CIETAC’s latest emergency arbitration: an inside look

The practice of emergency arbitration has taken off among arbitration institutions in Beijing, Shanghai and elsewhere. With the strict confidentiality principle in mind, a closer look at one case the author presided over at the China International Economic and Trade Arbitration Commission (CIETAC) in April 2022 may provide some useful insights.

Case background

The case involved legal proceedings in three countries– Brazil, the UK and China– which were conducted in English. The principal facts of the case were as follows: the Swiss buyer ordered a batch of fertiliser from a seller in mainland China for shipment to Brazil. The goods were loaded at two ports in China and shipped to two ports in Brazil. The carrier issued multiple bills of lading for the goods loaded in separate batches, with different quantities of goods under each bill.

The buyer completed part of the payment for goods before loading, but the price of the goods fluctuated quite significantly since then. When the goods arrived at the first Brazilian port, the buyer refused to pay the remainder of the consideration and the seller likewise refused to hand over the original bills of lading, making it impossible for the buyer to accept the goods from the carrier.

Into emergency arbitration

Subsequently, the buyer instituted litigation proceedings against the carrier in a Brazilian court. After two trials within a relatively short period of time, the Brazilian court ordered the carrier to release part of the goods, the value of which was less than the amount paid by the buyer, with the main reason being that certain downstream buyers that had already paid the price were anxiously awaiting the fertiliser.

The carrier then instituted a legal action in a UK court based on the arbitration agreement contained in the contract of carriage executed by the carrier and the buyer. The UK court then issued an anti-suit injunction constraining the buyer from seeking further relief in the Brazilian court.

The contract executed by the buyer and the seller provided that disputes be referred to CIETAC for resolution. Accordingly, the buyer instituted arbitration proceedings against the seller before CIETAC and additionally submitted an application for emergency arbitration, demanding that the seller provide all the original bills of lading.

The CIETAC emergency arbitration rules then came into play for the second time since they were issued. A complete emergency arbitration procedure is a highly co-ordinated process of interaction between the arbitral institution, the emergency arbitrator and the parties (attorneys), which can be divided into four stages:

Stage one: In the first two days, the emergency arbitrator confirmed that there was no conflict of interest and quickly read the court file. A procedural order was drafted setting out the procedural arrangements until the hearing. The arbitral institution promptly issued a notice of acceptance of emergency arbitration and the procedural order.

Stage two: Within approximately one week, each party (attorney) submitted its legal opinion and exhibits, studied the other party’s legal opinion and exhibits and prepared for the hearing. The emergency arbitrator studied the case file and spent significant time searching and researching emergency arbitration practice in various countries and analytical/descriptive articles to duly prepare for the hearing. The case secretary ensured that the documents were transmitted promptly and in good order, and duly made preparations for the online hearing.

Stage three, which included a half-day online hearing: The parties were given an additional two days to submit further evidence and opinions. The parties then had an additional two days to cross-examine in writing the newly submitted exhibits. In effect, the emergency arbitrator began writing up its decision from the commencement of the hearing.

Stage four: The emergency arbitrator completed the writing of the emergency arbitration decision, gave it to the arbitration institution for review and stayed in close contact with the case secretary. During the last two days, the arbitration institution completed the various procedural tasks before the decision was issued. In short, during these 15 days, with all participants under tremendous pressure, the “emergency” arbitration lived up to its name.

Most memorably, everyone involved in the case, from attorneys for both parties, case secretary, back-office managers to checkers, remained dedicated to and efficient with their tasks. As the author later learned, afterward, the parties willingly implemented the decision rendered by the emergency arbitrator, bringing the proceedings to a successful conclusion.

Post-case review

Subject to the principle of confidentiality, the author cannot disclose further details of the case decision. What can be shared is that, in addition to consideration of the core factors such as the urgency of the situation and possibility of success, the emergency arbitrator in this case paid particular attention to the balance of “hardship”, i.e., carefully weighing the potential harm to the applicant if the emergency claim was not upheld, and the potential harm to the respondent if the emergency claim was upheld, and eventually picking what we might call “the lesser of two evils”.

The basic stance of the emergency arbitrator was that, provided that the basic principles of the transaction were safeguarded and that the fundamental interests of the rights holder were not harmed, if good will, loosened to an appropriate degree, could serve to alleviate the tensions, he/she would be more than happy to accommodate the same, which is part of the reason why the emergency arbitration application was upheld.

Looking back on this case, the author believes that, although it was a prickly stress test for all involved, it nonetheless proved to be a valuable learning opportunity, particularly in view of the fact that it took place in April 2022, at the height of Shanghai’s two-month pandemic lockdown.

It should be stressed that emergency arbitration, as the name implies, should be reserved only for emergencies. It is not to be abused, nor used to put pressure on the opponent. ICC analysis has indicated that the odds for emergency arbitration applications being wholly supported is not as high as one might imagine. Therefore, it should be regarded as a “last resort”.

Tim Meng is a managing partner at GoldenGate Lawyers. He can be contacted by phone on +86 10 8589 0501 and by email at tmeng@goldengatelawyers.com