Guest blog: Emergency arbitration gaining ground in Latin America
The 15th edition of the International Chamber of Commerce’s (ICC) Miami Conference on International Arbitration is set to take place from 5-7 November 2017. With just under a month to go until our biggest arbitration event, we are spotlighting some of the key issues affecting Latin America. Here to provide his perspective on emergency arbitrator provisions is former Deputy Secretary General of the ICC International Court of Arbitration and current partner at Squire Patton Boggs, Jose Ricardo Feris.
Emergency arbitrator provisions in arbitration rules have quickly gone from an innovative mechanism to a regular feature of arbitration procedure in a very short span of time.
The idea of providing access to a pre-arbitral relief mechanism started in 1990 with ICC’s adoption of the Pre-Arbitral Referee Rules. Such rules have not been entirely successful—15 cases in 27 years. This is mainly because firstly, they do not form part of the ICC Arbitration Rules, which means the parties need to expressly opt-into them in their agreement, and secondly, the legal nature of the referee is uncertain in various jurisdictions, which means the decision of the referee may be unenforceable in some jurisdictions.
This experience gave birth to what is known today as the Emergency Arbitrator, the International Centre for Dispute Resolution (ICDR) being the first arbitration institution in 2006 to propose this feature as part of its arbitration rules. Most major arbitration institutions have now followed suit and propose rules that are similar in nature but with slight differences between them.
Given the popularity of the emergency arbitrator provisions in institutional arbitration rules, they have also started to appear in arbitration legislation. The Bolivian arbitration act, as amended in 2015, has become the first in Latin America and the third worldwide after Hong Kong and Singapore, to include emergency arbitrator provisions. The Hong Kong and Singapore legislative texts limit themselves to the definition of emergency arbitrator and enforcement of emergency relief. The Bolivian arbitration act goes further and establishes a full-fledged emergency arbitration procedure. The most relevant features of such procedure include:
- the requirement of an express agreement of the parties;
- the filing of the request for emergency arbitrator is made before an arbitration and conciliation centre or an arbitration centre, not available in ad-hoc arbitration;
- the respective arbitration institution appoints the emergency arbitrator within ten days of the filing of the request for emergency arbitrator;
- the requirement that the emergency arbitrator to be appointed be a “lawyer”;
- the time limit for the emergency arbitrator to render his or her “resolution,” (as opposed to “award”), within five days of the receipt of the file;
- the obligation to the parties to comply with any decision of the emergency arbitrator that would not require judicial assistance within three days after its notification by the respective arbitration institution; and
- the mechanism for the respective arbitration institution to notify any decision of the emergency arbitrator that requires judicial assistance to the competent judge, who will order compliance without further processing within three days.
Emergency arbitration in practice
In addition to this innovative legislative development, emergency arbitrator provisions are being widely used in Latin America, according to ICC statistics and experience of the past five years. ICC introduced emergency arbitrator provisions in the 2012 revision of the ICC Arbitration Rules and they apply only to arbitration agreements concluded after 1 January 2012.
As of August 2017, 59 requests for emergency arbitrator were filed with the ICC Secretariat. The number of requests per year has been increasing steadily with 25 requests filed in 2016 alone. The nature of the underlying disputes is very diverse, relating to different types of industries and transactions, including oil and gas, telecommunications, infrastructure projects, international sales of goods, real estate operations, mergers and acquisitions transactions, among others. In addition to disputes between private entities, six cases reported involved States or State entities.
With respect to Latin America, 40% of the parties requesting emergency measures come from the region. In 2016, Latin American parties represented 30% of the total number of parties involved in emergency arbitrator proceedings. Furthermore, out of the 57 emergency arbitrators appointed, nine have a Latin American nationality and four are Spanish. These numbers make Latin America one of the most represented regions in terms of emergency arbitrator use worldwide.
Procedural and substantive issues of interest
A number of noteworthy procedural and substantive issues have appeared in cases involving Latin American parties, which reflect the evolving practice in this field:
- A significant number of cases involved the risk of execution of bank guarantees or performance bonds in the context of infrastructure projects. In most of these cases the emergency arbitrators have looked at the law governing the substance of the dispute, have proceeded to make a prima facie analysis of the underlying dispute, have looked at the nature of the bank guarantees (e.g., whether the guarantees were on first demand, which were the contractual conditions allowing the parties to call the guarantees), have applied standards that are found in international arbitration practice (such as, for instance, a balance of inconveniences) and have analysed whether the execution of the bank guarantee is being made in an abusive manner. In all cases where the parties had agreed on guarantees “on first demand,” the emergency arbitrators have refused to order the responding party from calling the bank guarantee.
- In several of these “bank guarantee cases” among others, the applicants sought from the emergency arbitrator, upon transfer of the file, a preliminary order to maintain status quo until a final decision was taken on the application. In all cases, emergency arbitrators have determined that they have the power to grant such requests and have proceeded to do so. In one case, the emergency arbitrator also notified such decision to the financial institution concerned.
- In at least two cases, the measures sought were injunctions in the context of shareholders disputes. In both, the measures sought included the fulfillment of shareholders’ obligations in the context of deadlock situations that would endanger the operations of the company. Such type of measures were granted in each of the cases after the emergency arbitrators, having established the level of urgency required by the ICC Rules, made a prima facie determination of the merits of the dispute and analysing the law governing the shareholders agreement.
- While emergency arbitrator orders are already enforceable under some Latin American arbitration regimes, enforceability remains an issue in others. In at least one of these cases, an applicant that had obtained an emergency measure was faced with the need to reapply to state courts for preliminary measures upon failure by the responding party to comply voluntarily with the order. This said, in various proceedings, responding parties have voluntarily complied with the orders and/or the order has been a powerful incentive for parties to settle the dispute. Therefore, enforceability should not be overestimated.
- Finally, parties have also found innovative contractual ways to recur to an emergency arbitrator. In one case the parties designed a dispute resolution mechanism in the context of a consortium agreement whereby any decision to expel a consortium member would only become effective after a decision of the emergency arbitrator.
Dawn of a new age
The experience demonstrates that what was an unknown mechanism in Latin America five years ago has now become common ground in the region’s arbitration practice. This is an additional sign of the high level of sophistication achieved already and the promising future that lies ahead for the practice of arbitration in Latin America.
Learn more about the 15th ICC Miami Conference on International Arbitration.