English Law’s support of Arbitration

English Law and its support of Arbitration

What is Arbitration?

Arbitration, is a form of alternative dispute resolution (ADR).  It is a technique for the resolution of disputes outside the mainstream court system. The parties to a dispute refer it to arbitration, and agree to be bound by the arbitration decision. A third party reviews the evidence in the case and imposes a decision that is legally binding on both sides and enforceable in the courts.

How can practical problems arise?

Problems can often arise in enforcing an award even in the event that an Arbitrator finds in your favour.

The largest Arbitration award ever granted was against the Russian Federation by Yukos Universal Limited (Isle of Man) for the sum of $50 BN.  Yukos was of course a Russian oil company owned in part by Mr Khordorkovsky, who has spent much of the last decade languishing in a Russian prison. The findings of the Arbitrators in that case were that the Russian State destroyed purposely destroyed Yukos and confiscated its assets.

Even though Yukos Universal Limited (Isle of Man) have now secured an arbitration award, the litigation does not end there for them, as they now seek to enforce the award, and recovering assets.  A recent decision by the District Court in the Hague has set back that process and (at least temporarily) frustrated the enforcement of the award.

The problem of proceedings being issued in more than one jurisdiction

A litigation tactic that is often used by parties to arbitration is to convene court proceedings in more than one country in order to “muddy the waters” and “shop around” for the most favourable court jurisdiction.

English law has developed a powerful weapon to defeat this type of conduct in the form of the anti-suit injunction.

The Anti-Suit Injunction

In Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35, the UK Supreme Court has clarified that the English courts’ jurisdiction to order anti-suit injunctions to restrain foreign proceedings in breach of an arbitration agreement derives from section 37 of the Senior Courts Act 1981 (SCA 1981), and not from section 44, or any other provision, of the Arbitration Act 1996 (AA 1996). The judgment also makes it plain that a party has a right to seek an anti-suit injunction from the English courts, or a declaration that a claim can only be brought in arbitration, even when no arbitration is on foot or contemplated.

The significance of the decision

The decision resolves the previous uncertainty as to whether such applications should be made under section 37 SCA 1981 or section 44 AA 1996, or both. It is now clear that the appropriate provision is section 37 SCA 1981. Although this potentially gives the court broader scope to grant anti-suit injunctions (because the restrictions in section 44 should not apply), the Supreme Court cautioned that the general power in section 37 SCA 1981 should be exercised with due regard to the scheme and terms of the AA 1996.

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

Under section 44 of the AA 1996, the court may grant interim injunctive relief:

• In cases of urgency and where there is no tribunal in existence.
• 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 facts of the case in Ust-Kamenogorsk Hydropower Plant JSC

The dispute between the appellant, Ust-Kamenogorsk Hydropower Plant JSC (JSC) (a subsidiary of the Republic of Kazakhstan), and the respondent, AES Ust-Kamenogorsk Hydropower Plant LLP (AES), arose out of a 1997 concession agreement granting rights to operate a hydro-electric power plant in Kazakhstan (Concession Agreement). The Concession Agreement was expressed to be governed by Kazakh law and contained an arbitration clause that specified that arbitration was to be conducted in London in accordance with the International Chamber of Commerce (ICC) Arbitration Rules. Although the arbitration agreement did not contain an express choice of law, it was common ground that the arbitration agreement was governed by English law.

On 31 July 2009, AES issued proceedings before the English Commercial Court, seeking a declaration that the arbitration clause was valid and enforceable, and an anti-suit injunction to restrain the proceedings in Kazakhstan. 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, JSC withdrew the request for information that had been the subject of the Kazakhstan proceedings. However, AES remained concerned about the risk of further breaches of the arbitration agreement and wished to maintain the injunction. At the inter partes hearing, JSC 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.

One basis for this challenge was that, as no arbitration proceedings had been commenced and AES had no intention of commencing arbitration proceedings, the English court had no jurisdiction to grant the injunction. The central submission by JSC was that a party could only obtain injunctive relief under section 44 of the AA 1996 where there was an actual or intended arbitration. JSC argued that, to the extent that section 37 of the SCA 1981 was available to grant an injunction, its use was limited to the same circumstances as the use of section 44 of the AA 1996. It was also argued that AES should not be granted declaratory relief because this was a matter for the arbitral tribunal in accordance with the principle of Kompetenz-Kompetenz  ( www.practicallaw.com/4-205-6045) reflected in certain provisions of the AA 1996.

The court re-emphasised the importance of the right to enforce an arbitration agreement. Lord Mance stated that an arbitration agreement not only gives rise to a positive right to arbitrate disputes in a particular forum, but also contains an equally important negative right not to be sued in any forum (domestic or foreign) other than the forum specified in the arbitration agreement. This negative aspect of an arbitration agreement is not merely ancillary to current or intended arbitral proceedings, but is an enforceable right even where no arbitration is on foot, proposed or brought.