In this post, Martin Andrew Jarret reviews UK Supreme Court’s landmark decision to grant anti-suit injunction in favour of an arbitration agreement despite no intention to initiate arbitration.
Overview
On 12 June 2013, the Supreme Court of the United Kingdom delivered its eagerly anticipated judgment in Ust-Kamenogorsk Hydropower Plant JSC (the “Appellant”) v. AES Ust-Kamenogorsk Hydropower Plant LLP (the “Respondent”) [2013] UKSC 35.
The issue was whether an English court may issue an anti-suit injunction in respect of foreign litigation being conducted outside the geographical scope of the ‘Brussels regime’, notwithstanding the non-commencement of arbitration and the non-intention to commence arbitration.
Handling down a unanimous decision, their Lordships answered this issue in the affirmative.
Background
The Appellant and the Respondent were parties to a concession agreement dated 23 July 1997 (the “Concession”) for the operation of a hydroelectric plant in Kazakhstan. The Concession contained an arbitration agreement which provided for any disputes to be arbitrated in London pursuant to the ICC Rules. The governing law of the Concession was Kazakh law, but the governing law of the arbitration agreement was English law.
The parties, and their successors in title to the Concession, endured a difficult relationship which often saw them before Kazakh courts. On 8 January 2004, during such litigation, the Republic of Kazakhstan, the successor in title to the Appellant, obtained an order that the arbitration agreement was void from the Kazakh Supreme Court.
On 12 June 2009, in other litigation, the Appellant filed a claim against the Respondent before the Specialist Inter-District Economic Court of East Kazakhstan Oblast (the “Kazakh Court”) for breach of the agreement. This claim alleged that the Respondent had breached the Concession by not providing certain information to the Appellant pursuant to a request for information submitted under the Concession. The Respondent sought to stay the litigation on the basis of the arbitration agreement, but this motion was denied by the Kazakh Court because the arbitration agreement had been previously ruled as void. The litigation proceeded and the Kazakh Court found in favour of the Appellant.
Subsequent to the refusal to recognise the arbitration agreement in the Kazakh Court, the Respondent sought an anti-suit injunction from the English courts. The English High Court of Justice issued the injunction sought, and it was confirmed on appeal to the Court of Appeal of England and Wales. The Appellant further appealed to the Supreme Court of the United Kingdom.
Arguments
For the Respondent, it relied on section 37 of the Senior Courts Act 1981 (UK) (“Section 37”), and section 44 of the Arbitration Act 1996 (UK) (“Section 44”). In summary, both these provisions provide English courts with the bases on which they may issue anti-suit injunctions on account of arbitration agreements.
For the Appellant, it contended that neither of the provisions relied on by the Respondent were applicable. Further, it argued that the Respondent was not permitted, under English civil procedure law, to serve the Appellant.
In respect of Section 44, the Appellant pointed to words that any order under Section 44 may only be made “for the purposes of and in relation to arbitral proceedings”. As the parties had not initiated, and presently had no intention to initiate, arbitration of their current dispute, an anti-suit injunction issued under Section 44 could not be “for the purposes of and in relation to arbitral proceedings”.
In respect of Section 37, the Appellant argued that the Arbitration Act 1996 (UK) provided a separate and exclusive regime for the issuance of anti-suit injunctions on account of arbitration agreements, and this effectively ousted the application of Section 37. Alternatively, if this first argument were not accepted, the Appellant advocated that an anti-suit injunction, on account of an arbitration agreement, issued under Section 37 may only be ordered when arbitration had been initiated. This second argument, with respect to Section 37, was supported by arguing that any curial involvement before the arbitration began would constitute interference. This is because an anti-suit injunction implicitly decides matters which are for the arbitral panel to preliminarily decide; for example, whether the arbitral panel has jurisdiction.
Reasoning
The court accepted the first argument of the Appellant; specifically, that Section 44 did not apply because its application was conditional on arbitration having been initiated.
Both arguments advanced by the Appellant in respect of Section 37 were, however, rejected. As regards the argument that Arbitration Act 1996 (UK) ousted the application of Section 37, the court found that the words of Section 37 could not support this contention, noting:
“[o]ne would have expected the intended inapplicability of section 37 to have been made very clear”
With respect to the argument that Section 37 only applied when arbitration had been initiated, the court considered that the relevant case law indicated that Section 37 could be used to issue an anti-suit injunction with or without the commencement of arbitration. The court identified two aspects of the arbitration agreement: the positive aspect and the negative aspect. The negative aspect, that a claimant in a dispute subject to an arbitration agreement refrain from pursuing litigation, could not be said to only apply when the arbitration has commenced owing to the illogicality of such a proposition.
Regarding the argument that the Appellant may not be served pursuant to English civil procedure law, the court ruled that the plain words of the relevant provisions did not support this argument.
Accordingly, for the reasons set out above, the appeal was dismissed.
Comments: Pro-arbitration, Res judicata, and Compliance
The decision confirms the English courts ‘pro-arbitration’ stance, and this is illustrated in two respects. First, the court was not concerned that the Kazakh Court had heard and decided the dispute, nor did it consider itself to be bound by the ruling that the arbitration agreement was void. Second, the court emphasised that it should generally abstain from involving itself in disputes subject to arbitration agreements. This decision deviated from that principle, but this deviation fits squarely within the exception to the principle that courts should support and, in limited circumstances, supervise arbitration. The anti-suit injunction can be classified as ‘supportive’ curial involvement.
If the Appellant did succeed, it is interesting to consider what would have been the outcome. It would seem that the Respondent would have had to have initiated arbitration to be granted the anti-suit injunction. Conceivably, however, the Appellant could have argued that the arbitral panel had no jurisdiction. The ground supporting this argument could have been that as the dispute had already been decided by the Kazakh Court, the res judicata rule applied. It is unlikely that an arbitral panel would have accepted this argument, but if the subsequent arbitral award was sought to be enforced in Kazakhstan, it would seem likely that the relevant court would be receptive to this argument and would not enforce such arbitral award.
Finally, it is worth considering how the English courts could achieve compliance with the anti-suit injunction. Readers would recognise that recognition of the anti-suit injunction by a Kazakh court is unlikely (at best); however, English courts are prepared to enforce through sanction. Any breach of the anti-suit injunction might constitute contempt of court, and contempt of court is punishable by fine and/or imprisonment.
The author is an Associate at Melchers Rechtsanwälte; Lecturer at Universität Mannheim; Doctoral candidate at Universität Mannheim; and a guest researcher at Ruprecht-Karls-Universität Heidelberg
