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fiona_bruce_phOn 12 June 2013, the Supreme Court unanimously dismissed an appeal against the Court of Appeal’s decision in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2011] EWCA Civ 647 and upheld that English courts do have jurisdiction to grant a final injunction in order to restrain foreign proceedings brought in breach of an arbitration agreement, where there is no existing or proposed arbitration. The Supreme Court’s decision can be found here.

Facts

The case involves a contract between the owner of a hydroelectric plant in Kazakhstan, Ust-Kamenogorsk Hydropower Plant JSC (“JSC”), and the operator of a hydroelectric plant in Kazakhstan, AES Ust-Kamenogorsk Hydropower Plant LLP (“AES”). The contract was governed by Kazakhstan law, but contained an arbitration agreement stating that any disputes arising out of, or connected with, the contract should be settled by arbitration in London under the International Chamber of Commerce Rules. The parties agreed that the arbitration clause is governed by English law.

In response to JSC commencing proceedings over the contract in the Kazakhstan courts, AES applied for an anti-suit injunction against JSC in the Commercial Court in London. JSC responded claiming that the English court did not have jurisdiction to hear the case, and they should decline to exercise any jurisdiction they might have. By the time the Commercial Court heard the case there was no arbitration actually in existence and neither party had any desire to commence arbitration proceedings

The decisions of the Commercial Court and Court of Appeal

The arguments over jurisdiction centered on the Arbitration Act 1996, s 44, and the Senior Courts Act 1981, s 37, both of which give the courts the power to grant anti-suit injunctions.

The judge at first instance, Burton J, stated that s 44 of the 1996 Act did not apply here, as it only applied to actual or potential arbitrations, and here there was neither an arbitration nor the possibility of one. On appeal to the Court of Appeal the two parties agreed that s 44 could not be used to give the Court jurisdiction in this case. However, AES claimed that s 37 of the 1981 Act nevertheless conferred on the court the necessary jurisdiction. JSC claimed that because the 1996 Act exclusively governed the court’s jurisdiction to grant injunctive relief in such circumstances, and s 44 of the 1996 Act did not apply here, the Court had no power to intervene. JSC argued that the court could not use s 37 of the 1981 Act to go beyond the limits set out in s 44 of the 1996 Act, as s 1(c) of the 1996 Act stated that the courts “should not intervene except as provided by this part“.

The Court of Appeal disagreed with JSC’s claims, and stated that s 1(c) of the 1996 Act should be read as preventing the court from intervening in arbitration. As there was no existing or potential arbitration in this case, it did not apply. Rix LJ stated that, although when s 44 of the 1996 Act applied, s 37 of the 1981 Act could not be used to sidestep it, it was not the case that simply because s 44 of the 1996 Act did not apply that s 37 of the 1981 Act was also excluded. In the circumstances, the Court retained jurisdiction under s 37 of the 1981 Act and it was appropriate to exercise that jurisdiction to grant the order sought. The Court of Appeal therefore upheld the Commercial Court’s decision that the English courts have jurisdiction to grant a final injunction in order to restrain foreign proceedings (brought outside of the European regime of the Brussels Regulation (EC) No 44/2001 and the Lugano Convention) in breach of an arbitration agreement, where there is no existing or proposed arbitration.

The appeal to the Supreme Court

JSC appealed to the Supreme Court on the grounds that the effect of the 1996 Act is to preclude the Court from granting relief to enforce the negative aspect of an arbitration agreement (i.e. the promise not to bring proceedings in any other forum) unless and until arbitral proceedings are on foot or proposed.

In support of its argument JSC submitted that the granting of an anti-suit injunction in the present case was contrary to the terms, scheme, philosophy and parliamentary intention of the 1996 Act. JSC argued that the 1996 Act was intended to be a complete and workable set of rules for determination of all jurisdictional issues (especially in light of sections 30, 32, 44 and 72 of the 1996 Act dealing specifically with jurisdiction), which should in the first instance be considered by the arbitral tribunal, and the Court should not intervene until one of the parties commences arbitration. JSC sought to rely on s 1(c) of the 1996 Act to support their arguments in this regard. JSC also argued that any more general power contained in s 37 of the 1981 Act has been superseded by the 1996 Act, or should no longer be exercised.

AES argued that, independent of the 1996 Act, the English court has the power under s 37 of the 1981 Act to grant an injunction where one party can show that the other party has invaded, or threatens to invade, its legal or equitable right. AES argued that in the present case JSC had invaded, or threatened to invade, AES’s right not to be sued in Kazakhstan and therefore the anti-suit injunction should be upheld.

The Supreme Court refused the appeal and upheld the decision of the Court of Appeal on the following grounds:

  • the English courts have a general inherent power to enforce the negative aspect of an arbitration agreement by enjoining foreign proceedings brought in breach of an arbitration agreement even when arbitration proceeding are not on foot or are not contemplated;
  • the 1996 Act does not set out a comprehensive set of rules for the determination of all jurisdictional issues, as ss 30, 32, 44 and 72 of the 1996 Act only apply when arbitration is on foot or contemplated. As such, the 1996 Act does not preclude the English courts from granting an injunction under section 37 of the 1981 Act where no arbitration is on foot or contemplated; and
  • on the present facts, the granting of an injunction under section 37 of the 1981 Act does not constitute an intervention under section 1(c) of the 1996 Act, as this section only relates to the court intervening in the arbitration process.

Comment

Historically, the English courts were often very reluctant to enjoin foreign proceedings brought in breach of contract as they were cautious about interfering with the conduct of proceedings in foreign courts. The decision in this case reaffirms that there has been a clear departure from this approach and the English courts are now more willing to enjoin proceedings brought in breach of an arbitration clause (or exclusive jurisdiction clause), on the grounds that the parties have promised not to bring such proceedings, even where no arbitration is on foot or contemplated. It is therefore important when drafting agreements to ensure the inclusion of one of these clauses in order to provide the parties with certainty regarding where any dispute that may arise will be heard. It should however be noted that due to the decision in West Tankers (Case C-185/07), the English courts will not exercise their power in order to enjoin a party within its jurisdiction from commencing or continuing proceedings in a foreign court within the Brussels/Lugano regime. This is due to the mutual trust affirmed to exist between the courts within that regime.