In today’s guest post, Jakob Horn summarizes his doctoral thesis on key legal issues around emergency arbitration, Der Emergency Arbitrator und die ZPO, published by Mohr Siebeck. Jakob primarily discusses the emergency arbitrator in the context of German law. Despite this focus, his findings are easily transferrable to other jurisdictions, as Germany has adopted the UNCITRAL Model Law on International Commercial Arbitration.
In commercial life, from time to time conflicts arise that require prompt action to avoid irrevocable harm. For instance, imagine a scenario where a business agreed on a non-compete clause with a former business partner. A violation of this non-compete clause would pose an immediate danger to the business, requiring prompt enforcement.
Traditionally, most state courts offer injunctions in such circumstances. However, in the commercial world today, parties often opt for an arbitration clause for reasons such as confidentiality. How does one uphold these arbitration agreements as well as seek urgent relief?
The answer is the emergency arbitrator. In the last 14 years, most large arbitral institutions around the world, such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the Hong Kong International Arbitration Centre (HKIAC) have introduced the emergency arbitrator as a tool in their toolbox to deal with such urgent cases.
On an application by a party, the respective institution will appoint a single emergency arbitrator who will then decide whether or not to issue a preliminary measure of protection. Time frames for the appointment of an emergency arbitrator and the subsequent decision can be quite short. For instance, the appointment can happen as fast as within 24 hours at the Stockholm Chamber of Commerce (SCC)(Art. 4 (1) of Appendix II to the SCC Rules 2017) or 2 days at the International Chamber of Commerce (ICC) (Art. 2 (1) of Appendix V to the ICC Rules 2017). Similarly, the decision can be made within five days after transmission of the file to the emergency arbitrator at the SCC (Art. 8 (1) of Appendix II to the SCC Rules 2017) or within 15 days at the ICC (Art. 6 (4) of Appendix V to the ICC Rules 2017).
Legal issues with the emergency arbitrator
Given that the emergency arbitrator is a rather recent development, legal uncertainty exists around the usage of the emergency arbitrator, especially when the institutional rules on the emergency arbitrator interact with state law, such as in enforcement proceedings. So far, not many court decisions exist around the world, and only few states have introduced statutes recognizing the emergency arbitrator, e.g. Singapore (Art. 2 (1) of the Singapore International Arbitration Act), Hong Kong (Sec. 22A of the Hong Kong Arbitration Ordinance) and New Zealand (Sec. 2 (1) of the New Zealand Arbitration Act of 1996, added by the Arbitration Amendment Act 2016).
In broad terms, my thesis covers three main areas: First, classification of the emergency arbitrator in light of state-level law; secondly, enforceability of domestic and international emergency awards and the conditions for their enforcement; and thirdly, other related issues that arise such as the nature of the place of emergency arbitration, the requirements of fair proceedings, and the implications that emergency arbitration can have for the main proceedings.
Definition and Classification of the Emergency Arbitrator
Before any further analysis, it necessary to classify the emergency arbitrator: is she an arbitrator under the national arbitration law or does she fall into some other category?
The first step to answer the question is to define the emergency arbitrator. For this purpose, I developed a definition of the emergency arbitrator derived from the institutional rules of the largest arbitral institutions in the world, such as the ICC, the London Court of International Arbitration (LCIA), and the Hong Kong International Arbitration Centre (HKIAC).
Based on these rules, the emergency arbitrator can be described as a person who – on application by a party to an arbitration agreement – is appointed by a neutral third party to issue interim measures of protection that are so urgently required that it is not feasible to await the constitution of the arbitral tribunal (Horn, Der Emergency Arbitrator, p. 40). It is important to note that the parties must have agreed on this procedure, but this can also be done by simply choosing a set of arbitral rules containing a subset of emergency arbitration rules.
With this definition in place, the emergency arbitrator can be classified for the purposes of state-level arbitration law (see Horn, Der Emergency Arbitrator, Chapter 2, pp. 41 et seq. for an in-depth analysis). Under German national arbitration law, the emergency arbitrator must be considered an arbitrator. Furthermore, under the German arbitration law, the emergency arbitrator is part of the main tribunal in the sense that the emergency proceedings and the main proceedings constitute a single arbitration. This allows the emergency arbitrator to fulfill her main task, rendering interim measures of protection. The power to render interim measures of protection is vested in the main tribunal under German law (Sec. 1041 Civil Procedure Code (ZPO)) as well as under the UNCITRAL Model Law (Art. 17 et seq).
The finding is based on the understanding that an arbitral tribunal is a private body of one or more persons who, by way of private agreement, have been given the task of deciding a dispute instead of a state court. The emergency arbitrator meets all these requirements. She is tasked with deciding the dispute on issuing an interim measure of protection because the parties chose arbitral rules that allow the appointment of an emergency arbitrator.
Enforceability of Emergency Awards
Once it is established that the emergency arbitrator is an arbitrator, the question of enforceability can be addressed. The analysis must be two-fold: On the one hand, domestic emergency awards must be analyzed, and on the other, international emergency awards.
Enforcing domestic emergency awards is straight forward. Sec. 1041 ZPO (similar to Art. 17H of the UNCITRAL Model Law) allows the enforcement of interim measures of protection issued by an arbitral tribunal. Given that the emergency arbitrator is part of the main tribunal (see above), emergency awards are enforceable under this provision. Under German law though, it is more problematic to define the requirements for the enforcement of an emergency award. Contrary to Art. 17I of the UNCITRAL Model Law, Sec. 1041 ZPO does not explicitly state the grounds for refusing enforcement but leaves the decision entirely to the discretion of the court. Therefore, I concluded that the rules on enforcing final awards under Sec. 1059 ZPO – grounds for setting aside and refusing enforcement of final awards – can be used as a guideline, but must be adapted to the special requirements of enforcing interim awards (see in detail Horn, Der Emergency Arbitrator, Chapter 3, pp. 74 et seq.).
An adaptation of the requirements, for example, is important when looking at the validity of the arbitration agreement. Arbitration is based on private autonomy. Therefore, an award is not enforceable if the arbitration agreement is invalid. Yet, when looking at interim measures, it can be too time-consuming to have the state court fully determine whether the arbitration agreement is valid. Therefore, the state court should only refuse enforcement of an emergency award if the arbitration agreement is prima facie invalid. In case of doubt, it should enforce the emergency award. After all, the emergency award is a preliminary measure granted in a situation of uncertainty.
The next question is whether international emergency awards are enforceable. On the face of it, Sec. 1041 ZPO does not apply to orders of interim measures of protection from international tribunals. The lack of applicability also raises concerns for emergency awards. In addition to that, there is a lively discussion amongst commentators whether the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 applies to awards or orders ordering interim measures of protection.
In my opinion, the New York Convention applies to those awards as well as to emergency awards. Primarily, the discussion centers on the question of whether an emergency award is final and binding. Finality is a particular concern because an emergency award can be terminated, changed, or otherwise revoked by either the emergency arbitrator herself or the main tribunal. Yet, there is no indication in the text of the New York Convention or its drafting history that only final awards shall be enforceable. On the contrary, the drafting history shows that the term “final” was removed deliberately from the text and the term “binding” was used instead. But, if an award must only be binding, an emergency award fulfills this requirement. The arbitral rules on which the parties have agreed require the parties to follow properly rendered emergency awards.
The details of this argument will be published later this year in the American Review of International Arbitration (Horn, The Emergency Arbitrator under the New York Convention, American Review of International Arbitration, Vol. 31 Issue 2).
Since Germany is a contracting State to the New York Convention, I conclude that Germany is also bound to enforce foreign emergency awards. Based on the non-discrimination approach of Art. 3 of the New York Convention, I further conclude that Sec. 1041 ZPO must also apply to foreign emergency awards (for details see Horn, Der Emergency Arbitrator, Chapter 8, pp. 171 et seq).
Other questions relating to the emergency arbitrator
Once the emergency arbitrator is considered a full-fledged arbitrator, the emergency proceedings must fulfill the minimum requirements for fair arbitral proceedings. For example, the question whether an emergency arbitrator may render an emergency award ex parte, i.e. without hearing the other party first has become prevalent. For example, the Swiss Chambers Arbitration Institute (SCAI) allows its emergency arbitrators to render a ‘true’ ex parte decision where the opposing party is only informed after the emergency award has been issued (see Art. 26 (3) of the Swiss Rules 2012). In my opinion, this is permissible under German law. Therefore, an emergency award can be enforced even if the emergency arbitrator grants the right to be heard only after issuing the emergency award. However, before enforcement can go ahead, the other party must have had an opportunity to present its case before the emergency arbitrator. For ex parte enforcement, German law currently lacks a statutory provision allowing enforcement before the right to be heard has been granted (see Horn, Der Emergency Arbitrator, Chapter 5.B., pp. 139 et seq).
Another question is the issue regarding the place of emergency arbitration. In cases where the parties have not agreed on a place of arbitration, most arbitral rules provide for a default place of emergency arbitration – usually at the place of the seat of the respective institution. However, the default place of emergency arbitration does not bind the main tribunal, which can choose another place of arbitration for the main proceedings. If this happens, the question of which law applies to the emergency proceedings arises. I find that the place of emergency arbitration will determine only the law applicable to all legal issues arising out of the emergency proceedings. Vice versa, the place of arbitration chosen by the main arbitral tribunal determines the law applicable to all legal issues arising from the main proceedings (see Horn, Der Emergency Arbitrator, Chapter 7, pp. 161 et seq.)
The emergency arbitrator is a useful development in arbitration because it allows the entire proceedings to start by means of arbitration, even the preliminary measures. Yet, many uncertainties still exist when it comes to the enforcement of such awards. With my book on the emergency arbitrator, I hope to have shed some light on the questions ahead and on how they can be addressed to further strengthen the emergency arbitrator as a useful tool.
About the Author
Dr. Jakob Horn, LL.M. is a trainee lawyer (‘Referendar’) at the Berlin Court of Appeals (Kammergericht), currently working at a law firm to fulfill the stage of trainee solicitor. Jakob studied law at the University of Jena, Germany, and at the University of Illinois, Urbana-Champaign. After graduating with the German first state exam in 2015, he worked on his PhD thesis with the title “Der Emergency Arbitrator und die ZPO” (The Emergency Arbitrator and the German Code of Civil Procedure) supervised by Professor Dr. Giesela Rühl, LL.M. For his thesis, Jakob was granted the title of ‘Doctor Juris’ by the University of Jena in 2018. In 2018/2019, Jakob completed the LL.M. program at Harvard Law School. Jakob’s PhD thesis on the emergency arbitrator is published by Mohr Siebeck: Jakob Horn, Der Emergency Arbitrator und die ZPO, Mohr Siebeck, 2019, ISBN 978-3-16-156939-5