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October 29, 2011

Arbitrators’ Anti-Arbitration Injunctions: Beyond the Limits of Power?

Today’s topic is the power of the international arbitrator, or lack of it, to issue an anti-suit/anti-arbitration injunction in a final award.  Assume the parties have a commercial contract, and that an arbitrable dispute has arisen over whether Party A may as a remedy for a default foreclose upon common shares owned by Party B. Party B commences the arbitration to block the foreclosure.

In the years leading up to the arbitration, Party B had also sought related provisional and final relief from courts in the US and abroad and in some cases had pursued appeals when relief was denied. Party A, claiming harassment, asks the arbitrators, as a species of final relief, to broadly enjoin Party B and its officers and directors and shareholders from bringing any more proceedings against Party B, in any forum, relating to the contracts between A and B. The Tribunal grants the requested relief to the extent of enjoining prosecution of any such proceedings by any such persons until the monetary portion of the award (substantial attorney and arbitrator fees) is satisfied by Party B.  (The enjoining of non-parties to the arbitration is a separate issue not treated in this Commentary).

There could be three principal sources of power, potentially, for the arbitrators to issue this anti-proceedings injunction. One would be the agreement of the parties. Another, the rules of arbitration that govern the proceedings. A third, possibly, the arbitration law at the seat, i.e. a statutory mandate. Or, finally, judge-made arbitration law at the seat recognizing the powers of arbitrators to sanction party misconduct.

Assume the agreement of the parties and the arbitration rules permit arbitrators to grant any appropriate form of equitable relief. Is that sufficient power for the permanent anti-proceedings injunction described here?  I submit it is not. It seems right that an arbitral tribunal should have power during the course of its proceedings to protect the jurisdiction conferred upon it by the parties. Thus an arbitral antisuit injunction against parallel litigation between the same parties on the issues before the tribunal should be a perfectly legitimate interim measure.

But the injunction here described does not fit this model. First, it purports to enjoin the commencement of new arbitrations under the arbitration agreement. Thus it is a partial abrogation of the parties’ arbitration agreement. At a seat where national arbitration law provides that arbitration agreements shall be enforced, abrogation of the agreement by an arbitral tribunal other than on grounds provided in the lex arbitri exceeds the powers of the tribunal. Under the Federal Arbitration Act, the agreement to arbitrate must be enforced save upon such grounds as exist for the revocation of any contract. Under the New York Convention, the agreement must be enforced unless it is null and void, inoperative, or incapable of being performed. Overzealous litigation does not fit within any of these categories.   Further, the rules of arbitration adopted by the parties, and/or the lex arbitri, will typically provide that it is not inconsistent with the agreement to arbitrate for a party to seek a judicial provisional measure in an arbitrable dispute. This anti-proceedings injunction abrogates the parties’ arbitration agreement in this respect as well.

What about the “inherent” power of the tribunal to regulate the conduct of the parties appearing before them? While the existence of such power is widely recognized, the injunction described here begins to take effect only after issuance of the final award. Of course, a “sanction” in the form of a cost allocation in the final award is perfectly acceptable. But that is justified  because the rules or lex arbitri or the contract empower the tribunal to allocate costs.  This injunction has no conduct-regulatory purpose even as to future arbitrations. Its purpose is to induce compliance with the award, as demonstrated by its temporal scope, i.e. until payment of the monetary portion of the award. It is an enforcement tool, and it therefore raises squarely the question whether arbitral tribunals may include in a final award provisions calculated to make their awards self-enforcing.

If the power of arbitrators to secure the enforcement of their own awards were widely recognized, we would routinely see final awards that impose an accumulating monetary sanction for each day of non-payment of a damages award.  But those awards do not exist, to this writer’s knowledge.

Why? First, usually it will be clear that the parties agreed to arbitrate their disputes, but not to arbtrate the implementation of the outcome of the disputes. This is most explicit where the arbitration clause provides in terms that the award may be enforced in a court of competent jurisdiction. The parties have made a clear allocation of power: arbitrators resolve disputes; courts implement the solutions. Second, national arbitration laws like the FAA, and international agreements like the New York and Panama Conventions, implement the same allocation of powers. They provide that the award shall upon recognition become a judgment, and then shall be enforced as would a judgment. In US  federal courts, money judgments are to be enforced in accordance with the judgment enforcement law of the State where the Court sits. New York’s money judgment enforcement statute (CPLR Art. 52) does not provide for anti-proceedings injunctions to coerce compliance with money judgments.

An arbitral injunction having this scope was actually entered in a case in New York in which this author now has post-award, post-confirmation involvement — certainly not to relitigate the issue under discussion. But the exercise of power in this instance results in part from a conflation of judicial and arbitral power, a conflation all too prone to occur when parties select experienced courtroom advocates and jurists with relatively little grounding in arbitration law and practice to sit as arbitrators. Parties who select arbitrators without due regard for their expertise concerning the allocation of power between courts and arbitrators risk obtaining anomalous results like this one.