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An Overview of Emergency Arbitrator Proceedings in Malaysia

by Crystal Choong and Nicholas Wong



“It is not the strongest of the species that survive, not the most intelligent but the one most responsive to change.” - Charles Darwin



BACKGROUND


1. Arbitration is an incredibly challenging subject to grasp. At its inception, arbitration was envisioned merely as an alternative to resolving disputes in court. In recent years, this view can no longer hold water, especially when it comes to the resolution of commercial and construction disputes. As the number of cases being referred to arbitration grew, new and innovative procedures have been introduced to increase the efficacy of arbitration. These new procedures have contributed to the complexity of arbitration, but they serve as important instruments to help resolve our contractual disputes.


2. One of these innovative procedures is the emergency arbitrator (“EA”) proceedings which was firstly introduced by the International Chamber of Commerce (“ICC”) in 2012. Prior to the introduction of this procedure, parties who were in a rush for an interim measure before the constitution of the tribunal had no choice but to resort to the courts for relief. In doing so, the parties would end up losing the benefits that arbitration could give (e.g. confidentiality, flexibility, etc.). With the advent of EA proceedings, parties now have the choice to keep their dispute in the arbitration setting when seeking an interim measure.


3. In Malaysia, EA proceedings were only recognised in the Arbitration Act 2005 (“AA 2005”) in 2018. While it has been over 2 years since its recognition, many people are still unaware that this procedure exists. Therefore, we aim to unpack this procedure and provide a preliminary overview of the concepts underlying EA proceedings in Malaysia. This would include the nature of the procedure, the nature of the reliefs that could be granted and its enforcement in local and international courts.




NATURE OF AN EA PROCEEDING


4. It is important to note that EA proceedings are by nature arbitration proceedings. As an arbitration is a consensual process to resolve disputes, parties are required to submit their disputes to arbitration via an arbitration agreement. It would naturally follow that EA proceedings are subject to the same requirement. In most cases, parties to a dispute would fail to provide for the option of an EA proceeding within their arbitration agreement. Nonetheless, this option is readily available for parties if they have adopted a set of arbitration rules which contains provisions on EA procedures.


5. Notably, the institutional rules that contain EA procedures include the arbitration rules of the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC), the London Court of International Arbitration (LCIA) and the Asian International Arbitration Centre (AIAC). This means that an arbitration clause which incorporates the arbitration rules of any one of these institutions, entitles either party to the dispute to make an application for interim measures to an emergency arbitrator through the respective institutions.


6. With that in mind, we can now consider what an EA proceeding is. The Arbitration Act 2005 (“AA 2005”) does not in any way define EA proceedings. Different countries and arbitral institutions have different ways of expressing what an EA proceeding is but, a good starting point to grasp this concept could be found in the ICC Report on Emergency Arbitrator Proceedings:


  • “[An EA proceeding is a] procedure through which a party unable to await the constitution of the arbitral tribunal can seek to obtain urgent interim or provisional relief prior to, or independent from, an arbitration procedure on the merits”.


7. By looking at this definition two things have to be further considered: (i) firstly, the nature of the application sought, and (ii) secondly, the nature of the relief sought.


(i) Nature of application sought


8. EA proceedings become applicable when an application of interim measure is so urgent that “parties are unable to await the constitution of an arbitral tribunal[1]. Generally, applications for interim measures can be heard either before or after the constitution of the main arbitral tribunal. However, there are many instances where the parties do not have the luxury of time to wait for the constitution of the tribunal.


9. Upon the commencement of an arbitration, it is quite usual for parties to take about 20 days or more to appoint the arbitral tribunal. After the tribunal is constituted, arbitrators would still need to take time in considering any applications made by the parties. By the time the tribunal comes to a decision, the interim measure sought by parties would no longer be necessary to preserve their respective legal positions. Arbitrations at that point of time are rendered useless as assets or evidence would have dissipated. Hence, EA proceedings were created to deal with urgent interim applications.


10. In determining what is “urgent”, the main consideration is whether the interim measure requested for is so dire that it cannot await the constitution of a tribunal. Other additional factors could also be considered. In the ICC Report on Emergency Arbitrator Proceedings it was highlighted that other factors were considered by the EAs in at least 12 of the 80 EA proceedings filed to the ICC[2]. These factors include:


a. whether the applicant contributed to the urgency

b. whether there are compelling reasons that ground the urgency of the measure requested; or

c. whether the applicant demonstrated that the relief requested is urgently required to avoid imminent irreparable harm.


11. Arbitral institutions do not have a fixed set of considerations to consider what ‘urgency’ is. Nevertheless, the relief requested for must, at the very least, be necessary before the constitution of the tribunal. Once the arbitral institution determines that the requested relief is urgent, they will usually proceed to appoint an EA for the case. The EA will then determine the application for interim measure itself.


(ii) Nature of the relief sought


12. Reliefs granted by EAs are not intended to last forever. The length of validity of EA decisions vary depending on the national laws or institutional rules chosen but usually, the decision will only last for a period of time or where the newly constituted tribunal sets it aside. The AIAC Arbitration Rules 2018, for example, provides in paragraph 16, Schedule 3, that:


“Any order or award issued by the emergency arbitrator shall cease to be binding:

(a) if the arbitral tribunal is not constituted within 90 days of such order or award;

(b) when the arbitral tribunal makes a final award; or

(c) if the claim is withdrawn.”


13. Once EAs have fulfilled their role in granting or rejecting an application for interim relief, further matters relating to the interim measures become the prerogative of the newly constituted arbitral tribunal. Many national laws and institutional arbitration rules favour this position; that interim measures would not bind the subsequent tribunal deciding the case.


14. Paragraph 16, Schedule 3 of the AIAC Arbitration Rules 2018 exemplifies this fact by stating that: “[a]ny order or award issued by the emergency arbitrator shall cease to be binding... when the arbitral tribunal makes a final award...”. Thus, the arbitral tribunal constituted to determine the substantive matters of the case would be free to vary or set aside any interim reliefs granted by the EA. This is in congruence with the interim nature of such reliefs.


15. Essentially the types of interim measures that can be granted in an EA proceeding is similar to that which can be granted by the courts. The types of interim measures that can be granted by an EA is highlighted in s.19 of the AA 2005, which includes:


(a) maintaining or restoring the status quo pending the determination of the dispute;

(b) taking an action that would prevent or refraining from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself;

(c) providing a means of preserving assets out of which a subsequent award may be satisfied;

(d) preserving evidence that may be relevant and material to the resolution of the dispute; or

(e) providing security for the costs of the dispute.


16. Having said that, parties would still have to be mindful that there are interim measures which cannot be granted by an EA. Firstly, parties to an EA proceeding cannot obtain an interim relief that comes under the court’s supervision. This would include appointing an interim receiver to take charge of a company’s asset. Additionally, the court retains exclusive jurisdiction to grant some interim measures such as the arrest of property or bail or other security pursuant to the admiralty jurisdiction as highlighted in the drafting notes of the AA 2005 published by the AIAC. Thus, it is vital that those deciding whether to obtain interim relief from the courts or in an arbitration must first consider the nature of the interim measure needed.



ENFORCEMENT OF EA PROCEEDINGS


17. In Malaysia, any interim measure issued by an EA is binding and enforceable at the High Court under s.19H of the AA 2005. Section 19I prescribes a number of exceptions whereby an EA’s decision can be refused by the court. It includes, among others, situations where security to back up an interim relief as requested by the EA was not complied with or where other general grounds of refusal under s.39(1)(a) applies. Absent the circumstances under s.19I, a decision by the EA is enforceable and binding in Malaysia.


18. Abroad, the situation is slightly trickier. An interim measure issued in an arbitration can be granted in the form of an award or an order.[3] This is highly dependent on the institutional rules or seat of arbitration as adopted by the parties. An arbitral award has been defined by Gary Born as a “decision that disposes of one or more of the parties’ substantive claims in the arbitration”[4]. This contrasts with a procedural order which is usually just a decision to record the decisions by the tribunal on procedural matters.


19. In most circumstances, an interim measure can be issued in the form of either an award or an order. An order could be issued more promptly than an award as there are less formalities to be complied with (eg. a short document encompassing the interim measure granted and the reasons behind it). An award, on the other hand, has to comply with several requirements. Pursuant to s.33 of the AA 2005, an award must be made in writing, must be signed by a majority of all arbitrators, include reasons for the decision, and state the date and seat of the award. Although the issuance an award lacks efficiency, it is compensated by the ease of enforcement. This is because only an award is expressly enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”)


20. The New York Convention is a treaty which allows the enforcement of arbitration awards in over 160 countries that has ratified it. The text of the New York Convention only mentions the enforcement of awards but does not specifically mention interim measure or orders. This means that only interim measures issued in the form of an award is likely to be enforced in any of those member states. Nevertheless, some countries have included provisions in their respective arbitration legislation to allow the enforcement of interim measures, irrespective of the form in which it was granted. Countries that have allowed this include Singapore[5], Hong Kong[6] as well as Malaysia[7]. To put it in context, for a Kuala Lumpur seated arbitration, it is immaterial whether an interim measure is granted in the form of an award or an order, as the s.19H AA 2005 mentions that “…an interim measure issued by an arbitral tribunal shall be recognised as binding.. irrespective of the country in which it was issued.”. The AA 2005 expressly recognises interim measures, therefore both forms would likely be recognised.


21. An interim measure obtained from an EA differs from an interim measure obtained from the court. Court orders are enforceable where the court granting the judgement or order (Court in State A) and the enforcing court (Court in State B) has an arrangement to allow the enforcement (e.g. a bilateral treaty), as opposed to using the New York Convention. Court orders of State A can only be enforced in State B, where there is an arrangement between State A and State B to allow the enforcement. Each arrangement differs from one another and as such, there is no harmonised way of enforcing court orders in different countries. Where parties require interim reliefs which needs to be enforced internationally, it would be advisable to apply for it in an EA proceeding.



CONCLUDING STATEMENTS


22. To sum up, a party can opt for an EA proceeding when they require an urgent interim measure before the constitution of a tribunal. Depending on the circumstances of the case, it might be best to make an EA application where it would be suitable for the case to remain as an arbitration, i.e. for ease of enforcement.


23. At the time of writing, the AIAC is not able to act on appointment requests pursuant to the AIAC arbitration rules or under the AA 2005 as appointments can only be made by the Director of the AIAC. Further information on this can be found in the AIAC’s announcement of 6 May 2020 at https://www.aiac.world/news/297/Developments-at-the-AIAC-following-the-COVID-19-Pandemic. Given this circumstance, it is unlikely the AIAC will be able to accept any application to appoint an EA under the AIAC Arbitration Rules 2018 as well. This is because the rules stipulate that it is for the Director to decide whether to grant the application and if he does so, to appoint the EA.


24. Despite the setback in the Malaysian arena, parties should still be aware of what an EA proceeding is. With many major arbitral institutions in the world incorporating this procedure into their rules, EA proceedings will continue to remain relevant so long as people continue to use arbitration. In this context, the quote by Darwin cited at the top of the article becomes pertinent. It is only by being aware of our ever-changing options are we able to respond effectively to problems and to thrive in this world.



References:

[1] ICC Commission on Arbitration and ADR Task Force on Emergency Arbitrator Proceedings, ‘ICC Commission Report: Emergency Arbitrator Proceedings’ (International Chamber of Commerce, 2019), para 48 [2] ICC Commission on Arbitration and ADR Task Force on Emergency Arbitrator Proceedings, ‘ICC Commission Report: Emergency Arbitrator Proceedings’ (International Chamber of Commerce, 2019), para 148 [3] Gary Born, International Commercial Arbitration (2nd Edn.) (2014), para 2506 [4] Gary Born, International Commercial Arbitration (2nd Edn.) (2014), para 2928 [5] International Arbitration Act 2002, c 143A, Art 2(1) as revised by Act 12 of 2012 with effect from 1 June 2012 [6] Arbitration Ordinance 2011, c 609, Arts 22A and 22B, as amended by the Arbitration (Amendment) Ordinance 2013 with effect from 19 July 2013. [7] Section 19H Arbitration Act 2005

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