Conflict Prevention and Resolution: “Pursuing Relief in Uncertain Times”

Kiana Mozaffari

On September 22nd, 2020, the International Institute for Conflict Prevention and Resolution (CPR) Canada presented two panels on Business Dispute Management, as part of the inaugural Canadian Arbitration Week. The second of these panels is summarized below.

The panel was moderated by Robert J.C. Deane (Borden Ladner Gervais), and composed of Myriam Seers (Torys), Naomi Loewith (OmniBridgeway), and Marc Goldstein (LexMarc). Panelists discussed (a) identifying the best options for relief when prospects for recovery are uncertain, (b) leveraging tools such as judicial freezing, and (c) tips for addressing defaulting respondents or respondents that decline to pay the required advances on arbitrators’ costs.

Naomi Loewith divided the topic of conflict resolution into three timeframes. First, before a claim is commenced, claimants should consider whether the respondents’ recoverable assets are sufficient satisfy a judgement, and identify the jurisdiction(s) where those assets are located. Claimants may also assess if there are any prior claims to those assets, occasionally with the aid of an asset tracer. Claimants with strong claims against governments or government entities may want to purchase sovereign default insurance to ensure the likelihood of payment. Second, during arbitral proceedings, claimants should send notice to opposing parties to encourage them to hold certain assets and discourage fraudulent conveyances. Counsel should also monitor the respondents’ creditworthiness throughout the course of an arbitration. Third, after a successful outcome, claimants should lay the foundation for demanding payment (these types of initiatives may need to be proven to the court at a later stage). Claimants may need to warn businesses that contract with the respondent, or assert their rights as a judgement creditor. Claimants can also partner with a third-party enforcement specialist, such as Omni Bridgeway, to assist them with enforcing the award.

Next, Mark Goldstein spoke about freezing orders, also called Mareva injunctions, which prevent a respondent from interfering with the whole, or part, of their assets pending completion of the arbitration process. Goldstein also divided the topic into three parts: (i) reasons why claimants should consider freezing orders, (ii) strategic choice of forum for a Mareva order, and (iii) governing legal standards surrounding Mareva orders. On the first issue, given the current economic climate, respondents are even more tempted than usual to engage in predatory financial behavior such as fraudulent conveyances to hide or shield assets. As a result, at the start of an arbitration, claimants should be alert to managing and evaluating collection risk. On the second issue, claimants should consider whether a Mareva order is available from the courts of the seat of arbitration. For example, while Mareva orders are available in London, Singapore, Hong Kong, and most Canadian provinces, they are an uncommon judicial remedy in the US. This discrepancy is due to the way Mareva orders are interpreted. In Mareva-friendly jurisdictions, Mareva orders act as a form of security adjunct to arbitration, preserving the corpus of assets in dispute to ensure that the dispute resolution system can be effective. Goldstein concluded by discussing some recent case law on Mareva orders. He highlighted the requirement of a “good arguable case”, which in the context of interim measures means that claimants cannot act frivolously. As to how risk of asset dissipation is defined, Goldstein noted that this concept is interpreted differently across jurisdictions. Different courts maintain varying thresholds for the amount of evidence required to prove that a respondent presents a real risk of dissipating its assets.

Myriam Seers described the options available to a claimant when the respondent declines to pay advances on costs, without which most arbitrators and arbitral institutions will not proceed. Typically, claimants pay the respondent’s share of the advance and reimbursement is figured into a partial or final award. Under CPR’s and most other institutional rules, the institution can make a request that the parties pay an advance, or else risk having the arbitration being suspended or withdrawn. Arbitration tribunals have in some cases treated the respondent’s failure to pay its share of the advance as a breach of the arbitration agreement, and have granted a partial award ordering the respondent to pay the advance.

Seers also discussed the infamous Dallah v Pakistan case. The issue in Dallah was whether the respondent, the Government of Pakistan, was a party to an arbitration agreement signed by an agency that no longer exists. The UK Supreme Court refused to enforce the US$20.5 million arbitral award obtained by Dallah against Pakistan, on the basis that under the law of the country where the award was made, Pakistan was not a party to the arbitration agreement. To avoid such frustrating outcomes, Seers suggests a bifurcated proceeding, where claimants can make a request for jurisdiction prior to any substantive issues being determined. Most arbitration rules allow parties to make this order as a preliminary question and seek a notice from the court confirming the tribunal’s jurisdiction (i.e., Article 16.3 of the UNCITRAL Model Law on International Commercial Arbitration).  There appears to be nothing in the Model Law preventing a claimant from then seeking confirmation from the court that the tribunal has jurisdiction, if the respondent fails to challenge the tribunal’s positive jurisdictional ruling. This would minimize the risk of an award on the merits later being set-aside on jurisdictional grounds, by getting the court to decide the matter finally upfront.

Seers concluded the session by explaining how to protect an award from being set aside or refused enforcement on the ground that the respondent did not receive adequate notice of the proceedings. Seers’s advice to claimants is to exercise extreme diligence and ensure that the respondent, or persons responsible for receiving documents on behalf of the respondent, receive all required notices. If respondent’s assets are located in multiple jurisdictions, counsel in each of those jurisdictions should be retained in order to ensure that all notice requirements are met.