52. U.S. position paper to UNCITRAL re ex parte interim measures in arbitration (September 2004)


Summary of Position of the US Delegation at the Meeting of the UNCITRAL Working Group, New York, February 23 – 27, 2004

By James Castello

The agenda for this meeting notes that we will again consider the general question whether arbitrators should be authorized (in a draft revision of Article 17 of the Model Law) to issue interim measures on an ex parte basis. This will be the Working Group's fifth such discussion over the last four years. (This number does not include sessions, such as our last one, in which we discussed the drafting of such ex parte provisions but deferred renewed debate on whether to retain any provision at all.)

Our delegation believes that we should bear in mind how we have reached the current phase of this debate and that we must not lose track of the insights that have already been expressed during the past four years. At each of our prior general discussions on this subject, a majority of this Group has favored continued inclusion of a provision authorizing ex parte measures provided these are limited to narrow circumstances and subject to several specific safeguards. To be sure, there have been those who have disagreed, but that has been the prevailing view. Let us just briefly revisit these prior discussions.

The issue of tribunal ex parte measures was first placed before this Working Group by the UNCITRAL Secretariat at our session in the Fall of 2000. In presenting this issue, the Secretariat explained why there may be a need for ex parte authority:

"Such measures may be appropriate where an element of surprise is necessary, i.e., where it is possible that the affected party may try to preempt the measure by taking action to make the measure moot or unenforceable. For example, when an interim order is requested to prevent a party from removing assets from the jurisdiction, the party might remove the assets out of the jurisdiction between the time it learns of the request and the time the measure is issued."

In this quotation, the Secretariat gave perhaps the most prominent example of an interim measure that could require an element of surprise – namely, preservation of assets to ensure effectiveness of a final award. Other examples, however, have since been discussed, such as the need to preserve disputed goods before they are sold or moved beyond the tribunal's jurisdiction or the need to preserve crucial evidence. The Secretariat suggested that, "the Working Group may wish to consider that the model legislative provisions [regarding court enforcement of interim measures] should not interfere with the conditions under which an arbitral tribunal should be able to issue ex parte interim measures."

This Working Group did consider that possibility at its Fall 2000 session and generally thought it was a good idea. As the Report from that session states, "the need to preserve the element of surprise for ensuring the effectiveness of some interim measures was generally recognized. It was suggested that objections based on the equal treatment of parties could possibly be addressed by providing that the validity of ex parte measures be limited to a fixed time period..." (emphasis added). The Secretariat was then requested to "prepare a revised provision which would address the various concerns expressed." The primary safeguard introduced in that first revision was indeed a provision limiting the duration of ex parte interim measures to 30 days. Once again, at our Spring 2001 session, a majority of Working Group delegates believed the proposal should be retained in the draft. The Report from that session records that "broad support was expressed as a matter of principle." Delegates recognized that "the aim of the model legislative provisions should be to allow as much parity as possible between the powers of the arbitral tribunal and those of the court."

Following our session in the Fall of 2001, which was devoted solely to conciliation, the Working Group returned to this topic in the Spring of 2002 and again endorsed the idea of authorizing limited ex parte arbitral measures. The Report from that session states that "the prevailing view was that introducing a provision dealing with such ex parte interim measures into the model law would constitute a useful addition to the text and meet the needs of arbitration practice" (emphasis added). In the Fall of 2002, the Working Group again considered certain objections to the proposal but remained confident that each of these concerns could be addressed. As the Report from that session states: "There was wide agreement in the Working Group that by strengthening and increasing the safeguards, a provision on ex parte interim measures of protection might be more acceptable."

What are the safeguards that have now been developed by the Working Group and incorporated in the draft revision of Model Law Article 17? There are at least five of them:

1. Time Limit:
The Working Group has now further reduced the maximum duration of any ex parte measure from 30 to 20 days. Quite apart from this maximum duration, the tribunal is also required to give notice of the measure as soon as practical to the affected party and, following notice, to give that party an "opportunity to present its case." Taken together, these provisions obviously serve to limit substantially any possibility of abuse of ex parte measures.
2. The Showing of Need:
To obtain even an inter partes interim measure, a party must satisfy the court (1) that, if the measure is not granted, this will result in harm "that cannot adequately be compensated by damages," (2) that this harm "substantially outweighs" any harm that will be caused to the party against whom the measure is directed, and (3) that there is a reasonable possibility that the requesting party will ultimately prevail on the merits. To obtain an ex parte interim measure, the moving party must further show (4) that there is an "urgent need" for the measure and (5) that it is "necessary to proceed ex parte to ensure that the purposes of the measure are not frustrated before it is granted" (emphasis added).
3. Security and Liability:
The requesting party is made liable to the party against whom a measure is directed "for any costs and damages caused by the ex parte measure" if it is later determined that the measure should not have been granted. The requesting party must also post security in whatever form the tribunal directs, to cover such potential costs and damages.
4. Opt-out Provision:
Parties are expressly permitted to agree to exclude the possibility of ex parte interim measures from their arbitration.
5. Full Disclosure by Requesting Party:
Yet a further provision requires a party requesting ex parte measures to disclose to the tribunal "all circumstances that the tribunal is likely to find relevant and material to its determination," including, of course, those circumstances that may not favor the interim measure.

These are very substantial safeguards, which will undoubtedly limit the incidence of ex parte relief to the most urgent and serious cases and go very far towards eliminating any possible abuse in those cases where a tribunal does grant an ex parte measure.

Notwithstanding the incorporation of these safeguards, there remain objections from some delegates and observers in this Group to the very concept of giving arbitrators ex parte authority. We will not take the Working Group's time to review all of these objections. But, once again, we believe it is important to recall the essential debate that has already occurred over the last four years. That debate has demonstrated, in our view, that objections against ex parte authority do not withstand close scrutiny. We briefly summarize, therefore, the discussion that has already occurred with respect to the five principle objections to this authority.

1. First, it has been argued that parties can often seek ex parte relief from courts and therefore it is unnecessary to confer this authority on arbitral tribunals. With all due respect, we find this a particularly anomalous objection to hear from this Working Group. The fundamental premise of the UNCITRAL Model Law and of the 1958 New York Convention is that parties have chosen to resolve their disputes by arbitration and that this choice ought to be supported in every way possible. Here again, we would recall the important principle embraced by the Working Group in its Spring 2001 session and recorded in the Report from that session: "The aim of the model legislative provisions should be to allow as much parity as possible between the powers of the arbitral tribunal and those of a court" (emphasis added). Such parity responds not simply to parties' general desire to avoid national courts (which they express when they sign an arbitration agreement) but also to parties' specific reasons for preferring to seek interim relief from arbitrators. These reasons can include the following:

a) The moving party may not yet have retained counsel qualified to practice in the relevant national courts and the same urgency that prompts the request for the ex parte relief may also prevent timely retention of such counsel.

b) The tribunal may already be acquainted with the facts of the case and thus can evaluate an urgent request for interim relief more efficiently than a court confronting the dispute for the first time.

c) The moving party may not speak the language of the relevant courts and thus can more readily put on a substantive case in favor of the interim relief before the tribunal.

d) There may be legal barriers to seeking the interim measure in the courts of the relevant jurisdiction where the interim measure should have effect. These legal barriers are illustrated by the so-called McCreary doctrine that is followed by some American courts and which holds that an arbitration agreement preempts a court's jurisdiction even to grant interim relief.

e) The moving party may wish to preserve confidentiality surrounding a commercial dispute by confining the dispute to an arbitral tribunal.

f) The moving party may have more confidence in the speed, expertise and especially the impartiality of the tribunal than in the relevant national courts – indeed, in some cases, the moving party may reasonably fear the effects of corruption in those courts.

This is not an exhaustive list of the reasons why parties may prefer to seek interim relief from an arbitral tribunal. But this list demonstrates that there can be powerful reasons for that preference. And therefore, in this delegation's view, it would be inappropriate for UNCITRAL to say to these parties, "notwithstanding all of your legitimate reasons for preferring the arbitral forum, we will require you to go to court for this relief."

2. A second objection that has been raised and answered is the argument that allowing arbitrators to issue ex parte measures somehow violates basic principles of due process. The fundamental flaw in this argument is that due process is an essential principle in almost every legal system, yet the courts in most of those systems have themselves developed a practice of granting ex parte relief in certain circumstances. Courts have viewed their ex parte practice as fully consistent with due process for two fundamental reasons. The first is fairness. It is recognized that in certain circumstances fairness requires that certain evidence be preserved, or that certain goods be kept within the court's jurisdiction, or that certain assets necessary to give effect to a final judgment be maintained, and that these goals can sometimes only be achieved effectively if done on an urgent ex parte basis. The second reason for courts' belief that an ex parte procedure comports with due process is that such a procedure is confined within a structure of substantial safeguards that are, in fact, very similar to the safeguards that this Working Group has already written into the draft of revised Model Law Article 17.

3. A third argument against arbitrators' exercising ex parte authority is that this may lead them to prejudge the merits of the dispute. This, of course, is an objection that can be – and has been – raised with respect to all interim measures, not simply those that may be issued ex parte. The Working Group has responded to that concern by softening some of the conditions for interim measures precisely to forestall the risk of prejudgment. For example, the present draft of revised Article 17 provides that the tribunal need only be satisfied that "there is a reasonable possibility that the requesting party will succeed on the merits" before issuing any interim measure. We think, therefore, that the Working Group has reduced as far as possible the danger that a tribunal that issues an interim measure would somehow bind itself to a prejudgment of the merits. Accordingly, those who invoke this argument against ex parte measures must really be objecting to something slightly different, namely, the risk that a party may abuse the ex parte proceedings by presenting a false impression of the dispute. We understand this concern, but we think the likelihood that a party may misrepresent the facts of a dispute in order to obtain an ex parte measure is actually greater if we force parties to seek that measure from courts rather than from tribunals. This is true for at least three reasons. First, to the extent that any part of the case has already been presented to the arbitral tribunal at the time that ex parte relief is requested, the tribunal is likely to have a better understanding of the background to the request and should therefore be less likely to be misled by a one-sided presentation of the request. Secondly, if a party abuses the ex parte process by providing inaccurate information to a court and if the court subsequently learns of the misrepresentation, the worst that could happen to this party is that its interim measure will be rescinded. By contrast, if the requesting party similarly abuses the ex parte process before an arbitral tribunal and the tribunal subsequently learns of the deception, the requesting party will have to live with a wary or hostile tribunal for the rest of the arbitral proceedings. Finally, pursuant to proposed paragraph 7(g) of the draft revised Article 17, the party seeking a tribunal ex parte measure will be obliged to inform the tribunal of all relevant information (including information that may not favor the request), whereas in most national courts there will be no such obligation. It seems likely that these combined factors will inhibit abuses of the ex parte process more effectively in arbitration than in national courts.

4. A fourth objection to creating arbitral ex parte authority is that, since parties will have to go to court to enforce an ex parte interim measure, there is no harm in requiring them to seek the ex parte measure from the court in the first place. This argument is unpersuasive for two reasons. First, as practitioners know from experience, the vast majority of interim measures granted by arbitral tribunals are adhered to by the parties subject to those measures, without any need for court enforcement. Thus, it is entirely possible that a party seeking a tribunal ex parte measure will be content with obtaining that measure without taking the second step of seeking court enforcement. At the very least, we believe parties should be given that option. Secondly, even in those cases where a party may feel it necessary to seek court enforcement, there may still be good reasons why that party would wish to obtain the interim measure in the first instance from a tribunal rather than a court. We have already reviewed some of the reasons why parties may prefer tribunals to national courts, including concerns about the partiality of certain national courts. There may be much greater scope for courts to display their partiality when they are reviewing a request for an interim measure rather than simply deciding whether to enforce a measure already granted by a tribunal. In sum, the fact that some parties may wish to seek court enforcement of an interim measure does not, in our view, justify a policy prohibiting parties from seeking certain interim relief from tribunals.

5. A fifth objection to granting arbitrators ex parte authority is that it is inconsistent with the consensual nature of the arbitral process. Some arbitrators say that they would feel uncomfortable awarding any relief to one party without hearing from the other party because arbitrators derive their authority solely from the consent of both participants in the arbitration. This argument has prompted two rebuttals. First, it has been pointed out that, in at least the larger sense, an arbitrator acting ex parte will not be acting without the consent of both parties, since those parties usually will have consented to the applicable law that authorizes ex parte authority. The parties will normally have consented to that law either by choosing it to govern their agreement or by choosing a site of arbitration within the jurisdiction of that law. And pursuant to that law, of course, both parties will have equal assess to the ex parte mechanism. But, secondly – and much more fundamentally – an arbitrator who refuses to act at the request of one party even for a short period of time before hearing from both parties may, in our view, be acting against the spirit of arbitration in a much more basic sense. Surely, it is an essential principle of arbitration that the parties seek to achieve a fair and effective resolution of their dispute. A refusal to grant ex parte relief can, in some instances, defeat those essential objectives. One can imagine that an arbitrator who refuses to consider ex parte relief may, at some point, be forced to tell a party something like the following, during an arbitral proceeding:

"I am sorry to tell the Claimant this but any amount the arbitral tribunal may grant you in its ultimate award in this case will not be worth the paper it is written on because your opponent quickly hid its assets as soon as it received notice that you were seeking an interim measure to prevent that. But you must understand that, even though you had demonstrated that you would be irreparably harmed without the measure and that the harm to you would outweigh the harm of the measure to your opponent, and that you offered to put up potential security, and would be fully liable if this provision were wrongly granted, I could not entertain an application for ex parte relief because this would destroy the atmosphere of trust that is essential to arbitration."

We think it is not consistent with the principles of arbitration to place an arbitrator in the unwelcome position of having to give that speech.

* * * * *

The last four years' debate as to whether a revised Model Law should include a narrow authority for ex parte measures has been useful. We believe that debate should inform any remaining work by this Group on this issue. The Working Group now has before it three alternatives for addressing the ex parte issue. First, of course, we have the draft of a revised Article 17, paragraph 7, set forth in the Secretariat's Working Paper #128 for this session[, reproduced in paragraph __ of the Report of the Working Group on Arbitration on the work of its fortieth session (New York, 23 – 27 February 2004) A/CN.9/547 (the Report)]. Our delegation believes this draft provides the full array of safeguards that are necessary to prevent any abuse of the ex parte process, and we would hope that the Working Group would move forward by making whatever final refinements are deemed necessary in this text.

Secondly, earlier in this session, the Working Group was presented with a new alternative put forward by a distinguished observer in this Group. This proposal seeks to achieve the goal of ex parte relief by a slightly different method. [Reproduced in paragraph __ of the Report.] A party would be permitted to apply to the tribunal for particular relief on an ex parte basis but, instead of acting on the request at that point, the tribunal would forward the application to the other party and, at the same time, it could order that party to preserve the status quo (or to take whatever other steps are necessary to avoid rendering the requested relief ineffective), pending an inter partes determination whether to grant that relief. We think this approach holds some promise, but we believe its current form is too abbreviated. It lacks any of the conditions or safeguards that have been so carefully developed in the current draft of revised Article 17, paragraph 7. Surely, some of those conditions and safeguards would be essential since, even if it orders a party merely to maintain the status quo, the tribunal would be directing a party to take or refrain from certain actions on an ex parte basis.

Finally, the Working Group has before it an alternative put forward by the International Chamber of Commerce and circulated in advance of this session in Working Paper #129[, reproduced in part in paragraphs __ of the Report]. The ICC objects to any authorization for ex parte measures, based on its experience in administering "more than 13,000 arbitrations over the last 80 years." In the course of those arbitrations, the ICC's administrators tell us, no party has ever sought ex parte relief and none has ever been granted. We do not think it is surprising that parties have not sought ex parte interim measures under the ICC Rules, since it is widely understood that those Rules do not authorize such relief.

The ICC proposes that a tribunal receiving a request for interim measures could, before hearing from the party against whom the measure is directed, order that party to preserve the status quo. But under the ICC proposal, the tribunal could only do so if that party had already been notified of the interim measure request. Thus, the tribunal may only act after the party against whom the interim measure is directed has received notice of – and a chance to frustrate – such a measure. This approach simply does not address the fundamental problem first identified by the Secretariat more than four years ago. As the Secretariat noted, and as this Working Group has subsequently agreed, an element of surprise may be necessary if a party will otherwise take steps before an interim measure is granted – such as transferring assets or moving goods – that render the measure ineffective. For this reason, we do not think the ICC proposal is a viable solution to the problem that this Working Group has tried to address during the last four years.