How does an emergency arbitrator under ICC Rules decide on a request for security?
The Dutch Court in preliminary relief proceedings for lifting attachments put an end to four attachments worth more than 1 billion dollars, partly because 187.5 million dollars had already been deposited as a security as a result of summary arbitral proceedings. The court’s ruling gives some insight into how an emergency arbitrator under the ICC Rules interpreted his discretion. Procedural Law Lawyer Onno Hennis explains.
Purchase agreement terminated
In 2014/2017, COFCO – a Chinese state-owned agricultural company – acquired the
The portion of registered capital of a private or public limited company
» Meer over share shares of the Rotterdam grain trader Nidera. The total purchase price was 1.8 billion dollars. After the transaction, details about two transactions surfaced which would have caused considerable loss items for COFCO. COFCO wanted to cancel the transaction and terminated the purchase agreement. In addition, COFCO filed claims for damages against the sellers of Nidera.
ICC arbitration: Proceedings cut in two
As arbitration proceedings under the ICC Rules had been agreed in the contract of sale, COFCO initiated arbitration proceedings in 2017. A specific timetable had been determined in the arbitration proceedings, and the tribunal had split the proceedings in two. In the first phase, it would be examined whether there was a liability for the claims in relation to the transaction. In the second phase, the (level of the) damage would be discussed.
Summary before substantive arbitral proceedings
Prior to the substantive arbitral proceedings, COFCO demanded in summary arbitral proceedings (called ‘emergency arbitrator proceedings’ under the ICC Rules) that security should be provided to prevent it from being left empty-handed at the end of the day. The emergency arbitrator ultimately decided that an amount of USD 187.5 million should be deposited.
ICC Arbitrator Proceedings
Since 2012, it has been possible under the ICC Rules to request interim measures via arbitration in urgent cases. An emergency arbitrator will be appointed at short notice, who can take various measures in the form of an ‘order’ (i.e. not a judgment).
What kind of interim measures?
In principle, parties can request various types of interim measures. However, the measures will generally aim to guarantee a certain ‘status quo’, such as the prohibition on selling certain essential goods. Measures intended to prevent considerable (reputational) damage from occurring are also customary. In this case, COFCO had requested the emergency arbitrator to rule that COFCO would not have to pay the final instalment of the purchase price, namely 448 million dollars, pending the substantive proceedings.
Weighing of interests
As a rule, the emergency arbitrator will have to weigh up interests in his decision. In this case, he had to examine whether COFCO had sufficient grounds to be (temporarily) released from its payment obligation. Furthermore, he would have assessed whether there was a risk that the claims may be irrecoverable. On the other hand, the emergency arbitrator will have to weigh the interest of the sellers in the timely payment of the purchase price for the shares.
Emergency arbitrator’s calculation method
The emergency arbitrator took a practical approach. He considered that although COFCO only had a thin claim, its interests to be able to have recourse at the end of the day were more significant than the sellers’ interest to receive the purchase price (in time). He furthermore considered that the level of the expected damage was insufficiently precise. Apparently, on the occasion of the oral hearing, COFCO and the sellers had stated that deposits amounting to 300 million dollars or 75 million dollars, respectively, would be acceptable.
Emergency arbitrator took middle course
The emergency arbitrator, in the absence of other reference points, took the middle course and decided that the purchase price of 187.5 million dollars had to be deposited and the remainder had to be paid to the sellers.
Dutch lawyer in arbitration cases
If you are involved in arbitration (for example under the ICC Rules or through the Netherlands Arbitration Institute (NAI)) or wish to initiate arbitration proceedings, AMS Advocaten has extensive experience in conducting arbitrations, both nationally and internationally.