UK: English Courts Protect Arbitration Agreements

Last Updated: 13 December 2007
Article by Kate Knox

In the recent judgment of Starlight Shipping Co and another v Ta Ping Insurance Co Ltd and another1, the English courts confirmed their willingness to grant anti-suit injunctions restraining parties from bringing court proceedings in non-EU states in breach of an arbitration agreement. The House of Lords judgment handed down last month in Premium Nafta Products Limited and Others v Fili Shipping Company Limited2, ruling against a stay of arbitration proceedings in favour of litigation proceedings, was a further indication of the English courts' strong support for international arbitration.

Background To The Starlight Dispute

The claimant shipowner (Starlight) and manager (Overseas Marine) sought an interim anti-suit injunction to restrain the pursuit of proceedings brought by the first defendant, an insurer (Tai Ping), in the Wuhan Maritime Court in China. The application also sought to restrain the second defendant, the owner of the shipped cargo, from commencing any similar proceedings. The claimants submitted that the proceedings in the Chinese court had been commenced in breach of an arbitration agreement contained in a bill of lading and charter party. The defendants asserted that the arbitration agreement contained in the bill of lading was ineffective under Chinese law, and that the Chinese court would not recognise any order of the English court preventing the continuance of the proceedings in the Chinese court, nor any award of the arbitrators.

The English Commercial Court held that the first claimant (Starlight) was entitled to an interim injunction against both of the defendants. The second claimant (Overseas Maritime) was not a party to the contract and arbitration agreement, and therefore was not entitled to the relief sought.

Comity Not At Stake

In reaching its decision, the English court first dismissed the defendants' argument that an arbitration agreement was ineffective under Chinese law. It ruled that any matter of Chinese law was irrelevant by virtue of the fact that the contract (and hence arbitration agreement) was governed by English law. While recognising that the jurisdiction of foreign courts should be approached with "utmost respect", it was the opinion of the English court that international comity would not be at stake in making the injunction in this case. In entering into the arbitration agreement, the parties had agreed to the jurisdiction of the English court, and the injunction was simply a means of preventing them from breaching this agreement.

The Inter-Relationship Between S.37 Of The SCA And S.44 Of The Act

The court was required to determine whether its powers under s.37 of the Supreme Court Act 1981 (the SCA) and/or s.44 of the Arbitration Act 1996 (the Act) enabled it to grant injunctive relief to restrain the pursuit of proceedings in the Chinese courts in breach of an arbitration agreement providing for disputes to be resolved by arbitration in London.

Under s.37 of the SCA, the English court has a general power to grant an injunction 'in all cases in which it appears to the court to be just and convenient to do so', something which the court has historically been willing to do in cases of anti-suit injunctions restraining proceedings in foreign jurisdictions in breach of arbitration agreements (see The Angelic Grace3). However, the court's powers to grant such injunctions under s.44 of the Act are much narrower: pursuant to the decision in Cetelem SA v Roust Holdings Limited4, on the proper construction of s.44 a court can grant an interim injunction, "for the purpose of preserving assets", which it held to include a contractual right to arbitrate (as a chose in action), only "if the case is one of urgency". The question therefore arises as to whether the court may grant an interim injunction under s. 37 of the SCA in support of an arbitration if the criteria under s. 44 are not met.

The court held that in this case it was entitled under both s. 37 of the SCA and s. 44 of the Act to grant the interim anti-suit injunction sought. The court found that there was a case of urgency within the meaning of s. 44 of the Act due to the fact that an interim award to restrain the Chinese proceedings by the arbitrators would not be enforceable under the New York Convention, and that a final award could not be rendered by the Tribunal within the relevant time-scale (i.e., before the Chinese court had determined its jurisdiction).

However, addressing the potential tension between s. 37 of the SCA and s. 44 of the Act, following the decision in Electrim v Vivendi (No 2)5, Cooke J confirmed that s.37 of the SCA would enable it to grant an anti-suit injunction restraining the pursuit of proceedings in foreign courts in breach of an arbitration agreement, whether or not s.44 of the 1996 Act could also be brought into play.

Discussion

Earlier this year, the House of Lords referred to the European Court of Justice the question of whether the grant of anti-suit injunctions restraining parties from bringing proceedings in the courts of other EU countries in breach of an arbitration agreement would be consistent with European Commission Regulation 44/2001(see West Tankers Inc6). As a result, there is a question mark over the future of anti-suit injunctions as a method of restraining parties from commencing proceedings in other EU jurisdictions in breach of arbitration agreements.

However, pending the ECJ's decision, English law continues to allow the English courts to grant such anti-suit injunctions (see the Through Transport decision7). The Starlight judgment confirms the English courts' willingness to restrain parties from bringing proceedings in non-EU jurisdictions in breach of arbitration agreements.

Last month, the House of Lords handed down its judgment in Premium Nafta Products Limited and Others v Fili Shipping Company Limited, upholding the Court of Appeal's decision that arbitration proceedings brought pursuant to arbitration agreements contained in contracts alleged to have been procured by bribery should not be stayed in favour of litigation proceedings. This House of Lords judgment, and the decision in Starlight, are recent indications of the English courts' continued willingness to protect arbitration agreements and enforce commercial parties' choice to arbitrate disputes - thereby bolstering the attractiveness of London as a seat of international arbitration.

1 [2007] EWHC 1893 (Comm)

2 [2007] UKHL 40

3 [1995] 1 Lloyd's Rep 87 CA

4 [2005] 2 LLR 494

5 [2007] 2 LLR 8

6 [2007] UKHL 4

7 [2004] EWCA Civ 1598

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