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February 01, 2013

Returning Unscathed From the Battlefield of Provisional Measures

This commentator apologizes for his prolonged absence, explained largely in two words: provisional relief. In the representation of the Claimant in an ICDR arbitration seated in New York, there has been occasion to apply successfully for (i) judicial Mareva freezing orders in aid of arbitration in three foreign jurisdictions, (ii) an ICDR Emergency Arbitrator’s Partial Final Award directing access to the property in dispute; (iii) an arbitral Mareva freezing order and order for security for the amount in dispute, given as an Interim Award; (iv) judgments in the U.S. District Court and in the three foreign Mareva jurisdictions, confirming the Interim Award under the New York Convention; and (v) an order of the U.S. District Court in New York finding a Respondent in contempt of court for non-compliance with the Judgment enforcing the Interim Award, and imposing escalating fines and coercive civil commitment.

I will focus here on the challenges involved in the U.S. arbitral and judicial proceedings.

What law governs an application for provisional relief in an ICDR arbitration seated in New York, concerning a contract whose interpretation is agreed to be governed by New York law, between disputants from New York (the Claimant) and Asia (the Respondent)? Here the arbitrator was persuaded that the source of his power to act was Article 21 of the ICDR Rules, which permits the Tribunal to  grant any provisional relief it considers appropriate. The arbitrator was further persuaded that his power under Article 21 was not constrained by the New York and U.S. federal law position that courts lack power to grant provisional relief freezing assets of the Respondent, as security for the judgment in a money damages case (except where the criteria under state law for an order of attachment are satisfied).  By adopting that view, the arbitrator in effect held that ICDR Article 21 was not only the source of his power to act but the “law” governing the application, there being no mandatorily-applicable New York or U.S. federal law concerning the provisional measures powers of an arbitrator.  Readers will appreciate, however, that this correct but nuanced outcome was not inevitable, as considerable resources were expended by the Respondents’ counsel in support of simplistic propositions that New York law applies in a New York-seated international  arbitration.

The arbitrator having given provisional relief in the form of an Award as permitted by the ICDR Rules, the next question presented was whether a U.S. District Court would treat the arbitrator’s decision as an award under the New York Convention, and recognize and enforce it unless a defense under Article V of the Convention were available. While the enforceability of arbitral provisional measures has been a topic of discussion for many years, the number of judicial decisions directly addressing the subject remains quite small. Predictably, Respondents opposing confirmation attempt to distinguish the few cases that have granted enforcement, and courts accustomed to judicial notions of finality are tempted to classify arbitral provisional measures, even those denominated as awards, as non-final procedural orders that courts lack jurisdiction to enforce.

But U.S. Second Circuit case law does hold that an arbitral decision that does not resolve all matters but does finally resolve a “separate and independent claim” is an award that may be enforced. There are few decisions applying this principle in an interim measures context, and the conceptual “fit” is not optimal as provisional measures are generally collateral to the merits rather than one of several “claims.”  Further, the handful of Second Circuit decisions in which arbitral provisional measures have been enforced can be read as cases where the particular remedy granted by the arbitrator was specifically authorized by the parties’ contract. It was therefore rather uncharted territory in this case for the Court to decide, as it ultimately did, that the broad and categorical grant of arbitral power concerning provisional relief in ICDR Article 21 has the same contractual status, when the ICDR Rules are agreed upon in the contract, as a specific stipulation for a particular type of provisional measure.

Linked here is the Court’s decision granting recognition and enforcement.

Also linked here is a transcript of the hearing on the motion to confirm the award, in which you will read an initial decision of the Court denying confirmation, which was vacated by the end of the same hearing once the Court had given more consideration to the contractual status of ICDR Article 21.

mcmahon-confirmation-order

mcmahon-hearing-transcript