By Eugene Weng, Iris Cao
Undoubtedly, interim measures appear to be prominent in the practice of international arbitration. Successful application of interim measures and the possibility of its final execution is, to certain extent, even more crucial than the result of arbitration. The author had the record of applying successfully for interim measures and got them enforced abroad, so as to obtain a wider negotiable margin for clients given the evidential material was unfavorable; and also observed the confusion of having to accept the foreign party’s settlement plan even when the arbitration procedure was extremely flawed, given that the foreign party had successfully applied for the interim measure and was able to execute it within the border of China.
To conclude the author’s own experience, the strategic games should started before the requests for interim measures. At this stage, the importance of mind transformation always prevails written opinions and lengthy court statements citing. The relevant practical experience at the application stage of temporary measures is briefly summarized as follows:
In the procedure of domestic arbitration, interim measures mainly focus on applying to the court for: property preservation, evidence preservation and behavior preservation within a certain range; and such applications will be accepted and enforced by the court with jurisdiction. This form of relief shares resemblances with that of most civil law countries. Speaking from practical experience, applying preservation measures is one of the statutory rights held by the parties. The parties will invest more resources on collecting evidence and then submit them along with the application, in which the court will make the ruling on whether or not to agree to the application. “If you have any clue of property, just apply for the preservation first”, such approach may work in most occasions of domestic litigation and arbitration. However, when this approach grows into a habit, Chinese parties, lawyers and even some arbitrators tend to incorporate the domestic custom directly into the international arbitration procedure, which is marked heavily by common law influences and such collision will result in an unfavorable situation to the party.
As many experts and scholars have already given thorough analysis upon the fundamental theories of international commercial arbitration, I’m not going to elaborate more here. But according to what I have sensed and experienced, the existing international common commercial dispute resolution has remained the heavy influence of the common law system, on its principles and practical procedures of the tribunal. These phenomenons are not hard to explain, although there has been an increase in Chinese parties, I don’t think it can be changed within 10 years.
Speaking from my own experiences, arbitrators with a common law background tend to exclude outsiders from interfering in arbitration procedures agreed upon by the parties, even though they are reluctant to admit it. Some common law arbitrators prefer to render interim measures and expecting the parties to comply and perform such decisions, rather than submitting them to the district court for enforcement. If the aforementioned conclusion appears to be absurd, then it might appear to be more familiar when it comes to the practical performance. For example, tribunals always reject the application for them to issue an interim measure to freeze the property, or require the P.R.C party to provide an unreasonably high amount of guarantee; when it comes to the application of interim measures against the P.R.C party, the tribunals’ decisions often lacks some enforceability in P.R.C.
In McCreary Tire & Rubber Co v. CEAT, the US Third Circuit was of the opinion that, in order to to follow Article 2, paragraph 3 of the New York Convention, as it requires the court to order the parties to submit disputes agreed upon by the arbitration agreement to the tribunal. So as to ensure the full compliance of the New York Convention, the interim measures of preservation should be issued only by the tribunal, and in contrast, the interim measures of preservation issued by the court are the departure from, and evasion of the arbitration agreement. It might seem to be illusory nowadays, but by then such a view was endorsed by the United States Court of First Circuit, Fourth Circuit and Eighth Circuit. Fortunately, this view was not recognized by academics and courts, and was eventually overturned by laws of the New York State. But we must be aware that there exists fundamental distinctions between Chinese people’s understanding of interim measures, and that of the Anglo-Saxon’s common law approach.
To sum up, following points should be considered when applying interim measures in practice:
1. In the most legal realms, especially that for the common law system, one applying for interim measures is eligible to submit the application to tribunals, or through application by the court at the place of arbitration or the court where the property is located. Whether we should apply for interim measures to courts or to tribunals depends on the particular scenario of the case, in which we have a whole set of standards based on experiences, which will be explained in another article;
2. In many jurisdictions, parties are required to apply interim reliefs to the court instead of to arbitral for interim measures. (P.R.C, Sweden, Austria, Spain, Italy). With regard to applying for enforcement of those measures to tribunals, according to Mr. Gary Born, who’s been critical to P.R.C’s arbitration environment recently, the provisions still promulgates “the issuance of coercive” that prohibits arbitrators from rendering interim relief. This conclusion seemed to be backed by the article 68 of P.R.C Arbitration Law, which indicates if a party to a foreign-related arbitration applies for evidence preservation, the arbitration commission shall submit the party’s application to the intermediate people’s court where the evidence is located. (<International Arbitration Law and Practice>, P272) But it shall be noted that there do have some distinctions of “whether the tribunal has the power to render decisions on interim measures” and “whether the interim measures can be enforced”. Mr. Born mentioned that for interim measures to be enforced by the competent courts in Mainland China, those measures should firstly be applied to courts with jurisdiction. However, parties should be aware that although aforementioned cases do not appear frequently, some tribunals have never considered that the parties would go to the court to apply for enforcement when rendering interim measures, and they hope that the respondent will be conscious of the provisions. For a party that fails to follow the interim measures, the tribunal would give punishment within the scope of its discretion. From the perspective of PRC law, this approach might appear to be unreliable, but I have repeatedly proposed the revision of the Arbitration Law and the revision of the arbitration rules that tribunals should be granted certain disciplinary power within its discretion. Moreover, the extent to which the parties comply with the order of the tribunals shall be taken into consideration in the discretion of the tribunals, and the party that does not comply with the order and decision of the tribunal shall be given unfavorable discretionary consequences. These mechanisms will greatly reduce the arbitration costs of the parties and increase the authority of the tribunals at the same time.
Such thinking is based on Section 41 (7) of the English Arbitration Act of 1996, in which it stipulates that it a party fails to comply with any other kind of peremptory order, the tribunal may do any of the following--
a) direct that the party in default shall not be entitled to rely upon any allegation or material which was the subject matter of the order;
b) draw such adverse inferences from the act of non-compliance as the circumstances justify;
c) proceed to an award on the basis of such materials as have been properly submitted to it;
d) order of punitive damage for waste of cost incurred in consequences of the non-compliance.
Actually, prior to the promulgation of the English Arbitration Act of 1996, such measures had already been adopted by London arbitrators. (Philip Yeung <Arbitration Law>, P839)
3. In the past practice, only when the tribunal “considers it to be necessary”, the tribunal will take interim measure on the “subject of the dispute”. In 2006, the “UNCITRAL Model Law on International Commercial Arbitration” (the “Model Law”) amended Article 17 to stipulate that unless the parties have other agreement, tribunals be allowed to adopt interim measure once a party applied. Therefore, the tribunal believes that this criterion of necessity has gradually faded from the mainstream view. Now the parties must persuade the tribunal through evidence and statements. If the tribunal does not issue an interim measure in time, it will cause serious damage to the applicant; or to persuade the tribunal that if they solve a certain issue after the arbitration award, it will become meaningless as well. Similarly, for those respondents of interim measures, they must prove that the application for such measures is not urgent during the hearing of the application, and it won’t cause serious damage to the applicant if such measures are not issued.
4. “Irreparable” or “serious” damages
The tribunal always requires for the applicant to prove the substantial and unamendable damages it will cause if the tribunal does not pass or agree to adopt the interim measures. (Article 26 of the Arbitration Rules of the United Nations Commission on International Trade Law). In practice, the description of irreparable or unamendable damage is difficult to prove. Therefore, most tribunals still adopt “substantial” or “serious” standards.
5. The confusion of whether to review the substantive issues
The common perspective is that the tribunal will not conduct preliminary hearings on substantive issues when making interim measures. However, the reasonable probability of the winning case or the prima facie good case is still a factor that some arbitrators will subconsciously consider, especially arbitrators from the Middle East, Southern Europe and Asia. Therefore, the selection and background investigation of the tribunal are also related to the review criteria for making interim measures. Therefore, in practice, instead of raising an unfounded jurisdictional objection or avoiding the arbitrator in order to achieve the purpose of delaying time, which may not only annoy the tribunal but also increase the cost for arbitration; why not try to raise the lacking of the possibility of winning in substantial issues of the case to counter the application and execution of interim measures? It feels like a very delicate approach.
Interim measure is the prominent part to link up the whole international arbitration procedure, and is a mechanism to protect the practical significance of arbitration awards. Therefore, different from the court presentations, although the strategic battles in the application of interim measures are not so “exciting”, they may have a determinant impact on the final outcome of the case. Therefore, applications for interim measures have always been a battlefield for foreign parties and lawyers to focus on, but they are easily ignored by domestic parties. “...the complicity and delicacy of international arbitration...is to face fierce rivals, they treat arbitration as a business, balance risks and opportunities, calculate costs and returns.” (Philip Yeung, <Arbitration Law>, Chapter 10, P789)
By Eugene Weng, Iris Cao
Undoubtedly, interim measures appear to be prominent in the practice of international arbitration. Successful application of interim measures and the possibility of its final execution is, to certain extent, even more crucial than the result of arbitration. The author had the record of applying successfully for interim measures and got them enforced abroad, so as to obtain a wider negotiable margin for clients given the evidential material was unfavorable; and also observed the confusion of having to accept the foreign party’s settlement plan even when the arbitration procedure was extremely flawed, given that the foreign party had successfully applied for the interim measure and was able to execute it within the border of China.
To conclude the author’s own experience, the strategic games should started before the requests for interim measures. At this stage, the importance of mind transformation always prevails written opinions and lengthy court statements citing. The relevant practical experience at the application stage of temporary measures is briefly summarized as follows:
In the procedure of domestic arbitration, interim measures mainly focus on applying to the court for: property preservation, evidence preservation and behavior preservation within a certain range; and such applications will be accepted and enforced by the court with jurisdiction. This form of relief shares resemblances with that of most civil law countries. Speaking from practical experience, applying preservation measures is one of the statutory rights held by the parties. The parties will invest more resources on collecting evidence and then submit them along with the application, in which the court will make the ruling on whether or not to agree to the application. “If you have any clue of property, just apply for the preservation first”, such approach may work in most occasions of domestic litigation and arbitration. However, when this approach grows into a habit, Chinese parties, lawyers and even some arbitrators tend to incorporate the domestic custom directly into the international arbitration procedure, which is marked heavily by common law influences and such collision will result in an unfavorable situation to the party.
As many experts and scholars have already given thorough analysis upon the fundamental theories of international commercial arbitration, I’m not going to elaborate more here. But according to what I have sensed and experienced, the existing international common commercial dispute resolution has remained the heavy influence of the common law system, on its principles and practical procedures of the tribunal. These phenomenons are not hard to explain, although there has been an increase in Chinese parties, I don’t think it can be changed within 10 years.
Speaking from my own experiences, arbitrators with a common law background tend to exclude outsiders from interfering in arbitration procedures agreed upon by the parties, even though they are reluctant to admit it. Some common law arbitrators prefer to render interim measures and expecting the parties to comply and perform such decisions, rather than submitting them to the district court for enforcement. If the aforementioned conclusion appears to be absurd, then it might appear to be more familiar when it comes to the practical performance. For example, tribunals always reject the application for them to issue an interim measure to freeze the property, or require the P.R.C party to provide an unreasonably high amount of guarantee; when it comes to the application of interim measures against the P.R.C party, the tribunals’ decisions often lacks some enforceability in P.R.C.
In McCreary Tire & Rubber Co v. CEAT, the US Third Circuit was of the opinion that, in order to to follow Article 2, paragraph 3 of the New York Convention, as it requires the court to order the parties to submit disputes agreed upon by the arbitration agreement to the tribunal. So as to ensure the full compliance of the New York Convention, the interim measures of preservation should be issued only by the tribunal, and in contrast, the interim measures of preservation issued by the court are the departure from, and evasion of the arbitration agreement. It might seem to be illusory nowadays, but by then such a view was endorsed by the United States Court of First Circuit, Fourth Circuit and Eighth Circuit. Fortunately, this view was not recognized by academics and courts, and was eventually overturned by laws of the New York State. But we must be aware that there exists fundamental distinctions between Chinese people’s understanding of interim measures, and that of the Anglo-Saxon’s common law approach.
To sum up, following points should be considered when applying interim measures in practice:
1. In the most legal realms, especially that for the common law system, one applying for interim measures is eligible to submit the application to tribunals, or through application by the court at the place of arbitration or the court where the property is located. Whether we should apply for interim measures to courts or to tribunals depends on the particular scenario of the case, in which we have a whole set of standards based on experiences, which will be explained in another article;
2. In many jurisdictions, parties are required to apply interim reliefs to the court instead of to arbitral for interim measures. (P.R.C, Sweden, Austria, Spain, Italy). With regard to applying for enforcement of those measures to tribunals, according to Mr. Gary Born, who’s been critical to P.R.C’s arbitration environment recently, the provisions still promulgates “the issuance of coercive” that prohibits arbitrators from rendering interim relief. This conclusion seemed to be backed by the article 68 of P.R.C Arbitration Law, which indicates if a party to a foreign-related arbitration applies for evidence preservation, the arbitration commission shall submit the party’s application to the intermediate people’s court where the evidence is located. (<International Arbitration Law and Practice>, P272) But it shall be noted that there do have some distinctions of “whether the tribunal has the power to render decisions on interim measures” and “whether the interim measures can be enforced”. Mr. Born mentioned that for interim measures to be enforced by the competent courts in Mainland China, those measures should firstly be applied to courts with jurisdiction. However, parties should be aware that although aforementioned cases do not appear frequently, some tribunals have never considered that the parties would go to the court to apply for enforcement when rendering interim measures, and they hope that the respondent will be conscious of the provisions. For a party that fails to follow the interim measures, the tribunal would give punishment within the scope of its discretion. From the perspective of PRC law, this approach might appear to be unreliable, but I have repeatedly proposed the revision of the Arbitration Law and the revision of the arbitration rules that tribunals should be granted certain disciplinary power within its discretion. Moreover, the extent to which the parties comply with the order of the tribunals shall be taken into consideration in the discretion of the tribunals, and the party that does not comply with the order and decision of the tribunal shall be given unfavorable discretionary consequences. These mechanisms will greatly reduce the arbitration costs of the parties and increase the authority of the tribunals at the same time.
Such thinking is based on Section 41 (7) of the English Arbitration Act of 1996, in which it stipulates that it a party fails to comply with any other kind of peremptory order, the tribunal may do any of the following--
a) direct that the party in default shall not be entitled to rely upon any allegation or material which was the subject matter of the order;
b) draw such adverse inferences from the act of non-compliance as the circumstances justify;
c) proceed to an award on the basis of such materials as have been properly submitted to it;
d) order of punitive damage for waste of cost incurred in consequences of the non-compliance.
Actually, prior to the promulgation of the English Arbitration Act of 1996, such measures had already been adopted by London arbitrators. (Philip Yeung <Arbitration Law>, P839)
3. In the past practice, only when the tribunal “considers it to be necessary”, the tribunal will take interim measure on the “subject of the dispute”. In 2006, the “UNCITRAL Model Law on International Commercial Arbitration” (the “Model Law”) amended Article 17 to stipulate that unless the parties have other agreement, tribunals be allowed to adopt interim measure once a party applied. Therefore, the tribunal believes that this criterion of necessity has gradually faded from the mainstream view. Now the parties must persuade the tribunal through evidence and statements. If the tribunal does not issue an interim measure in time, it will cause serious damage to the applicant; or to persuade the tribunal that if they solve a certain issue after the arbitration award, it will become meaningless as well. Similarly, for those respondents of interim measures, they must prove that the application for such measures is not urgent during the hearing of the application, and it won’t cause serious damage to the applicant if such measures are not issued.
4. “Irreparable” or “serious” damages
The tribunal always requires for the applicant to prove the substantial and unamendable damages it will cause if the tribunal does not pass or agree to adopt the interim measures. (Article 26 of the Arbitration Rules of the United Nations Commission on International Trade Law). In practice, the description of irreparable or unamendable damage is difficult to prove. Therefore, most tribunals still adopt “substantial” or “serious” standards.
5. The confusion of whether to review the substantive issues
The common perspective is that the tribunal will not conduct preliminary hearings on substantive issues when making interim measures. However, the reasonable probability of the winning case or the prima facie good case is still a factor that some arbitrators will subconsciously consider, especially arbitrators from the Middle East, Southern Europe and Asia. Therefore, the selection and background investigation of the tribunal are also related to the review criteria for making interim measures. Therefore, in practice, instead of raising an unfounded jurisdictional objection or avoiding the arbitrator in order to achieve the purpose of delaying time, which may not only annoy the tribunal but also increase the cost for arbitration; why not try to raise the lacking of the possibility of winning in substantial issues of the case to counter the application and execution of interim measures? It feels like a very delicate approach.
Interim measure is the prominent part to link up the whole international arbitration procedure, and is a mechanism to protect the practical significance of arbitration awards. Therefore, different from the court presentations, although the strategic battles in the application of interim measures are not so “exciting”, they may have a determinant impact on the final outcome of the case. Therefore, applications for interim measures have always been a battlefield for foreign parties and lawyers to focus on, but they are easily ignored by domestic parties. “...the complicity and delicacy of international arbitration...is to face fierce rivals, they treat arbitration as a business, balance risks and opportunities, calculate costs and returns.” (Philip Yeung, <Arbitration Law>, Chapter 10, P789)
