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Can parties to an arbitration seek injunctive relief?

by Philip McMullan on 05 Dec 2016

arbitrations

There are several reasons why parties to an arbitration might want to seek urgent injunctive relief during a dispute. Fear of assets being disposed of or otherwise put beyond reach must be among the most common. It was certainly a key factor in Gerald Metals SA v Timis, a recent case in which the High Court held that it did not have power to grant urgent relief in support of arbitration, in circumstances where timely and effective relief could be obtained through the arbitral process - for example, by appointing an emergency arbitrator.

The decision has introduced a degree of uncertainly into whether parties should proceed through the courts in English-seated arbitrations when they need to act fast to protect assets or evidence.

The facts

Gerald Metals is a commodities trader, which had entered into a financing arrangement with Timis Mining. Under the arrangement, Gerald Metals would advance $50 million to Timis Mining to finance the development of an iron ore mine in Sierra Leone. Timis Mining would then sell iron ore extracted from the mine to Gerald Metals in monthly shipments, subject to an offtake agreement. The $50million advance would be repaid (with interest) in monthly instalments deducted from the price of the iron ore shipments.

Timis Mining was controlled by the Timis Trust, the trustee of which, Safeguard Management Corp, provided a guarantee of all sums due to Gerald Mining under the offtake agreement, up to a maximum of $75 million. The guarantee was subject to arbitration in London under the LCIA Rules.

Following defaults under the offtake agreement, Gerald Metals commenced arbitral proceedings under the LCIA Rules against Safeguard under the guarantee.

Before the tribunal was constituted, Gerald Metals applied to the LCIA for the appointment of an emergency arbitrator, with a view to seeking emergency relief, including an order to prevent Safeguard from disposing of the Trust's assets. Safeguard responded to the application by giving undertakings not to dispose of any assets other than for full market value and at arm's length, and to give seven days' notice to Gerald Metals before disposing of any asset considered to be worth more than £250,000. In light of those undertakings, the LCIA rejected Gerald Metals' application for the appointment of an emergency arbitrator.

Gerald Metals then applied to the English High Court for urgent relief against Safeguard, including a freezing injunction to prevent the disposal of the Trust's assets.  

The decision

The case was heard by Mr Justice Leggatt, who looked at the court's power to grant urgent relief under The Arbitration Act 1996. Section 44(3) provides: "If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets."

This power, however, is subject to s 44(5): "In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively."

The court held that urgent relief would not be available unless either:

  • The matter was so urgent that there would not be sufficient time to appoint an emergency arbitrator or form an expedited tribunal.
  • The emergency arbitrator or expedited tribunal could not exercise the necessary powers.

The court considered that, because the application for appointment of an emergency arbitrator had already been considered and dismissed by the LCIA Court, the matter was insufficiently urgent to invoke the court’s power to grant urgent relief. 

The court made it clear that the principles established are of general application and not confined to the specific facts of the case (that is, after an unsuccessful attempt to go down the emergency arbitrator route).

So where does this leave parties?

Experts say that the courts will still intervene in cases of extreme urgency (such as a freezing injunction without notice) or where the remedy is sought against a third party outside the arbitration agreement.

Parties also have the option to opt out of the Emergency Arbitrator provisions of the 1996 Act. This would ensure that urgent relief is available from the court but might militate against some of the other advantages of arbitration, not least privacy.

Advisors may also want to look to Arbitration Agreements to tackle the issue either by specifying conditions that amount to "urgency" or agreeing what aspects of the dispute can be referred to the court (and at what stage of the dispute).

The advantages of arbitration are well known – privacy, flexibility, certainty. The ability to protect your position quickly in fast-changing circumstances is also an important consideration. This decision has made that potentially more difficult for parties to English-seated arbitrations.

Litigation in review

Topics: ADR, Arbitration

Philip McMullan

Written by Philip McMullan