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A Connecticut federal court relied on Second Circuit precedent in holding that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) does not deprive courts of jurisdiction to grant provisional remedies where an international arbitration is pending. Accordingly, the Court allowed one of the parties to proceed with its motion for a provisional remedy.
In Bahrain Telecommunications Co. v. DiscoveryTel, Inc., No. 3:05cv1957, 2007 WL 715926 (D. Conn. Mar. 9, 2007), Bahrain Telecommunications Co. (BTC), a Bahrain company, and DiscoveryTel, a telecommunications company in Connecticut, entered into an agreement for the exchange of two-way telecommunications traffic. When the business relationship deteriorated, BTC sued DiscoveryTel for breach of contract. The parties subsequently agreed to submit the dispute to arbitration before the London Court of International Arbitration (LCIA).
Despite the agreement to arbitrate, BTC sought court-ordered prejudgment attachment pursuant to section 52-422 of the Connecticut Arbitration Act, which authorizes courts to issue orders "necessary to protect the rights of the parties pending the rendering of [an arbitration] award."
In moving for dismissal of BTC's motion for prejudgment attachment, DiscoveryTel cited Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999) and McCreary Tire & Rubber Co. v. CEAT, 501 F.2d 1032 (3d Cir. 1974) in arguing that under the Convention, courts have no authority to grant provisional remedies when an international arbitration is pending.
The Court rejected this argument based on Second Circuit precedent holding that courts have authority to grant provisional remedies where an arbitration is pending, international or otherwise, regardless of whether the arbitration rules allow the arbitrator to grant provisional remedies.
In an attempt to distinguish Second Circuit precedent, DiscoveryTel argued that a preliminary injunction differs from a prejudgment remedy (e.g., prejudgment attachment) insofar as the injunction preserves the status quo instead of altering it. The Court rejected this argument by noting that "a prejudgment remedy also is designed to maintain the status quo – namely, the parties' financial status quo pending issuance of a final judgment." As further support for its holding, the Court pointed out that the LCIA rules of arbitration expressly permit parties to a pending arbitration to seek court-ordered provisional remedies.
Finally, DiscoveryTel argued that section 54-422 of the Connecticut Arbitration Act was inapplicable because a statutory reference to arbitration awards rendered "under this chapter" signaled the legislature's intent that the statute not apply to pending out-of-state arbitrations. In rejecting this argument, the Court explained that a literal interpretation of the phrase "under this chapter" would mean that court-ordered provisional remedies are unavailable in Connecticut-based arbitrations governed by the Federal Arbitration Act.
As this case illustrates, where an arbitration is pending, courts can grant provisional remedies as a means of preserving the status quo and aiding the arbitration. More importantly, parties can adopt arbitration rules that empower the arbitrator to grant provisional remedies.
For example, under Rule 27A of the National Arbitration Forum Code of Procedure, a party can seek expedited relief, and under Rule 20D, the arbitrator can grant provisional remedies and thus preserve the status quo, as may be necessary to secure assets and ensure an effective recovery, to protect a party's rights in collateral, or to protect a party from damages for which there is no adequate legal remedy (e.g., breach of a noncompete agreement).
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