UK: Anti-Suit Injunctions: No Arbitration Proceedings Necessary

The Court of Appeal has held that the court has jurisdiction to grant a final anti-suit injunction restraining a party from commencing or continuing foreign court proceedings in breach of an arbitration agreement, even where there is no actual, proposed or intended arbitration.  In doing so, the court took a pragmatic approach which might otherwise have required the claimant to commence arbitration proceedings for the sole purpose of protecting the parties' agreement to arbitrate.

Background

In AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC, the defendant ("D") appealed against a first instance decision that the court had jurisdiction to make a final anti-suit injunction in respect of proceedings brought by D in Kazakhstan, in breach of an arbitration clause.  

The underlying dispute concerned a concession contract to operate hydroelectric facilities in Kazakhstan between a US company ("C") and the state of Kazakhstan.  The concession contract contained an arbitration agreement governed by English law which specified that arbitration was to be conducted in London.  However, D commenced proceedings in the courts of Kazakhstan and their Supreme Court ultimately held that the arbitration agreement was contrary to Kazakhstan public policy and therefore void.  C issued a claim in the English commercial court, seeking declaratory relief and an anti-suit injunction under section 44 of the Arbitration Act 1996 (the "AA") and/or section 37 of the Senior Courts Act 1981 (the "SCA") to restrain the Kazakhstan proceedings.  The court had to decide which of these statutory provisions was applicable in this case where no arbitration proceedings had yet been started.

Under section 44 of the AA, in cases of urgency and where there is no arbitral tribunal in existence, the court has the power to grant interim injunctive relief.  Section 44 is meant to support the arbitration process when it is already in motion. Under section 37 of the SCA however, the court's power to grant an interim or final anti-suit injunction where foreign court proceedings have been brought in breach of an arbitration agreement is not limited.
 
At first instance, the English commercial court granted a final anti-suit injunction and declaration in favour of C.  In doing so, Burton J held that the court could not intervene under section 44 of the AA (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.  D appealed, arguing that the court lacked jurisdiction to make a final anti-suit injunction because:

  1. There was no power for the English court to intervene in arbitration proceedings in the absence of existing or prospective arbitration proceedings in England;
  2. C lacked a proper jurisdictional gateway for service of its proceedings out of the jurisdiction upon D in Kazakhstan;
  3. The English court ought to recognise and/or enforce the decision of the Kazakhstan Supreme Court that the arbitration agreement was void; and
  4. On the facts C had submitted to the jurisdiction of the Kazakhstan courts.

Judgment

The Court of Appeal dismissed D's appeal.  On the first issue, the court held that where no arbitration had been commenced or was intended to be commenced, the court still has jurisdiction under section 37 of the SCA to protect a party's rights under an arbitration agreement.
 
D had argued that the AA exclusively governed the issue and that, since section 44 of the AA did not entitle the court to intervene in this case, the court had no jurisdiction.  The Court of Appeal rejected that argument and explained that where there was no arbitration in prospect, section 44 simply did not apply, and there was no objection to the court's jurisdiction under the SCA.  Further, the words in section 1(c) of the AA that the court "should not intervene except as provided by this Part" (upon which D also relied) were directed towards intervention in the conduct of an existing arbitration, and not towards intervention in the conduct of litigation which threatened the safety of an arbitration agreement. 

On the second issue, the court held that there was a proper jurisdictional gateway for C to serve its proceedings upon D in Kazakhstan.  C was entitled to do so under CPR 62.5(1)(c), since it sought a remedy affecting an arbitration whether started or not.  D had argued that the gateway under CPR 62.5(1)(c) was limited to claims under the AA, but the court held that it applied to claims regarding arbitration in general. 

On the third issue, it was common ground that the English court was not bound by the Kazakhstan court's view of the arbitration agreement.  On further analysis, it was apparent that the Kazakhstan court's interpretation of the arbitration agreement was incorrect and did not impact on Kazakhstan public policy after all.  Accordingly, the judgment should not be recognised or enforced.  
       
Finally, on the fourth issue there was at least a good arguable case that C's conduct did not amount to a submission to the jurisdiction of the Kazakhstan courts.  C had no realistic option but to respond to claims made in Kazakhstan in circumstances where the Kazakhstan courts had refused to decline jurisdiction. 

Comment

As well as clarifying the relationship between section 44 of the AA and section 37 of the SCA, the Court of Appeal decision confirms that it is not necessary for an arbitration to be underway in order to enforce an arbitration agreement.  Otherwise one would be obliged to commence arbitral proceedings for the sole purpose of providing the court with jurisdiction to grant an anti-suit injunction.   This would be an inefficient and expensive way of protecting a party's right to arbitrate. Accordingly, the Court of Appeal's pragmatic and arbitration-friendly approach should be welcomed by users of arbitration.  The judgment shows that, when it is not in an intra-EU context (where anti-suit injunctions are now banned by the EJC since the West Tankers case - see our  Law Now) the English courts would not hesitate to grant anti-suit injunctions either to support existing arbitration proceedings or, even to protect the  parties' agreement to arbitrate as this case illustrates.

Further reading:

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

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 03/06/2011.

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