Interim Arbitral Awards

I was faced with counsel on the other side that agreed to our choice of NY law in a contract but objected to our arbitration clause in the following manner:

"We have a policy against using arbitration, since it is expensive and doesn’t provide for injunctive relief."

This response shocked me because this was experienced legal counsel from a very large company saying this.

Their opinion on cost irritated me because the arbitration clause we had proposed referred to an institution which would appoint one arbitrator and use simplified procedural rules for small disputes (some institutions will, if the parties specify, even have documents-only procedures to keep costs low and procedures as short lived as possible.)

But the whole notion that injunctive relief is not available under arbitration got me thinking.

What is injunctive relief after all?

Injunctive relief is generally an interim order against a party acting in a certain manner while a dispute is ongoing and unsettled.  It prevents a party from "creating facts on the ground" or doing things that might make the court's final decision irrelevant (for example by taking all of its assets out of the country meaning a damages award has no money to draw on, or by irreparably damaging a company's reputation or leaking its confidential information, so that what ever the court orders, it will never be able to undo the damage)

Enabling legislation in various jurisdictions clearly states that arbitral tribunals can make interim orders that will be enforceable by state courts.

Essentially, an arbitration tribunal can make an interim order that is exactly like an injunction provided by a court, for the exact same reasons court would do so, and the under the relevant law, the court would enforce such an order.

For example, see the following sections in Portugal's arbitration law:


Article 21
Conditions for granting interim measures

1  - Interim measures requested under sub-paragraph a), b) and c) of paragraph 2 of article 20 is granted by the arbitral tribunal on the condition that:
a)
There is a serious probability that the requesting party will succeed on the merits of his claim and the fear that his rights will be harmed is sufficiently demonstrated; and
b)
The harm resulting from the interim measure to the party against whom the measure is directed, does not substantially outweigh the damage the requesting party wishes to avoid by the measure.

2 - The determination of the arbitral tribunal on the possibility as referred to in sub-paragraph a) of paragraph 1 of this article shall not affect the freedom of decision of the arbitral tribunal in making any subsequent determination on any matter.

3  - With regard to the interim measure request as made under sub-paragraph d) of paragraph 2 of article 20, the conditions set out in sub-paragraph a) and b) of paragraph 1of this article shall apply only to the extent the arbitral tribunal considers appropriate.

Article 27

Recognition or enforcement

1  - An interim measure issued by an arbitral tribunal shall be binding on the parties and, unless otherwise provided by the arbitral tribunal, shall be enforced upon application to the competent state court, irrespective of the circumstance of the arbitration in which it was issued taking place abroad, without prejudice to the provisions of article 28.

2  - The party who is seeking or has obtained recognition or enforcement of an interim measure shall promptly inform the state court of any termination, suspension or modification of that interim measure by the arbitral tribunal that has granted it.

3  - The state court where recognition or enforcement of the measure is sought may, if it considers it proper, order the requesting party to provide appropriate security, if the arbitral tribunal has not already made a determination with respect to security or if such a decision is necessary to protect the rights of third parties.

4  - The decision of the arbitral tribunal on the granting of a preliminary order or interim measure, and the judgement of the state court deciding on the recognition or enforcement of an interim measure of an arbitral tribunal, are not subject to appeal.


To go even further, in Switzerland, in a case in 2010,  a court said that interim measures of this kind by arbitral tribunals can both be more wide ranging that courts may provide, but also that enforcement of such interim measures may only be set aside in very limited circumstances.

In the US, in PACIFIC REINSURANCE MANAGEMENT CORP. et al v. OHIO REINSURANCE CORP. et al., 935 F. 2d 1019, the court said (para 14):

"Temporary equitable relief in arbitration may be essential to preserve assets or enforce performance which, if not preserved or enforced, may render a final award meaningless.1 However, if temporary equitable relief is to have any meaning, the relief must be enforceable at the time it is granted, not after an arbitrator's final decision on the merits."

Now, because of the silence of the Federal Arbitration Act on the issue in the US, there is some uncertainty about provisional or interim awards. But as a counter to that, one can say that a) there are state laws that fill the gap, such as section 7502(c) of the New York Civil Practice Law and Rules, which allow state courts to entertain requests for enforcement of such interim orders and b) that even when the courts narrow their deference to interim awards, they will simply apply the high bar they will apply in granting injunctive relief.

[It is also a question of semantics. In addition to measures that preserve the ability of the tribunal to decide the overall dispute, some courts will enforce interim measures or awards if they are "final", for example, if they completely settle discrete topics within the overall dispute]

So the appropriate position is that not that injunctive relief or similar measures becomes unavailable in arbitration, it is that arbitration will, at worst, provide as high a hurdle for such measures as courts. In any case, should you wish to obtain injunctive relief, a court will entertain such appeals.

An US court is not likely to simultaneously refuse injunctive relief in its own power to parties AND refuse to recognise and enforce injunctive relief type interim arbitral orders. There is no general policy against injunctive (just a high bar.)

In any case, to return to the question that started my examination of the issue, the other side agreed to NY law in any case so their position was probably ill-founded in any case.

To return to the rest of the world, in Saudi Arabia's law, Sweden's law, basically any country that has used the UNCITRAL Model Law On International Commercial Arbitration  ( as the basis for its arbitration legislation), the situation is clear - interim awards are ok and enforceable. the international trend is in favour of enforcing interim awards.

And one further final blow- one can still draft the arbitration clause to allow for/carve out certain types of injunctive relief in the event that interim orders are not recognised in a particular jurisdiction.

All this to say, among the many reasons one can bring up to hide one's discomfiture or ignorance of arbitration as an alternative dispute resolution mechanism, "arbitration does not provide for injunctive relief" is not a good one.