could exist without arbitration, but arbitration could not exist without courts

Arbitration Lately ICA has achieved a considerable degree of independence from national courts For example, the arbitration clause in an international commercial contract is generally recognized as being an independent agreement, which survives any termination of the contract in which it is contained The parties themselves are generally free to determine how their disputes are to be resolved The arbitrators are free to decide on their own jurisdiction, subject only to a final decision by the relevant court

Arbitration Lately The parties are free to choose which system of law will govern the dispute between them Judicial control of errors of law in ICA has been virtually abandoned, leaving courts the limited role of policing procedural due process, such as the obligation of the tribunal to give each part a fair hearing Nevertheless, the process remains subject to the laws of the many different countries in which arbitrations take place and in which awards fall to be enforced This in turn means that the involvement of national courts in the IA process remains essential to its effectiveness

Limitations on Independence The Model Law – ‘In matters governed by this Law, no court shall intervene except where so provided in this Law’ 10 articles out of 36 articles contained in the Model Law recognize a possible role of the competent court Art 11 – help of the competent court in the constitution of the AT Art 13 – challenge of an arbitrator Art 16 – a party may appeal to the competent court against the decision of the AT on the issue of jurisdiction Assistance of the court in taking evidence, challenge raised to the award, and others

‘Ideally, the handling of arbitral disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of the dispute, the baton is in the grasp of the court; for at that stage there is no other organization, which could take steps to prevent the AA from being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fulfil, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award’

The establishment of the AT Challenges to jurisdiction Court Intervention at the Beginning It is possible to identify at least three situations in which the intervention of the court may be necessary at the beginning of the arbitral process. These are: The enforcement of AA The establishment of the AT Challenges to jurisdiction

Enforcing AA A party to an AA might decide to issue proceedings in a court of law; rather than take the dispute to arbitration If the respondent is content to agree to this, the court action will proceed. This is not likely to happen, however Having entered into an AA, the respondent usually wishes to insist on its right to have the dispute decided by arbitrators rather than by the national court Most courts are prepared to enforce the AA by refusing to accept any proceedings in court and by referring the parties to arbitration This is an obligation imposed by Art II of the NY Conventions on the courts of signatory states

Establishing the AT If the parties have failed to make adequate provision for the constitution of an AT and if there are no applicable institutional or other rules, the intervention of a court is usually required In the absence of any such rules, it is also required if there is any challenge to the independence or impartiality of an arbitrator

The Challenges to Jurisdiction If any issues is raised as to the jurisdiction of the AT, it will generally be made at the beginning of the arbitration If this is done successfully, the arbitration is stopped dead Any challenge to the jurisdiction of an AT may be dealt with initially by the AT itself The final decision on jurisdiction rests with the relevant national court This is either the court at the seat of the arbitration, or the court of the state or states in which recognition and enforcement of the award is sought

Court during the Proceedings Once an AT has been constituted, most arbitrations are conducted without any need to refer to a national court, even if one of the parties fails or refuses to take part in the proceedings There may be times, however, when the involvement of a national court is necessary in order to ensure the proper conduct of the arbitration It may become necessary, f.e., to ask the competent court to assist in taking evidence or to make an order for the preservation of property, which is the subject of the dispute or to take some other interim measure of protection

Interim Measures: Powers of the AT During the course of an arbitration, it may be necessary for the At or a national court to issue orders intended to preserve evidence, to protect assets or in some other way to maintain the status quo pending the outcome of the arbitration proceedings themselves They are intended in principle to operate as holding orders pending the outcome of the arbitral proceedings In many cases where interim measures of protection are required, the AT itself has the power to issue them The ICC Rules – ‘the AT may, at the request of a party, order any interim or conservatory measure it deems appropriate’

Interim Measures: Powers of the AT Model Law – ‘unless otherwise agreed by the parties, the AT may, at the request of a party, order any party to take such interim measures of protection as the AT may consider necessary in respect of the subject matter of the dispute. The AT may require any party to provide appropriate security in connection with such measures’

Interim Measures: Powers of the AT If the AT itself has the power to issue interim measures, might the help or intervention of a national court be necessary? There are five situations where the tribunal’s powers may be insufficient and thus favor recourse to a national court No powers Inability to act prior to the formation of the AT An order can only affect the parties to the arbitration Enforcement difficulties No ex parte application

Interim Measures: Powers of the AT No powers AT may not have the necessary powers The Greek Code of Civil Procedure – ‘the arbitrator may not order, amend or revoke interim measures of protection’ The Italian Code of Civil Procedure – ‘the arbitrator may not grant attachment or other interim measures of protection’

Interim Measures: Powers of the AT Inability to act prior to the formation of AT The AT cannot issues interim measures until the tribunal itself has been established It takes time to establish an AT and during that time, vital evidence or assets may disappear National courts may be expected to deal with such urgent matters

Interim Measures: Powers of the AT An order can only affect the parties to the arbitration The third factor, which is again important in understanding why the assistance of a national court may be necessary, is that the powers of an AT are generally limited to the parties involved in the arbitration itself A third party order would not be enforceable

Interim Measures: Powers of the AT Enforcement difficulties The interim measure ordered by an AT do not by definition finally resolve any point in dispute. Such an order is therefore unlikely to satisfy the requirements of finality imposed by the NY Convention Consequently, where there may be a need for international enforcement of the interim measure, parties may consider applying for such measures before the courts of the place of execution

Interim Measures: Powers of the AT No ex parte application A party may need to make an application ex parte, for example, to freeze a bank account of the other party to prevent the transfer of funds abroad The laws of most arbitration seats and rules of institutions do not currently expressly envisage such a power for arbitrators

Interim Measures: Powers of the Competent Court It is important that the competent court should have the power to issue interim measures in support of the arbitral process In situations of extreme urgency, where third parties need to be involved or where there is strong possibility that a party will not voluntarily execute the tribunal’s order, there may be little option but to identify the appropriate state court and make the application there

Interim Measures: Powers of the Competent Court Most arbitration rules are explicit in confirming that the application for interim relief from a court is not incompatible with AA ICC Rules – ‘the application of a party to a judicial authority for such (interim or conservatory) measures or for the implementation of any such measures ordered by the AT shall not be deemed to be an infringement or a waiver of the AA A similar rule is contained in the Model Law as wel

Interim Measures: Powers of the Competent Court Whether to seek interim relief from the relevant court or from the AT, much depends on the relevant law and the nature of the relief sought The relevant law may make it clear that any application should be made first to the AT and only then to the court of the seat of arbitration This mechanism has been provided for in the Swiss law

Interim Measures: Powers of the Competent Court There are logistical problems inherent in applying to a court for interim measures Often the merits of the dispute will be under a foreign law, which the local court will be ill-prepared to consider at an interim stage The language of the dispute and the contract may be different The chosen court is likely to be at the place of execution of the order to avoid concerns as to the enforceability. This may give rise to a less objective analysis of the request if the measures sought are either against a state entity or a local entity

Reading Materials Redfern, A., Hunter, M., Blackaby, N., and Partasides, C., 2004. Law and Practice of International Commercial Arbitration, 4th edn. London: Sweet and Maxwell. Tweeddale, A. and Tweeddale, K., 2005. Arbitration of Commercial Disputes: International English Law and Practice. Oxford: Oxford University Press.

Thank You for your attention!