An important consideration when drafting an enforceable arbitration agreement is the legal "seat," or juridical location, of the arbitration. Both London and New York have established themselves as favorable arbitral seats because of their willingness to compel and safeguard the efficacy of parties' agreements to arbitrate.
In its simplest form, an arbitration agreement is a mutual promise to resolve defined disputes through an arbitral process, rather than resorting to courts. This promise includes a positive obligation to submit the dispute to an agreed arbitral forum, and a negative obligation to refrain from commencing proceedings in a forum other than that specified in the arbitration agreement.1 While the positive obligation is addressed by a court's power to compel arbitration, the negative obligation may be effected through the grant of an anti-suit injunction in support of the arbitration agreement. The duality of obligations was reflected in Pena Copper Mines Ltd v. Rio Tinto Co Ltd (1911) 105 LT 846, in which the English Court of Appeal recognized "certainly an implied negative" in the arbitration agreement and ordered Rio Tinto to desist from Spanish court proceedings which were "contrary to their contractual duties."2
Anti-suit injunctions are equitable remedies that courts may grant to prevent a party to an arbitration agreement from avoiding its contractual obligation to arbitrate by pursuing claims in a foreign court.
Although the injunction applies to a specific party—and, hence, is not an order compelling action by the foreign court—it necessarily raises questions as to whether the foreign court should nevertheless decline to proceed with a case. This, in turn, highlights the balance between judicial competence and international comity that comes into play in the face of such injunctions.
English and New York courts historically have taken different views on the suitability of an anti-suit injunction in support of arbitration. Indeed, precedent shows that English courts have been more willing to grant antisuit injunctions in favor of arbitration than New York courts.3 The difference in approach appears to lie in disparate views of the role of international comity in deciding whether an injunction should be issued.
The 1994 decision, The Angelic Grace, arguably represents the highwater mark for English courts with respect to anti-suit injunctions.4 Prior to this decision, English courts generally held the view that anti-suit injunctions should be issued sparingly and with great caution.5 The Angelic Grace court, however, changed course. No longer was the court constrained by vague notions of caution; rather, it took a view that courts should provide robust protection for contractual agreements that reference arbitration in England. According to the court, the basis for granting an anti-suit injunction in those circumstances was "the clear and simple ground that the defendant has promised not to bring [a foreign suit]."6
During roughly the same time period, the U.S. Court of Appeals for the Second Circuit in China Trade & Dev. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir. 1987), articulated a restrained path towards anti-suit injunctions involving arbitration agreements, grounded in considerations of international comity. The court held that since an anti-suit injunction "effectively restricts the jurisdiction of the courts of a foreign sovereign," it should be granted "sparingly" and "only with care and great restraint."7 As can be seen, New York courts effectively held the same view as the pre-Angelic Grace English courts.
The divergent approach of the English and New York courts continues today. In forming an arbitration agreement, parties should therefore consider whether an arbitral seat in London or New York will better meet a potential need to curtail a recalcitrant counterparty from attempting to avoid its obligation to arbitrate in favor of a local courthouse.
Position of the English Courts
If The Angelic Grace represented the high-water mark of English courts' robust disposition to grant antisuit injunctions, the water receded slightly with the 2009 case of Allianz SpA and Generali Assicurazioni Generali SpA v. West Tankers8 In West Tankers, the Court of Justice of the European Union (as it is now known) held that courts of EU Member States were not permitted to issue anti-suit injunctions in support of arbitration against a party that had initiated court proceedings in another EU Member State, because this was not compatible with the EU's Brussels Regulation on jurisdiction and the recognition and enforcement of judgments.9 (However, with the U.K.'s June 23, 2016 decision to "Brexit" the EU, the ability of English courts to issue anti-suit injunctions in support of arbitration may well be restored. This change may however take at least two years while the terms of "Brexit" are negotiated.)
Although English courts continue to view anti-suit injunctions as essential to protecting contractual agreements that reference arbitration in England, West Tankers created a significant geographic impediment on the ability of English courts to issue anti-suit injunctions, leaving the whole of the EU exempt from this protective power. Parties should take this into consideration when selecting London as the seat of a potential arbitration, particularly if they can foresee being hailed into a local court of another EU Member State.
In practice, English courts have issued anti-suit injunctions in a variety of circumstances. For example, in AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, the U.K. Supreme Court held that the English courts could enjoin court proceedings in Kazakhstan where the parties' contract provided that disputes would be subject to arbitration seated in London, even though no arbitration had been commenced or was being contemplated. The court based its holding on the "negative aspect" of the arbitration agreement, finding that the anti-suit injunction was not necessarily limited to the arbitral proceedings themselves, but "for the purposes of and in relation to the negative promise contained in the arbitration agreement not to bring foreign proceedings, which applies and is enforceable regardless of whether or not arbitral proceedings are on foot or proposed."11 In reaching its decision, the court confirmed that the power of English courts to grant anti-suit injunctions in relation to proceedings in non-EU Member States was unchanged by West Tankers or the Brussels Regulation.
Similarly, in Joint Stock Asset Management Company "Ingosstrakh Investments" v. BNP Paribas SA [2012] EWCA Civ 644, the English Court of Appeal affirmed that anti-suit injunctions could be issued against parties that were not signatories to the relevant arbitration agreement. BNP Paribas had obtained an antisuit injunction from the English High Court restraining a Russian company, Ingosstrakh Investments, from pursuing proceedings in the Russian courts in relation to a guarantee entered into between BNP Paribas and a second Russian company, Russian Machines. The guarantee in question was governed by English law and provided for arbitration seated in London. While troubled by the prospect of an antisuit injunction being granted against a non-party to an arbitration agreement, the English Court of Appeal accepted that if collusion between Ingosstrakh Investments and Russian Machines could be established, it would be unconscionable and vexatious for Ingosstrakh Investments to pursue the claims in the Russian courts as the "stalking horse" for Russian Machines.12 Having found such collusion, the court affirmed the antisuit injunction.
Though the AES and BNP Paribas decisions follow the positive approach to anti-suit injunctions contemplated by The Angelic Grace, an English court is still likely to consider the implications of an anti-suit injunction through the lens of international comity, particularly in circumstances where the injunction application is not promptly made. In Ecobank Transnational v. Tanoh [2015] EWCA Civ. 1309, the English Court of Appeal considered an application for an anti-enforcement injunction that was premised, in part, on the fact that the claims at issue were subject to an arbitration clause that provided for London arbitration. In denying the application, the Ecobank court emphasized that considerations of comity were of less importance where there was an arbitration agreement,13 but applicants for both anti-suit and anti-enforcement injunctions must act promptly since in both cases "the English court is interfering, albeit indirectly, with the working or output of a foreign court."14
Position of the Federal Courts in New York
Whereas the issue of international comity may not play a significant role in an English court's decision to grant an anti-suit injunction if there is a valid arbitration agreement,15 international comity plays a much more central, and potentially restrictive, role in U.S. courts, including the Second Circuit.
There is a split among the U.S. circuit courts about the appropriate test and circumstances for issuing an antisuit injunction. The split centers predominantly on the weight, if any, that should be accorded to international comity with foreign courts.16 Courts taking a "liberal" view of the issue have been reluctant to allow comity to influence their decisions. The Fifth Circuit, for example, has declared, "[w]e decline ... to require a district court to genuflect before a vague and omnipotent notion of comity every time that it must decide whether to enjoin a foreign action."17 Instead, the "liberal" view focuses on whether the parallel proceedings are vexatious or oppressive.18
By contrast, courts adopting a more "conservative" view of the issue are inclined to consider issues of comity when confronted with an anti-suit injunction application. The Second Circuit's decision in China Trade reflects this view, and creates a twotier, multifactor test (the China Trade factors) that should be applied when courts evaluate the need for an antisuit injunction.
The first-tier or "primary" China Trade factors consider "(1) whether the parties to both suits are the same and (2) whether resolution of the case before the enjoining court would be dispositive of the enjoined action."19 Although satisfaction of these "primary" factors act as a condition precedent to obtaining an anti-suit injunction, they are not wholly determinative since the Second Circuit has held that, "due regard for principles of international comity and reciprocity require a delicate touch in the issuance of anti-foreign suit injunctions, that such injunctions should be used sparingly, and that the pendency of a suit involving the same parties and same issues does not alone form the basis for such an injunction."20
Thus, the "secondary" tier of China Trade factors comprises an additional five factors that may influence the Second Circuit's evaluation of whether discretionary considerations, including the Fifth Circuit's "vague and omnipotent notion of comity," should limit the court's ability to issue an antisuit injunction. They are: (1) the threat to the enjoining court's jurisdiction posed by the foreign action; (2) the potential frustration of strong public policies in the enjoining forum; (3) the vexatiousness of the foreign litigation; (4) the possibility of delay, inconvenience, expense, inconsistency, or a race to judgment; and (5) other equitable considerations.21
While all of the "secondary" factors should be considered, the first two— whether the foreign action threatens the enjoining forum's jurisdiction or its strong public policies—generally are given greater weight by the courts.22 For example, in affirming an anti-suit injunction as an appropriate measure to enforce and protect a district court's earlier judgment compelling arbitration, the Second Circuit has held that the "federal policy of favoring the liberal enforcement of arbitration clauses," which "applies with particular force in international disputes," supported the issuance of the anti-suit injunction.23 Similarly, the Second Circuit has held that continuation of a foreign suit threatened the enjoining court's jurisdiction and implicated strong public policy preferences.24 Further, the court held that foreign proceedings which threaten to undermine existing federal judgments are particularly vexatious, and "comity considerations, though important, have 'diminished force' when a court has already reached a judgment involving the same issues and parties." 25
Application of the China Trade factors has also applied where no arbitration agreement is at issue. In Eastman Kodak v. Asia Optical, 118 F. Supp. 3d 581 (2015), the court issued an anti-suit injunction based on an analysis of the China Trade factors in circumstances where the underlying protected action was a pending action in the Southern District of New York.
Overall, the circumstances giving rise to any anti-suit injunction application made in the New York federal courts must fully consider the China Trade factors and, in particular, the competing notions of international comity and the enjoining court's jurisdiction and public policy.
In sum, a party contemplating whether to seat its arbitration in London or New York faces different attitudes and restrictions on the availability of an anti-suit injunction. Whereas a London court is (currently) restricted to issuing anti-suit injunctions to enjoin proceedings outside of the EU, the positive view of protecting the sanctity of the arbitration agreement is a significantly favorable factor. With a New York seat, the courts approach anti-suit injunctions conservatively, but do so with an established test that favors protection of the enjoining court's jurisdiction and public policy of promoting arbitration, coupled with no geographic limitation on the court's power to issue an anti-suit injunction.
Footnotes
1. Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant [2013] UKSC 35, at 21-28.
2. (1911) 105 LT 846, 850-852.
3. As discussed below, however, the ability of English courts to issue anti-suit injunctions has been constrained by the Court of Justice of the European Union, which has ruled that anti-suit injunctions may not be issued by one EU Member State in cases where a parallel proceeding has been brought in another EU Member State.
4. Aggeliki Charis Cia Maritima SA v. Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd's Rep 87 (CA) (In Millett LJ's words, referring to anti-suit injunctions, the time had come for the English courts "to lay aside the ritual incantation that this is a jurisdiction which should only be exercised sparingly and with great caution.").
5. See, e.g., Sokana Industries Inc v. Freyre & Co Inc [1994] 2 Lloyd's Rep 57, 66.
6. The Angelic Grace, [1995] 1 Lloyd's Rep 87, at 96.
7. China Trade, 837 F.3d at 35-36 (internal citations omitted).
8. Case No C-185/07 (2009); [2009] ECR I-663.
9. Regulation No 44/2001; anti-suit injunctions are also not compatible with the subsequent 2015 (recast) Brussels I Regulation 1215/2012/EU.
10. [2013] UKSC 35, at 46.
11. [2012] EWCA Civ 644, at 51, 57.
12. [2015] EWCA Civ. 1309, at 106.
13. Id., at 91.
14. See Deutsche Bank AG and another v Highland Crusader Offshore Partners LP (CA) [2009] EWCA Civ 725, at 50 ("An injunction to enforce an exclusive jurisdiction clause governed by English law is not regarded as a breach of comity, because it merely requires a party to honour his contract.").
15. The First, Second, Third, Sixth and District of Columbia Circuits have adopted a more "conservative" approach; whereas the Fifth and Ninth Circuits, and perhaps the Seventh Circuit, follow the more "liberal" approach focusing on whether the suit is duplicitous and vexatious.
16. Kaepa v. Achilles, 76 F.3d 624, 627 (5th Cir. 1996).
17. English courts also focus on whether proceedings before the foreign court are or would be vexatious or oppressive. See Deutsche Bank AG, [2009] EWCA Civ 725, at 50.
18. China Trade, 837 F.3d at 36.
19. Ibeto Petrochemical Indus. v. M/T Beffen,
475 F.3d 56, 65 (2d. Cir. 2007).
20. See China Trade, 837 F.3d at 35.
21. See Ibeto Petrochemical Indus., 475 F.3d at 64 (Courts and commentators have erroneously interpreted China Trade to say the Second Circuit only considers these two factors).
22. Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., 369 F.3d 645, 654-655 (2d Cir. 2004).
23. Karaha Bodas Co. v. Perusahaan Pertanbangan Minyak Dan Gas Bumi Negara, 500 F.3d 111, 126 (2d Cir. 2007).
24. Id. at 126-27.
Previously published by the New York Law Journal on July 18.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
