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Relief in support of arbitration refused following claimant's involvement in Indian proceedings (Commercial Court)
Practical Law UK Legal Update Case Report 1-518-6912 (Approx. 7 pages)
Relief in support of arbitration refused following claimant's involvement in Indian proceedings (Commercial Court)
by PLC Arbitration
| Published on 28 Mar 2012 • England, Wales |
In Enercon GmbH and another v Enercon (India) Ltd [2012] EWHC 689 (Comm), Eder J considered whether to grant permission to serve an arbitration claim form out of the jurisdiction, make an order appointing an arbitrator under section 18 of the Arbitration Act 1996, and continue interim anti-suit and freezing injunctions.
Speedread
The Commercial Court has refused permission to serve an arbitration claim form out of the jurisdiction and refused to make an order appointing an arbitrator under section 18 of the Arbitration Act 1996, because there was a dispute, pending before the Indian courts, as to whether the seat of the arbitral proceedings was India or London.
Although Eder J would himself have concluded that the seat of the arbitration was London, the claimants had participated in the Indian proceedings, rather than pursuing applications before the English court.
In all the circumstances it would not be appropriate for the English court to grant permission to serve the claim form out of the jurisdiction, and the proper response was to stay the English proceedings pending a decision by the Indian court.
The case is a vivid reminder that, even where the English court would itself conclude that there are grounds for permitting service of an arbitration claim form out of the jurisdiction, the power to grant permission is, itself, permissive, and the court may refuse to intervene. The decision also illustrates the fact that participation in overseas proceedings may persuade the English court to decline to intervene, and includes some interesting observations about the standard of proof in arbitration claims, and a warning about the appropriate volume of evidence. (Enercon GmbH and another v Enercon (India) Ltd [2012] EWHC 689 (Comm).)
Background
Application of the Arbitration Act 1996
Section 2(1) of the Arbitration Act 1996 (AA 1996) provides
"The provisions of this Part apply where the seat of the arbitration is in England and Wales or Northern Ireland."
The "seat" of an arbitration is not necessarily the same as the physical location of any hearings, but denotes the juridical location of the arbitral proceedings. The seat is either designated (by the parties, tribunal or arbitral institution) or is determined having regard to all the circumstances, including the parties' agreement and the connection with a country of the parties, the dispute and the procedures chosen (section 3, AA 1996).
Certain powers conferred by Part 1 of the AA 1996, including the power to grant injunctive relief under section 44, apply regardless of the seat. However, in such cases the court may refuse to exercise its powers where the fact that the seat is outside England, Wales or Northern Ireland makes it "inappropriate" to do so (section 2(3)).
For further discussion, see Practice note, The English Arbitration Act 1996.
Appointment of arbitrators: section 18, AA 1996
Section 18 of the AA 1996 confers powers on the court, where the designated procedure for the appointment of an arbitrator has failed, including the power to make any necessary appointments. For further discussion, see Practice note, Constituting a tribunal under the English Arbitration Act 1996.
Anti-suit and freezing injunctions: section 44, AA 1996
Section 44 of the AA 1996 empowers the court to grant certain orders in support of arbitral proceedings, including anti-suit and freezing injunctions. Generally, unless the parties or the tribunal have agreed, the court may intervene to make such orders only in cases of urgency.
For further discussion, see Practice note, The English court's supportive powers: interim injunctions and receivers
Service of arbitration claim forms out of the jurisdiction
CPR62.5(1) provides that the court "may" grant permission to serve an arbitration claim form out of the jurisdiction if
"...(b) the claim is for an order under section 44 of the 1996 Act; or
(c) the claimant –
(i) seeks some other remedy or requires a question to be decided by the court affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award; and
(ii) the seat of the arbitration is or will be within the jurisdiction...."
Facts
The underlying dispute concerned a wind energy joint venture pursuant to an Intellectual Property Licence Agreement (IPLA) concluded by the first claimant (Enercon) as licensor and the defendant (EIL) as licensee.
Clause 18 of the IPLA provided for disputes to be referred to arbitration. Clause 18.3 stated:
"All proceedings in such arbitration shall be conducted in English. The venue of the arbitration proceedings shall be London...The provisions of the Indian Arbitration and Conciliation Act, 1996, shall apply."
Disputes arose under the IPLA, Enercon claiming it was entitled to various royalties and other sums that had not been paid. EIL argued that IPLA was merely a draft and not legally binding; and further argued that the seat of any arbitration was not London but India.
The procedural history of the dispute was complex and involved a number of proceedings in India and in the UK. In summary:
- In March 2008, the claimants referred their claims to arbitration by appointing an arbitrator pursuant to clause 18. Although it denied that the IPLA was binding, EIL appointed an arbitrator under protest. However, in August 2008, the two appointed arbitrators indicated that they were unable to appoint a third arbitrator and that clause 18 was, in their view, unworkable.
- Also in March 2008, the claimants issued proceedings in the English Commercial Court, seeking declarations that EIL was bound to refer disputes to arbitration and that the seat of the arbitration was England.
- EIL subsequently filed a claim in the Daman court in India, seeking a declaration that the IPLA, including the arbitration clause, was not binding, and an anti-suit injunction restraining the English proceedings. The Daman court granted an interim anti-suit injunction on 8 April 2008. The claimants applied for an order requiring the claims in the Daman proceedings to be referred to arbitration and for the anti-suit injunction to be lifted. On the claimants' appeal, the Daman District Court set aside the injunction and ordered the disputes to be referred to arbitration, but granted a temporary stay of the latter to give EIL the opportunity to "approach" the Bombay High Court (BHC).
- EIL then filed petitions before the BHC, seeking to quash the order of the Daman District Court. Pending the final determination of the petitions, the BHC reinstated the anti-suit injunction and also maintained the stay of the order referring the dispute to arbitration. The evidence showed that the petitions were unlikely to be heard for another 2-3 years.
- In November 2011, the claimants issued further proceedings in the Commercial Court, claiming the appointment of a third arbitrator pursuant to section 18 of AA 1996, and an anti-suit injunction prohibiting EIL from pursuing proceedings in India. Interim anti-suit relief was granted on 25 November 2011.
- On 25 February 2012, Eder J granted a freezing injunction against EIL.
The applications now before Eder J were:
- An application by EIL challenging the court's jurisdiction under CPR 62.5.
- The claimants' application for the appointment of an arbitrator.
- EIL's application to set aside or vary the anti-suit injunction and the freezing injunction.
For the purposes of these applications, it was common ground that there was a good arguable case that the IPLA was a binding agreement.
Decision
Eder J decided that, in all the circumstances, it was for the Indian court, not the English court, to decide the issue of where the seat of the arbitration was. It followed that permission to serve the claim form out of the jurisdiction should be refused. He also set aside the anti-suit injunction, refused to continue the freezing injunction, refused the section 18 application, and stayed the English proceedings.
The issue of the seat of the arbitration was already pending before the BHC in the context of the petitions. Had the claimants applied to the English court for relief at an earlier stage, the court might have been persuaded to intervene. The important point here, though, was that the claimants had not pursued their applications in the original proceedings issued in March 2008. Instead, they engaged fully in the Indian proceedings before the Daman court, and, having failed at first instance, had then appealed to the Daman District Court. Having made that choice, and given the passage of time, the English court should be very cautious about intervening at this stage to wrest back the proceedings to England.
For this reason, Eder J reluctantly concluded that, even though he would have taken the view that the seat of the arbitration was England, the court should refuse permission to serve out of the jurisdiction and should stay its own proceedings. CPR62.5 was permissive in nature, and it would not now be appropriate for the English court to intervene until the Indian court had ruled on the seat issue.
Eder J made some obiter comments about the substance of the seat issue. He observed that
- There was some debate about whether the relevant standard of proof for the purposes of CPR 62.5(c)(ii) was "good arguable case" or "balance of probabilities". One possibility was that the standard under CPR 62.5(c)(ii) was "good arguable case" but under section 18 AA 1996 was "balance of probabilities".
- Turning to clause 18 of the IPLA, apart from the provision in clause 18.3 applying Indian legislation, the conclusion that London was the "seat" was beyond doubt. London had expressly been chosen as the "venue" and this should be construed, prima facie, as the "seat" as it would make no sense to choose a physical venue without also anchoring the arbitral process to a designated place.
- The key question was whether the incorporation of Indian legislation was sufficient to overturn that conclusion. In Eder J's view, it was not, because this provision could be construed as applying only the enforcement provisions of the Indian legislation, or possibly as applying those legislative provisions which were not inconsistent with the agreement.
- He concluded that, whether the standard of proof was "good arguable case" or "balance of probability", he would have found that the seat of the arbitration was England.
The proper course was to set aside the anti-suit injunction and stay the English court proceedings pending the resolution of the petitions. The freezing injunction would also be set aside because, even assuming that there was jurisdiction to grant the order, the case was not one of "urgency" for the purposes of section 44, AA 1996. Further, there was insufficient evidence of a risk of dissipation of assets.
Comment
Eder J's decision, which he reached reluctantly in the light of the delays in the Indian court system, was driven by the fact that the claimants had participated in the Indian proceedings, rather than pursuing applications before the English court when proceedings were first commenced in March 2008. Also relevant was the delay in applying to the English court.
The case is a vivid reminder that, even where the English court would itself conclude that there are grounds for permitting service of an arbitration claim form out of the jurisdiction, the power to grant permission is, itself, permissive, and the court may refuse to intervene. The decision also illustrates the fact that participation in overseas proceedings may persuade the English court to decline to intervene.
Eder J declined to comment on the debate as to the proper standard of proof on the issue of identifying the seat. Previous authority has favoured the "good arguable case" test (see Noble Denton Middle East v Noble Denton International Limited [2010] EWHC 2574 (Comm), discussed in Legal update, Standard of proof required in application for appointment of arbitrator (High Court)) but Eder J appeared to envisage that the balance of probabilities test might be appropriate.
Finally, practitioners should note that Eder J highlighted the volume of written materials placed before the court (10 lever arch files of evidence and exhibits, 3 lever arch files of authorities, and a 53 page skeleton argument), noting that such documents "are of a type which unfortunately seems to be becoming a norm despite what has been repeatedly stated by the court" (paragraph 10, judgment).