Anti-suit injunction where no arbitration in prospect (Court of Appeal)

Practical Law UK Legal Update Case Report 9-506-3016 (Approx. 10 pages)

Anti-suit injunction where no arbitration in prospect (Court of Appeal)

by PLC Arbitration, with thanks to Mirea Lynton-Grotz and Angeline Welsh of Allen & Overy LLP for their assistance

Background

Arbitration Act 1996

One of the stated aims of the Arbitration Act 1996 (AA 1996) is to minimise court intervention in arbitration. For example, section 1(c) provides that in matters governed by Part 1 of the AA 1996, the court "should not intervene" except as provided by Part 1. The AA 1996 confers certain powers on the courts which can be exercised in support of the arbitral process.

Court's power to grant anti-suit injunctions

The court has power to grant anti-suit injunctions in favour of arbitration under section 44 of AA 1996 and section 37 of the Senior Courts Act (SCA 1981).

Under section 44 of AA 1996, the court has power to grant interim injunctive relief for the purpose of preserving evidence or assets:
- in cases of urgency and where there is no arbitration tribunal in existence; or
- where the tribunal has no power or is unable to act effectively.
Under section 37 of SCA 1981, the court has jurisdiction to grant an interim or final anti-suit injunction where foreign court proceedings have been brought in breach of an arbitration agreement.

The relationship between section 37 of the SCA 1981 and section 44 of the AA 1996 has been the subject of some debate. Most recent decisions indicate that where an interim injunction is sought, as a matter of discretion, the SCA 1981 power should be exercised to grant interim relief only where it would also be appropriate for the court to act under section 44. However, that restriction does not apply where an application is made for a final injunction (see Welex AG v Rosa Maritime Ltd [2003] EWCA Civ 938 and Steamship Mutual Underwriting Association (Bermuda) Ltd v Sulpicio Lines Inc [2008] EWHC 914 (Comm)).

For further discussion about anti-suit injunctions, see Practice note, Remedies for breach of the arbitration agreement: anti-suit injunctions.

Declaratory relief

In Vale do Rio Doce Navegacos SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 Lloyd's Rep 1, it was held that a party wishing to obtain a declaration affirming the existence of a binding arbitration agreement should appoint an arbitrator and allow the tribunal to deal with any jurisdictional objections advanced by the opponent. If the party would prefer the court to determine the jurisdictional issue, the proper course is to obtain the consent of the tribunal or the other party and make an application under section 32 of the AA 1996. (For more information, see Practice note, Jurisdiction: determination by the court.)

Jurisdictional gateways

The jurisdictional gateways under which the court may give permission to serve an arbitration claim out of the jurisdiction include where:

"(1)(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 or the conditions in section 2(4) of the 1996 Act are satisfied."

(CPR 62.5.)

For more information on arbitration claims, see Practice note, Arbitration claims: applications to the English court.

CPR 6.36 governs service of claim forms out of the jurisdiction where the permission of the court is required. It provides

"the claimant may serve a claim form out of the jurisdiction with the permission of the court if any of the grounds set out in paragraph 3.1 of Practice Direction 6B apply."

PD6B.3.1 provides (so far as relevant) as follows:

"The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where - ...

(6) A claim is made in respect of a contract where the contract ...

(c) is governed by English law...

(20) A claim is made

(a) under an enactment which allows proceedings to be brought and those proceedings are not covered by any of the other grounds referred to in this paragraph."

For further information about service out of the jurisdiction with the court's permission, see Practice note, Service of the claim form and other documents: outside the jurisdiction.

Civil Jurisdiction and Judgments Act 1982

The Civil Jurisdiction and Judgments Act 1982 (CJJA 1982) provides as follows:

"32 (1) Subject to the following provisions of this section, a judgment given by a court of an overseas country in any proceedings shall not be recognised or enforced in the United Kingdom if –

(a) the bringing of those proceedings was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country; and

(b) those proceedings were not brought in that court by, or with the agreement of the person against whom the judgment was given; and

(c) that person did not counterclaim in the proceedings or otherwise submit to the jurisdiction of that court.

(2) Subsection (1) does not apply where the agreement referred to in paragraph (a) of that subsection was illegal, void or unenforceable or was incapable of being performed for reasons not attributable to the fault of the party bringing the proceedings in which the judgment was given.

(3) In determining whether a judgment given by a court of an overseas country should be recognised or enforced in the United Kingdom, a court in the United Kingdom shall not be bound by any decision of the overseas court relating to any of the matters mentioned in subsection (1) or (2) ...

33 (1) For the purposes of determining whether a judgment given by a court of an overseas country should be recognised or enforced in England and Wales or Northern Ireland, the person against whom the judgment was given shall not be regarded as having submitted to the jurisdiction of the court by reason only of the fact that he appeared (conditionally or otherwise) in the proceedings for any one or more of the following purposes, namely –

(a) to contest the jurisdiction of the court;

(b) to ask the court to dismiss or stay the proceedings on the ground that the dispute in question should be submitted to arbitration or to the determination of the courts of another country;

(c) to protect, or to obtain the release of, property seized or threatened with seizure in the proceedings"

Facts

The dispute between the claimant and the defendant arose out of a concession to operate hydroelectric plant and equipment and produce hydroelectric energy in Kazakhstan. The concession agreement contained an arbitration clause which specified that arbitration was to be conducted in London.

There had been several proceedings in the courts of Kazakhstan between the parties and related entities relating to the concession. They included an action between the Republic of Kazakhstan and related entities to C (but not C itself), in which the Supreme Court of the Republic of Kazakhstan in 2004 held that the arbitration clause was void because it sought to refer tariff disputes to arbitration (this being contrary to Kazakhstan public policy). Subsequently, D brought proceedings against C in Kazakhstan in June 2009, which related to a request for information about the value of the concession assets (Kazakhstan proceedings). C applied to the Kazakhstan court to dismiss the proceedings, but the application was dismissed on the basis of the Supreme Court's decision that the arbitration clause was void. Under Kazakhstan law, C could only appeal the refusal to dismiss the proceedings once the merits had been decided. C, therefore, made submissions on the merits of the claim for further information, without prejudice to its contention that the court lacked jurisdiction.

After C failed in its motion to dismiss the Kazakhstan proceedings by reference to the arbitration agreement, it issued an arbitration claim in the English Commercial Court, seeking declaratory relief and an anti-suit injunction under section 44 of the AA 1996 or section 37 of the SCA 1981 (or both) to restrain the Kazakhstan proceedings. Permission to serve out of the jurisdiction and an interim anti-suit injunction were granted on a without notice basis. The parties subsequently agreed that final relief would be determined in an inter partes hearing.

By the time of the inter partes hearing before Burton J, the claim for further information in the Kazakhstan proceedings had been withdrawn. However, C remained concerned about the risk of further breaches of the arbitration agreement and wished to maintain the injunction. At the inter partes hearing, D challenged the court's jurisdiction to grant the injunction and also sought to set aside the order for service of the proceedings out of the jurisdiction. Burton J dismissed D's challenge to the court's jurisdiction, and granted a final anti-suit injunction and a declaration. He held that the court could not intervene under section 44 of the AA 1996 (as there was no actual or intended arbitration to which it could apply) but accepted that the court had jurisdiction under section 37 of the SCA 1981. He also held that jurisdictional gateways were established under CPR 62.5(1)(c) or PD 6B.3.1(2). (For further discussion of the first instance judgment of Burton J, see Legal update, Court has jurisdiction to grant declaratory and injunctive relief even where there is no proposed or intended arbitration.)

D appealed, arguing that the court had no jurisdiction to make a final anti-suit injunction because:

The English court had no power to intervene in the absence of existing or prospective arbitration proceedings.
C had failed to establish any jurisdictional gateway for service out of the jurisdiction.
The English court should recognise the decision of the Kazakhstan court that the arbitration agreement was void.
By making submissions on the merits of the request for information, C had submitted to the jurisdiction of the Kazakhstan courts.

D founded its appeal exclusively on a jurisdictional challenge. It did not seek to advance any argument that the injunction should be refused as a matter of discretion.

Decision

The Court of Appeal dismissed D's appeal. The leading judgment was delivered by Rix LJ.

Absence of actual or intended arbitral proceedings

On appeal, C accepted that section 44 of the AA 1996 did not entitle the court to intervene because there were no arbitral proceedings on foot and none intended. Instead, it relied solely on section 37 of the SCA 1981 as providing a jurisdictional basis for the proceedings.

D argued that the AA 1996 exclusively governed the question of whether the court had jurisdiction to grant injunctive relief. As there was no power to intervene under section 44 of the AA 1996, the court had no jurisdiction at all. Section 37 of the SCA 1981 should not be used to stray beyond the limits provided in section 44 of the AA 1996. In this connection, D referred to section 1(c) of the AA 1996, which provided that the court "should not intervene except as provided by this Part".

Rix LJ disagreed with this analysis. Although there may be arguments about the exercise of the court's discretion where injunctive relief was sought outside the AA 1996, there was no statutory or principled objection to the court's jurisdiction to grant injunctive relief.

Where section 44 of the AA 1996 applied (because there was an arbitration afoot) it would be wrong in principle to use section 37 of the SCA 1981 to get round the limitations of section 44 of the AA 1996. However, where there was no arbitration in prospect, section 44 of the AA 1996 simply did not apply, and there was no objection to the court's jurisdiction under the SCA 1981.

Furthermore, section 1(c) of the AA 1996 did not assist much in answering the issues raised on this appeal. The words "should not intervene" in section 1(c) were directed towards intervention in the conduct of an arbitration, and not towards intervention in the conduct of litigation which threatened the safety of an arbitration agreement or any possible arbitration pursuant to it. In any event, section 1(c) was only one of three principles stated in section 1. The other section 1 principles (in particular, the need to avoid unnecessary delay and expense) may point in favour of court intervention.

Although parties were obliged to raise any jurisdictional objection at the outset of the proceedings, there was no obligation on arbitrators to exercise their power to rule on their own jurisdiction. It was going too far to say that, because a tribunal "may" rule on its own jurisdiction, the court must always assume that there was an obligation on the parties or the tribunal to rule on such disputes. On the contrary - under the scheme of the AA 1996, the question of substantive jurisdiction was likely to come before the court sooner or later - for example, under sections 32, 67 and/or 72, or as part of a stay application or on an application for an anti-suit injunction. The wide variety of situations in which the jurisdictional issue may arise suggested that it was not be possible to be dogmatic about the effect of section 1(c) of the AA 1996.

Having considered the numerous authorities, Rix LJ concluded that, in so far as Vale do Rio had been interpreted as laying down a rule of jurisdiction requiring parties to raise all issues relating to the effectiveness of an arbitration agreement with the tribunal first, that interpretation was incorrect. Where no arbitration has been commenced and none is intended to be commenced, the court has jurisdiction to consider how best to protect a party's right to arbitrate. It would be unrealistic and far-fetched to require C to commence an arbitration solely to determine an issue of substantive jurisdiction.

Jurisdictional gateway

On appeal, C no longer relied on CPR 62.5(1)(b) as providing a jurisdictional gateway. It founded its case on CPR 62.5(1)(c), alternatively CPR 6.36 and PD6B.3.1(6)(c) and (20).

CPR 62.5(1)(c)

D argued that CPR 62.5(1)(c) was limited to claims under the AA 1996, and relied on dicta in Vale do Rio to the effect that CPR 62.5(1)(b) to (d) were simply spelling out the terms of the AA 1996. Rix LJ disagreed with this analysis. There was no reason to read CPR 62.5 in this restricted manner, and it was entirely understandable that claims regarding "arbitration in general" should be canalised under CPR 62. The jurisdictional gateway under CPR 62.5(1)(c) was established.

PD6B.3.1(20)

Having already established a gateway under CPR 62.5, it was neither necessary nor (given the wording of PD6B.3.1(20)) possible to establish an additional gateway. In any event, the majority took the view that section 37 of the SCA 1981 was not an "enactment which allows proceedings to be brought" for the purposes of PD6B.3.1(20) (Rix LJ took the view that there was at least a "serious argument" that section 37 fell outside the scope of PD6B.3.1(20)).

PD6B.3.1(6)

PD6B.3.1(6) had not been raised in the original without notice application, but was relied on for the first time at the inter partes hearing. Burton J had decided that this precluded him from accepting it as a gateway for service out, on the basis of the principle in Parker v Schuller (1901) 17 TLR 299. Rix LJ confirmed that, notwithstanding dicta in Republic of Argentina v NML Capital Ltd [2010] EWCA Civ 41, the court had discretion to permit parties to raise alternative gateways to support an earlier without notice grant of permission to serve out of the jurisdiction. The Parker v Schuller principle precluded parties from raising a new cause of action retrospectively, but not from seeking to invoke a new gateway to support an existing cause of action. Therefore PD6B.3.1(6) would provide an alternative gateway if necessary.

(For further discussion of NML Capital, see Legal update, Court of Appeal overturns decision on sovereign immunity.)

Recognition of judgment of Kazakhstan court

It was common ground that, under section 32(3) of the CJJA 1982, the English court had a discretion as to whether or not to recognise the Kazakhstan judgment. D argued that the English court should do so because it was based on important public policy in Kazahstan.

The authorities did not assist greatly in the circumstances of the present case, though they did suggest that the English courts have not hesitated to prefer the parties' choice of English jurisdiction and arbitration clauses to even the public policy requirements of foreign law. The English court was not bound by the Kazakhstan court's view of the arbitration agreement and it was clear that the Kazakhstan court's interpretation of the agreement (in particular, its view that it covered tariff disputes) was simply incorrect. Properly construed, the agreement did not seek to refer tariff disputes to arbitration and, in fact, did not impact on Kazakhstan public policy at all. In the circumstances, there was no reason why the judgment should be recognised or enforced.

Submission to Kazakhstan court

D argued that, having lost its jurisdictional challenge in the Kazakhstan court, C had made submissions on the merits of the request for information pending its appeal on the jurisdictional issue. This, in D's submission, amounted to a submission to the Kazakhstan court.

Rix LJ was unclear about what the interaction between the third and fourth issues was. It was common ground that the English court had a discretion to recognise the Kazakhstan judgment and, in such circumstances, it was hard to see how submission was relevant, other than as a factor to be taken into account on the exercise of discretion. Nevertheless, it had been argued separately and was, therefore, dealt with as a separate point.

Here, C undoubtedly fell within the domestic territorial jurisdiction of the Kazakhstan court. Its options were, therefore, limited; it could not stand aloof, because the court had jurisdiction over it. Such a defendant had no realistic option but to argue the merits if the court refused (as here) to decline jurisdiction. Having considered the evidence, Rix LJ concluded that it would not be right to reverse the decision of Burton J that there was at least a good arguable case that C's conduct did not amount to a submission to jurisdiction. It had done all that it could to preserve its jurisdictional challenge and, on the evidence, had no real option but to act as it did.

Comment

The Court of Appeal decision goes some way towards clarifying the relationship between section 44 of the AA 1996 and section 37 of the SCA 1981. It is now clear that, where section 44 does not apply (because there is no arbitration on foot or in prospect) the court nevertheless has jurisdiction to intervene and grant injunctive relief on the basis of the arbitration agreement. Section 1(c) of the AA 1996 does not necessarily prevent the court from granting relief in cases where there is no specific power to do so under the AA 1996. As Rix LJ points out, the wording of that provision ("the court should not intervene") begs the question "intervene in what"? In the Court of Appeal's view, the provision is directed towards intervention in arbitral proceedings and is not intended to prevent the court from intervening to restrain court proceedings brought in breach of an arbitration clause. Indeed, once the other section 1 principles are brought into play, the factors favouring court intervention may well prevail.

The approach of the Court of Appeal is rooted both in the purpose and policy of the AA 1996, but also in considerations of efficiency and convenience. On the defendant's interpretation of the AA 1996 (founded on the Vale do Rio case), the claimant here would have been obliged to commence arbitral proceedings for the sole purpose of seeking a ruling on a jurisdictional issue. Since jurisdictional issues will usually reach the court at some stage anyway, to require an arbitration to be commenced in such circumstances would be artificial and inefficient.

However, the judgment of Rix LJ does raise further questions about the proper scope of injunctive relief. In particular, he questioned whether, on its proper construction, section 44 of the AA 1996 does permit the court to grant interim anti-suit relief. Section 44 was construed in Starlight Shipping Co and another v Tai Ping Insurance Co Ltd and another [2007] EWHC 1893 (Comm) as encompassing anti-suit relief and the provision has been generally understood as extending this far, but Rix LJ indicated that in his view the matter was "unsettled".

Note, furthermore, that a claim for declaratory relief may be more likely to trespass on matters falling within the arbitrators' competence. The issue was avoided in this case, as the first instance judge was careful to ensure that the declaratory relief was limited to a declaration that specified claims could not be brought other than in London arbitration. A wider declaration (for example, on the validity of the arbitration agreement) could present problems for any future tribunal called on to consider the issue.

Note, finally, the confirmation that it is possible for applicants to rely on additional gateways at the inter partes stage. Rix LJ expressed concern that, in NML Capital, Aikens LJ had stated that it was a "well known principle" that parties could not rely on additional gateways (as opposed to causes of action), and clarified that the court does have discretion to permit further gateways to be introduced at a later stage.

Mirea Lynton-Grotz and Angeline Welsh of Allen & Overy LLP, who acted for AES UK, comment as follows:

"The Court of Appeal's pragmatic approach to the issues in this case preserves the tools at its disposal to deal with anti-suit injunctions in support of an arbitration agreement, to allow a different procedural gateway to be used in applications for permission to serve out and to decline to recognise decisions of foreign courts obtained in breach of an arbitration agreement."

For more detailed commentary on this decision by Allen & Overy LLP, see Legal update, AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant (CA): Allen & Overy comment.

Case

AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant [2011] EWCA Civ 647.

Anti-suit injunction where no arbitration in prospect (Court of Appeal) | Practical Law