SPC ISSUES PROVISIONS ON ACTION PRESERVATION IN IP RIGHTS DISPUTES

The Supreme People’s Court of China (SPC) has released a new set of judicial interpretations concerning interim injunction applications for intellectual property rights (IP Rights)-related disputes. The Provisions on Application of Laws in Adjudication of Action Preservation Cases Involving Intellectual Property Disputes (Fa Shi [2018] No. 21) (Provisions) were published on 12 December 2018 and take effect on 1 January 2019. Prior to that, a consultation draft of the Provisions was released for public consultation on 26 February 2015.

The Provisions provide further guidance on interim injunctive relief (i.e. action preservation) applications made under Articles 100 and 101 of the Civil Procedure Law 2017 (2017 CPL) in cases concerning IP Rights and unfair competition, and clarify certain key concepts therein. (For more information on interim relief in the PRC, contact briana.young@hsf.com to request a copy of our guide “Interim Relief in Mainland China”.)

Some important articles in the Provisions, which are covered in this post, are:

  • Article 6, which provides for circumstances classified as “urgent circumstances” under Articles 100 and 101 of the 2017 CPL;
  • Article 7, which lists the factors that the courts shall take into consideration in determining whether an action preservation order should be granted;
  • Article 10, which elaborates on the concept of “irreparable harm” under Article 101 of the 2017 CPL in cases related to IP Rights or unfair competition. Risk of “irreparable harm” is an element that needs to be proved in any application for pre-litigation or pre-arbitration action preservation orders; and
  • Article 16, which specifies circumstances under which applications for action preservation will be considered “wrongful”.

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Hong Kong courts can order interim relief against non-parties—but only sparingly

The decision in Company A and Others v Company B and Others [2018] HKCU 3575 confirms that Hong Kong courts can order interim relief in support of an arbitration, even against a person or entity which is not party to the arbitration. However, that power will be exercised sparingly. Similarly, the court will be slow to grant receivership orders, despite such orders being—in the judge’s words—‘flavour of the season’.
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Recent Developments in India-Related International Arbitration

Herbert Smith Freehills has issued the latest edition of its Indian international arbitration e-bulletin.

In this issue we consider various Indian court decisions, including the availability of interim relief in support of foreign arbitration, sanctions for non-compliance with arbitral orders and the pro-arbitration position adopted by the courts in upholding a foreign seat. In other news, we consider the rise of institutional arbitration in India and a detailed analysis of the Sri Krishna Committee report, developments in the Indian mediation landscape, proposed reforms for commercial courts, as well as India-related bilateral investment treaty news (and other developments). Continue reading

Inside Arbitration: Issue #5 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from the Herbert Smith Freehills Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insights about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

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Observations on Arbitration: video for in-house counsel on the Myths and Realities of Arbitration

In this short video in our Observations on Arbitration series, Professional Support Consultants Vanessa Naish and Hannah Ambrose talk about the myths and realities surrounding the arbitration process.  The discussion draws out key points and common misconceptions about arbitration, touching on costs and duration, confidentiality, party autonomy, availability of interim relief, summary judgment and enforcement of arbitral awards.

For more information, please contact Vanessa Naish, Professional Support Consultant, Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.

Hannah Ambrose
Hannah Ambrose
Professional Support Consultant
+44 207 466 7585
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 207 466 2112

HONG KONG HIGH COURT APPOINTS RECEIVERS AS INTERIM MEASURE IN SUPPORT OF ARBITRATION PROCEEDINGS IN MAINLAND CHINA

A recent judgment from the Hong Kong High Court (Chen Hongqing v Mi Jingtian) illustrates the manner in which parties may seek interim relief in Hong Kong to support arbitral proceedings being conducted elsewhere – in this case, the appointment of receivers in connection with a CIETAC arbitration in Mainland China.  The decision illustrates the wide-ranging power of the Hong Kong courts to grant measures to preserve assets or evidence (or simply to preserve the status quo between parties) in support of foreign arbitral proceedings, which will be of particular interest to parties arbitrating in Mainland China given the relatively limited powers of the PRC Courts to grant equivalent interim relief.

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English High Court has no power to grant urgent relief under Arbitration Act where urgent relief could be granted by expedited tribunal or emergency arbitrator under LCIA Rules

In the recent case of Gerald Metals SA v Timis [2016] EWHC 2327 (Ch), the English High Court considered its power to grant urgent relief under s 44(3) of the Arbitration Act 1996 ("Act") in circumstances where timely and effective relief could have instead been granted by an expedited tribunal or emergency arbitrator under the LCIA Arbitration Rules 2014 ("LCIA Rules").

Under s 44(3) of the Act, the English court may, in cases of urgency, make in support of arbitration proceedings such orders as it thinks necessary to preserve evidence or assets (e.g. freezing injunctions). However, s 44(5) provides that the court may only act to the extent that the arbitral tribunal (or other person or body vested with power in that regard) has no power or is unable for the time being to act.

In Gerald Metals, the Court held that where there is sufficient time for an applicant to obtain relief from an expedited tribunal or emergency arbitrator under the Rules, it does not have power to grant urgent relief. As a consequence, the Court did not have power to grant the freezing injunction requested by the applicant because the applicant's request for an emergency arbitrator under the LCIA Rules had already been considered and dismissed by the LCIA.

The decision is significant because it suggests that the availability of timely and effective relief under the LCIA Rules and other institutional rules (such as emergency arbitrators) may in certain circumstances erode the court's power to grant urgent relief in support of the arbitral proceedings.

Background

The case concerned a claim by Gerald Metals SA ("Gerald Metals"), a commodities trader, in respect of a financing arrangement entered with Timis Mining Corp (SL) Limited ("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 pursuant to an offtake agreement. The sum advanced by Gerald Mining would be repaid, with interest, in monthly installments deducted from the price of the iron ore shipments.

Timis Mining was controlled by Mr Timis, whose business interests were held by a trust called the Timis Trust ("Trust"). The Trust's assets were said to have been worth in excess of $2 billion. In order to secure Timis Mining's performance, the trustee of the Timis Trust, Safeguard Management Corp ("Safeguard"), 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 constitution of the tribunal, 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 7 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 applied to the English High Court for urgent relief against Safeguard, including a freezing injunction to prevent the disposal of the Trust's assets.

Judgment

Mr Justice Leggatt began by considering its power to grant urgent relief under the Act. 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.

Leggatt J then turned to the LCIA Rules relating to urgent relief:

  • Paragraph 9.1 of Article 9A of the LCIA Rules provides that in cases of "exceptional urgency", any party may apply to the LCIA Court for the expedited formation of the arbitral tribunal.
  • Paragraph 9.4 of Article 9B provides that "in the case of an emergency", at any time prior to the formation or expedited formation of the arbitral tribunal, any party may apply to the LCIA Court for the appointment of an emergency arbitrator.
  • Paragraph 9.12 of Article 9B provides that Article 9B shall not prejudice a party's right to apply to a state court or other legal authority for any interim or conservatory measure before the formation of the arbitral tribunal.

It was common ground that (1) the test of urgency in s 44(3) was to be assessed by reference to whether the arbitral tribunal has the power and practical ability to grant effective relief within the relevant timescale; and (2) there can be situations where the need for relief (e.g. a freezing injunction) is so urgent that the power to appoint an emergency arbitrator is insufficient and the court may properly act under s 44(3) of the Act – for example, if the application needs to be made without notice.

However, Leggatt J held that if an expedited tribunal could be constituted or an emergency arbitrator appointed within the relevant timeframe, and the expedited tribunal or emergency arbitrator could practically exercise the necessary powers, the test of "urgency" under s 44(5) of the Act will not be satisfied and the court will not have power to grant urgent relief. In other words, the court will only have power to grant urgent relief under s 44(3) where either:

  • there is insufficient time to form an expedited tribunal or appoint an emergency arbitrator; or
  • an expedited tribunal or emergency arbitrator could not exercise the necessary powers.

In the present case, the LCIA had considered Gerald Metals' application for an emergency arbitrator and dismissed the application in light of Safeguard's undertakings. As the case was not sufficiently urgent to satisfy the requirements of Article 9A or 9B under the LCIA Rules, it could not be urgent enough to fall within s 44(3) of the Act.

Accordingly, the application for relief was dismissed.

Comment

The case is significant because it provides that s 44(3) of the Act only empowers the court to grant urgent relief where effective relief could not be granted in a timely manner by the arbitral tribunal or other relevant body.

Although the facts of the case were somewhat unusual – the applicant had already applied to the LCIA Court for an emergency arbitrator and the application had been refused – the principle, as expressed by Leggatt J, was not confined to that particular fact pattern and was of general application.

As a result, arbitration rules (including the LCIA Rules) which give the parties more options to obtain urgent relief through an expedited tribunal or emergency arbitrator may at the same time reduce the ability of the English court to step in and provide urgent relief against one of the parties to the arbitration. The fact that the LCIA Rules themselves, in paragraph 9.12 of Article 9B, state that the emergency arbitrator provision "shall not prejudice" the parties' rights to apply for urgent relief from the court could not prevent the urgency limitation built in to s 44(5) from operating. This is not the effect the institutional rules were intended to have – it is generally said that emergency arbitrators are intended to provide an additional, rather than alternative, avenue of relief.

The impact of this decision is of course not limited to arbitrations under the LCIA Rules. The reasoning, if followed in subsequent cases, will apply in a similar way to arbitrations under other institutional rules (or arbitration agreements) which provide avenues for urgent relief. Indeed, the court has previously made some obiter comments in relation to urgent relief under the current ICC Arbitration Rules and the effect on s 44 of the Act: see Seele Middle East FZE v Drake & Scull International SA Co [2013] EWHC 4350 (TCC).

In light of the court's approach, parties arbitrating in London may wish to consider whether they ought to "opt out" of the emergency arbitrator provisions in the LCIA Rules (which is permissible under paragraph 9.14), so preserving as far as possible the jurisdiction of the English courts pursuant to s 44 of the Act (but at the expense of the option of an emergency arbitrator).  

Another option for parties to consider is including in their arbitration agreement a statement that they agree that certain matters amount to "a case of urgency" within the meaning of s 44(3) of the Act. Although such a clause could not override the limitation in s 44(5) of the Act or turn a genuinely non-urgent matter into an urgent one, it may go some way to persuading the court of the urgency of the situation.

For further information, please contact Chris Parker, Partner or Aaron McDonald, Associate.

Chris Parker
Chris Parker
Partner
+44 20 7466 2767
Aaron McDonald
Aaron McDonald
Associate
+44 20 7466 2980

US District Court for the Southern District of New York confirms interim arbitration award

In Companion Property and Casualty Insurance Company v Allied Provident Insurance, Inc. (2014 U.S. Dist. LEXIS 136473), District Judge Nathan in the Southern District of New York (SDNY) confirmed an interim arbitration award ordering payment of security for certain contractual amounts. The judgment usefully summarizes the court’s power to review, confirm or vacate interim arbitration awards, and its power to order arbitrator replacements when one arbitrator is unable to discharge his duties due to illness.

The decision also raises important arbitration agreement drafting points, and exhibits the robust approach of New York courts in upholding the integrity of the arbitral process.

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Law Commission of India proposes wide-ranging changes to the country’s arbitration regime

The Law Commission of India has proposed major amendments to the Arbitration & Conciliation Act, 1996 (the “Arbitration Act”) in order to remedy a number of perceived weaknesses and to stimulate growth in Indian arbitration as a platform for dispute resolution. Its full report is published here. Some of the highlights of the proposed amendments are as follows:

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SIAC emergency arbitrator awards – a speedier route to interim relief before the Indian Courts?

The Singapore International Arbitration Centre (the SIAC) introduced emergency arbitrator provisions in its arbitration rules in July 2010 and has had 34 applications filed before it to date where parties have asked for an emergency arbitrator to be appointed. The SIAC further reports that 9 out of the 34 emergency arbitrator applications have involved Indian parties (5 where the Indian party was the respondent and 4 where Indian parties were both the claimant and the respondent).

An emergency arbitrator is typically approached by parties where the Tribunal has not been constituted and a party may require urgent interim relief including, amongst others, orders for preservation of properties, freezing accounts, orders against the dissipation of assets etc. Seeking relief from an emergency arbitrator is increasingly been chosen as an alternative to seeking injunctive relief from the courts (in support of the arbitration). According to statistics released by the SIAC, the average time taken by an emergency arbitrator to pass an award after having heard the parties ranges from 8-10 days, with the shortest period being 2 days to pass an award.

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