Introduction

The authority of arbitrators to grant conservatory and provisional measures stems from their inherent powers to conduct the arbitral proceedings and, more specifically, any additional authority granted to them in the contract between the parties. 1 When parties agree to arbitrate under AAA rules the provisions of such rules regarding provisional measures will be determinative since, in most cases, the parties do not "fine tune" their contracts to include specific directions on the arbitrator's powers to grant conservatory and provisional relief.

I. AAA Rules

The AAA rules most frequently referred to in international commercial agreements are the Commercial Arbitration Rules 2 - including their adaptations for construction,3 patent4 and securities 5 disputes - in conjunction with the Supplementary Procedures for International Commercial Arbitration 6; and, the International Arbitration Rules,7 which were first promulgated on March 1, 1991.

The Commercial Rules deal with the subject of interim measures in Section 34, in the following terms:

Interim Measures

The arbitrator may issue such orders for interim relief as may be deemed necessary to safeguard the property that is the subject matter of the arbitration, without prejudice to the rights of the parties or to the final determination of the dispute.

Also relevant is Section 43 which specifies the remedial powers of the arbitrator:

Scope of Award

The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract...

The above language has been interpreted by courts as vesting arbitrators with broad authority to order conservatory and provisional measures at any stage of an arbitration proceeding.8 A recent case to the contrary is a Massachusetts ruling which vacated an award directing a party to furnish a $1,000,000 irrevocable letter of credit to the AAA as security for the payment of any award that might be rendered.9 The court interpreted Section 34 narrowly to restrict provisional relief to situations where such relief is deemed necessary to safeguard the very property that is the subject of the arbitration. It reasoned that a mere breach of contract claim did not make other assets from which an award might eventually have to be satisfied "property that is the subject matter of the arbitration". 10[Page32:]

To overcome this potential difficulty in future cases, the AAA's Practice Committee has recently approved a revision of Section 34 to have it conform more closely to Article 22 of the International Arbitration Rules, which provides as follows:

Interim Measures of Protection

1 At the request of any party, the tribunal may take whatever interim measures it deems necessary in respect of the subject-matter of the dispute, including measures for the conservation of the goods which are the subject-matter in dispute, such as ordering their deposit with a third person or the sale of perishable goods.

2. Such interim measures may be taken in the form of an interim award and the tribunal may require security for the costs of such measures.

3. A request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate.

With the above change both sets of AAA rules now provide arbitrators with the broadest authority to order conservatory and provisional measures and w incorporate them into a judicially enforceable interim award.11 The last section of Article 22 preserves the status of arbitration in situations where, either because a tribunal is not yet constituted or the property or assets are within the control of third parties, meaningful provisional relief can only be obtained from the courts. The following examples illustrate the types of interim relief granted by arbitrators in the more recent cases administered under AAA auspices.

II. Posting of security

Attachment is the most frequently sought and most valuable form of provisional relief. It serves to freeze property, mostly in the form of bank accounts, to prevent the flight of assets from the jurisdiction. As a practical matter, this remedy is only available from national courts which can invoke a state's machinery of enforcement. Nevertheless, time permitting, and once an arbitral tribunal is constituted, similar relief may also be obtained from the arbitrators.

An example of such relief which acted as a prejudgment attachment is provided by the arbitration between Sperry International and the Government of Israel.12 That case related to the construction of a communications system for the Israeli air force. Pending resolution of the issues to be arbitrated, die arbitrators issued a partial award requiring both parties to place in a joint escrow account the amount of the proceeds of a Letter of Credit in favor of the Government. The relief granted was in the following terms:

1. The proceeds of said Letter of Credit shall be paid into an escrow account (`Escrow Account') in the joint names of Claimant and Respondent with such bank or other entity in the United States of America as shall be agreed upon in writing by Claimant and Respondent prior to the release of such proceeds by Citibank, N.A. or, in a default of such agreement, with Citibank, N.A.

2. Claimant and Respondent shall maintain the Escrow Account in their joint names as aforesaid and the moneys or other investments standing to the credit thereof, including ail interest or other income which may be earned thereon, shall not be withdrawn or transferred until (and then only in such mariner, on such terms and in such amount, whether as to the whole or in part, as Claimant and Respondent shall so agree in writing or, in default of such agreement, this tribunal or a Court in the State of New York or Federal Court in die United States of America shall finally so determine.

3. Claimant and Respondent shall not permit the Escrow Account to become subject to any lien or encumbrance without the leave of this Tribunal or of a Court in the State of New York or Federal Court in die United States of America.

. . . . . . . . .

8. This order shall constitute an Award of the arbitrators and either party is at liberty to apply forthwith to the United States District Court for the Southern District of New York for confirmation and/or enforcement thereof.

When the Government challenged the arbitrators' authority to render such an award die court confirmed the award based, inter alia, on die express waiver of sovereign immunity and a specific provision of the contract stating [Page33:] that "neither party shall be precluded hereby from seeking provisional relief in the courts of any jurisdiction including, but not limited to, temporary restraining orders, preliminary injunction..."

Other courts similarly have found partial or interim awards confirmable when they have finally resolved a separable issue in arbitration in accordance with the terms of the contract.13Thus, the Sixth Circuit Court of Appeals affirmed confirmation of a partial final award, finding that :

[t]he interim award disposes of one self-contained issue, namely, whether the City is required to perform the contract during the pendency of the arbitration proceedings. Th[is] issue is a separate, discrete, independent, severable issue.14

The courts have recognized that the power of the arbitrators to issue partial or interim awards would be meaningless without immediate judicial enforcement. Judge Weinfeld spoke to this, in confirming a partial final award which granted injunctive relief:

That the arbitrators labeled their decision an "interim" award =mot overcome the fact that if an arbitral award of equitable relief based upon a finding of irreparable harm is to have any meaning at all, the parties must be capable of enforcing or vacating it at the time it is made. Such an award is not "interim" in the sense of being an "intermediate" step toward a further end. Rather, it is an end in itself, for its very purpose is to clarify the parties' rights in the "interim" period pending a final decision on the merits. The only meaningful point at which such an award may be enforced is when it is made, rather than after the arbitrators have completely concluded consideration of all the parties' claims.15

III. Corrective measures

A remarkable set of provisional measures was the subject of a partial award rendered in a dispute resulting from an international sale of an industrial plant which resulted in claims of environmental pollution that existed at the site 16 In the course of the arbitration, respondent proposed that remedial actions be taken but the parties could not agree on the conditions of the cleanup. The arbitrators, responding to the request of the parties, crafted the framework for a comprehensive cleanup regime.

The partial award provided that within seven days of the filing of the award with the AAA, each party was to designate a representative experienced in environmental cleanup actions involving ground water remediation.Within thirty days of the designations, the parties were to select a consultant with overall authority to select and implement appropriate clean up actions. Payment of costs was to be through an escrow agent, with the funds to be advanced by respondent. The tasks to be performed consisted of site evaluation, remedial investigation, and implementation of remedial actions with all work performed being subject to competitive bidding. The award also provided for a full ex-change of documents and regular consultation between the consultant and the parties' representatives. Final decision-making authority and responsibility for contact with the appropriate governmental agencies rested with the consultant. The information developed during the cleanup could be offered into evidence in the arbitration proceeding.

The award reserved for later determination all other claims of the parties, including their respective rights under the sales agreement, and the cleanup costs. The ruling also provided that the partial award, as applied by the consultant and the arbitrators, was subject to prompt confirmation in the courts.

IV. Alleviation of hardship

While most conservatory and provisional measures are granted upon application of a party, there are instances when arbitrators themselves will grant provisional relief. One recent example involved the valuation of a 25% interest in a partnership.17 The fine, which was terminated in 1988, was subsequently continued by die partner with the 75% interest under the same firm name but with two new partners. [Page34:]

At the first hearing, upon application of claimant, the arbitrators directed respondents to pay claimant the sum of $1,000,000, representing the undisputed portion of claimant's unpaid accrual capital. The respondents paid this amount without objection.

After further hearings and when final examination of witnesses was almost concluded, respondents requested permission to present a rebuttal case. The arbitrators granted this request which caused a further 2 1/2 month's delay in the conclusion of the arbitration. In order to alleviate the financial predicament in which claimant was placed by this delay, the arbitrators on their own motion, directed the respondents to pay claimant an additional $750,000.

The respondents objected, characterizing the ruling as misconduct by the panel, and requested recusal of the arbitrators. The panel refused to recuse itself, but reduced the amount from $750,000 to $675,000, which represented the balance of claimant's unpaid accrual capital in the financial statements of the partnership.

The respondents did not comply with this directive, but moved in court to disqualify the arbitrators. The court denied the motion, finding that:

The granting of the additional interim relief in the amount of $675,000 at such an advanced stage in the arbitration proceeding was within the equitable powers of the arbitrators and did not constitute misconduct.

Addressing the sua sponte aspects of the arbitrators' ruling, the court noted that:

the scope of interim relief available to an arbitration panel is not circumscribed by the pleadings of one of the parties to an arbitration... [and that] the arbitration panel in this case had the right to consider the merits of the case in its efforts to balance the equities between the parties in directing appropriate additional interim relief.

The court rejected respondents' claim that the panel had prejudged the case as being contradicted directly by the express statements of the arbitrators:

This is not a determination, by any means, of the case. It is purely interim..." and, "we are, of course, not saying, nor have we inferred that the entitlement would necessarily be anything more than that. As previously indicated, we believe that this direction by us is consonant with consideration of fairness, equity, in an effort to maintain the status quo as much as possible, and keep both parties on as level a playing field as possible, while this protracted dispute is being heard and resolved.

Finally, the court found that the disqualification motion was brought primarily to delay the award or having to pay monies to claimant, and granted claimant's request for costs and counsel fees.

V. Consolidation

Among the provisional remedies that arbitrators are rarely called upon to provide is consolidation. Both surveys and experience have shown that it is best for the parties themselves to regulate, either in their arbitration agreement or at the lime of arbitration, the question of whether multiple claims arising from the same project or transaction but under separate agreements should be arbitrated separately or jointly.18

The AAA's administrative policy on the subject of consolidation and joinder is to initiate the arbitration - be it the claim, counterclaim, or request to join additional parties - as filed by the moving party, even though separate contracts may be involved, thereby providing the parties with an opportunity to proceed jointly if they so desire. Should one or more parties object to such a procedure, the case will be separated and processed individually unless a court directs otherwise. Separately instituted cases may be consolidated whenever all parties agree or consolidation is ordered by the courts.

In view of this policy which serves to resolve most consolidation issues in the early stages of an arbitration, and the difficulties facing arbitrators selected for one case seeking to restructure the proceedings to accommodate the rights of additional parties, the issue is best dealt with by the parties in their contracts or by the courts.19[Page35:]

VI. Confidentiality

Both AAA Commercial and International Rules provide for the confidentiality of arbitration proceedings. So does the Code of Ethics for Arbitrators in Commercial Disputes subscribed to by the AAA.20 Nevertheless, while the arbitrators are bound to maintain confidentiality, no such requirement is imposed on the parties themselves. A recent securities case illustrates how provisional relief can address confidentiality concerns.21

The arbitration was filed by the CEO of a publicly held company who charged a brokerage firm and one of its shareholders, who happened to be his wife, with mishandling his multi-million dollar commodity account. While claimant suffered from spinal and brain tumors, and underwent a series of operations, he continued to run his company, yet claimed that poor health prevented him from supervising his financial holdings. Concerned that his incompetency claim might become public and about the implications of another event, claimant requested the arbitrators to declare the entire arbitration confidential and the record sealed in perpetuity.

Upon considering the matter, the arbitrators issued the following confidentiality order:

It is the decision and order of the arbitration panel that this matter be kept confidential during the proceeding and until a rendering of an award, except upon inquiry by a court or public officer, body of authority, or self-regulatory organization having jurisdiction.

By keeping confidential is meant to keep private and not to disclose information concerning this matter to any non-party or parties or anyone who may not be called as a witness in this matter.

As to the period subsequent to the award, no implication on confidentiality should be taken.

The issue was again addressed in the final award which provided that:

Claimant's request for the record's confidentiality is denied. However, this decision shall not in any way alter or change the rules of the American Arbitration Association or its Code of Ethics for Arbitrators in Commercial Disputes concerning the privacy of this proceeding, which rules and canons shall remain in full force and effect with respect to this matter.

VII. Receivership

Another high profile case arbitrated under AAA auspices concerned New York City's famous Helmsley Palace Hotel. The arbitration was filed by the limited partners of the hotel, American and German investors, who claimed that Helmsley Enterprises had breached its fiduciary duties, had engaged in self-dealing, and was unable to carry out its role as general partner in a competent manner.22

After extensive hearings the arbitrators upheld most of the claims and issued a partial final award directing the parties to agree on a buyout arrangement, the appointment of an appraiser and of a temporary receiver to conduct the operation of the hotel on an interim basis. The receiver was authorized to dissolve the partnership and wind up its business if the parties themselves could not agree on such arrangements. Also included was an order for an accounting of sums paid by Helmsley Enterprises to an affiliate and others.

Helmsley Enterprises moved to vacate the arbitrators' partial final award in court. In considering the submissions, the court characterized the issue of the arbitrator's power to appoint a receiver as one of first impression. Noting that New York law contains a provision precluding the appointment of a receiver in relation to arbitration, it interpreted this language as binding on the courts rather than the arbitrators. It further concluded that by agreeing w the application of the AAA's Commercial Arbitration Rules, the parties granted extensive authority to the arbitrators and that such "provision must be understood as a recognition by all parties that the arbitrators would have the power necessary to resolve the dispute agreed to be presented to them."23[Page36:]

The court upheld most aspects of the award, but found it lacking with respect to the receiver's precise functions and how these would be supervised by the arbitrators. It remanded the matter to the arbitrators so that these details could be supplied by them and the supplemental declaration or award promptly confirmed by the court.

VIII. Intellectual property

One of the largest AAA arbitrations involving hundreds of millions of dollars and complicated computer-programming issues that had profound implications for the two companies and their customers arose out of disputes between IBM and Fujitsu. 24 When the parties failed to resolve the matter, IBM initiated arbitration which then resulted in the issuance of an interim award allowing Fujitsu to derive specifically defined interface information from new IBM programming materials released before June of 1997, and obliging Fujitsu to pay IBM annually an access fee to be determined by the arbitrators. It also provided for the purchase by Fujitsu for $396 million of a paid up license covering future use of previously released Fujitsu programs, some of which contained IBM programming material.

One of the challenges facing the arbitrators was the design of measures that would allow Fujitsu to independently pursue operating system software compatibility, while at the same time protecting the interest of IBM through controls on Fujitsu's use of information. The measures ultimately adopted by the arbitrators took the form of a secured facility regime. Specifically, the Instructions, Rules, and Standards contained in the award defined the exact information that may be derived when one party examines the other party's programming information, how such information may be examined, the method of determining the fees; and the award also contained criteria for evaluating whether or not a given program clearly differentiated between programming service interfaces and other information about the program.

The arbitrators noted the importance of the secured facility in protecting IBM's investment and its operating system software, while providing Fujitsu with a reasonable opportunity to develop and maintain IBM-compatability and continue to compete in the marketplace. A further benefit of the complex interim arrangements was to ensure that customers may continue to use Fujitsu's programs without interruption. The secured facility was placed in Japan and the arbitrators retained continuing jurisdiction over all disputes between the parties until November 29, 2002.

Conclusion

The case examples surveyed in this paper provide only a random sampling of the type of situations in which arbitrators in AAA cases have ordered conservatory and provisional measures. This limited experience suggests that while the remedies of preliminary injunction and attachment are more readily available from the courts, a broad range of provisional relief may also be obtained from arbitrators in the course of arbitration. Some measures are designed to maintain the status quo or insure ultimate compliance with the award; other measures are much more sophisticated and designed to address interim problems and concerns before a final resolution is achieved. And while many parties will voluntarily comply with the arbitrators' directives, it is clear that to a very large extent, the effectiveness of provisional measures ordered by an arbitral tribunal will depend on the sympathetic enforcement power of a supportive judiciary.

1
See McDonell, "The Availability of Provisional Relief in International Commercial Arbitration", 22 Colum. J. Transvaal L. 273 (1984).

2
AAA Commercial Arbitration Rules, revised rules and fees for cases filed on or after May 1, 1992.

3
AAA Construction Industry Arbitration Rules, revised rules and fees for cases filed on or after May 1, 1992.

4
AAA Patent Arbitration Rules, revised rules and fees for cases filed on or after May 1, 1992.

5
AAA Securities Arbitration Rules, revised rules and fees for cases filed on or after May 1, 1992.

6
AAA Supplementary Procedures for International Commercial Arbitration, as amended and in effect February 1,1986.

7
AAA International Arbitration Rules, as amended and effective on May 1, 1992. See also Hoellering, "The New International Arbitration Rules of the American Arbitration Association", Private Investments Abroad - Problems and Solutions in International Business in 1991 (California: Matthew Bender & Co., Inc., 1991).

8
See also Comment, "Pre-award Attachment under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards", 21 Va. J. Int'l L. 785 (1981); Note, "Attachment Under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards", 36 Wash. & Lee L. Rev. 1135 (1979).

9
Charles Construction Co.. Inc. v. Derderian, 412 Mass. 14, 586 N.E.2d 992 (1992).

10
586 N.E.2d at 995.

11
The anticipated effective date for this change is May 1, 1993.

12
Sperry International Trade, Inc. v. Government of Israel, 532 F. Supp. 901 (S.D.N.Y. 1982), aff'd, 689 F.2d 301 (2d Cir. 1982).

13
Metallgesellschaft A.G. v. MN Capitan Constante, 790 F.2d 280 (2d Cir. 1986); Island Creek Coal Sales Co. v. City of Gainesville, 729 F.2d 1046 (6th Cir. 1984); Zephyros Maritime Agencies, Inc. v. Mexicana de Cobre, S.A., 662 F. Supp. 892 (S.D.N.Y. 1987).

14
Island Creek, 729 F.2d at 1048.

15
Southern Seas Navigation Limited of Monrovia v. Petroleos Mexicanos of Mexico City, 606 F. Supp. 692, 694 (S.D.N.Y. 1985).

16
From the AAA's internal case files.

17
Ahuja v. Burgee, No. 20699/89 (S. Ct., N.Y. County Nov. 27, 1991).

18
See Hoellering, "Construction Arbitration and Mediation: The Latest Developments" Arbitration & the Law, 1982 (New York: American Arbitration Association, 1983) at 43.

19
BKMI Industrieanlagen GMBH v. Dutco Construction Co. (Pvt.), Limited, No. 89-28.708 Y; Siemens AG v. Dutco Construction Co. (Pvt.). Limited, No. 89-18.726 Y combined, Cass. civ. 1re.

20
The Code was prepared by a joint committee consisting of a special committee of the AAA and a special committee of the American Bar Association. Copies of the Code may be obtained by writing to the AAA Publications Department, 140 West 51st Street, New York, N.Y. 10020.

21
Judith Osborne,"Emerson Radio Chairman is facing public scrutiny of personal woes", The Star Ledger, Sept. 14, 1990, Business; Diana B. Henriques, "Investor's Claim Has Marital Twist", N.Y. Times, Sept. 13, 1990, at D1.

22
In re Lepercq De Neufliz & Co., Inc., No. 7651/92 (S. Ct. N.Y. County Apr. 23, 1992).

23
Id.; slip op. at 15.

24
nternational Business Machines Corporation v. Fujitsu LimitedI, No. I3T-117-0636-85 (1988)(Mnookin and Jones, Arbs.).