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Category Archives: INTERNATIONAL ARBITRATION

UK Supreme Court Allows Anti-Suit Injunction in favour of Arbitration Agreement

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

Singapore High Court Reaffirms Non-Interventionist Policy: PT Pukuafu Indah vs. Newmont Indonesia Ltd.

In this post, PANAGIOTIS CHALKIAS reports on the recent decision of the Singapore High Court in PT Pukuafu Indah vs. Newmont indonesia Ltd., where the court clarified the policy underlying the International Arbitration Act of Singapore.

The Singapore High Court was recently seized with an application to set aside an interim order granted by an arbitral tribunal in an arbitration governed by the SIAC Rules. While the International Arbitration Act of Singapore (IAA) was recently amended, the provisions of the IAA’s 2002 version cited by the High Court remain the same.

This judgment touches upon two highly interesting and challenging topics of international commercial arbitration. On the hand, the High Court deals with the question of whether an arbitral interim order can be considered as an award and therefore be open to setting aside proceedings. On the other hand and most importantly, the High Court goes on to explain the policy considerations of the IAA that courts in Singapore should take into account before they rule on setting aside applications.

 The plaintiffs in this case were a company incorporated in Indonesia, PT Pukuafu Indah (“PTPI”), and six of its shareholders. On the defendants’ side were Newmont Indonesia Limited (“NIL”) and the US company NVL Limited (“NVL”), which was related to NIL and was a creditor to PTPI. NIL and PTPI were apparently shareholders of an Indonesian company PT Newmont Nusa Tenggara, which operates a copper and gold mine in Indonesia.

The contractual framework of this case involved a Release Agreement dated 26 November 2009, a loan agreement between NVL and PTPI dated 25 November and a co-ordination agreement dated 25 November 2009. The dispute mainly revolved around the Release Agreement, whereby they plaintiffs were bound to discontinue two suits that had been commenced in the Indonesian courts in October 2009. The plaintiffs not only did not abide by this contractual engagement but they also decided to initiate three more suits before the South Jakarta District Court in January, March and July 2010.

As a reaction to these lawsuits, the defendants commenced SIAC proceedings in August 2010 seeking declaratory and other relief for alleged contractual breaches by the plaintiffs. The defendants, now claimants in the arbitral proceedings, applied successfully for an interim order pursuant to article 26.1 of the SIAC Rules (4th Edition, July 2010), restraining the plaintiffs, now acting as respondents, from continuing all proceedings pending in the Indonesian courts or from commencing fresh proceedings relating to the dispute (anti-suit injunction). The hearing for this application took place in the absence of the respondents and the arbitral tribunal issued its interim order in favour of the claimants on 15 October 2010.

Subsequently, the Singapore High Court granted leave to enforce the arbitral order on March 2011 (on the basis of section 12(6) of the IAA) after PTPI and its shareholders failed to appear at the enforcement hearing. It was only on 6 May 2011 that PTPI and its shareholders (plaintiffs) filed an application to set aside the order of October 2010 before the High Court.

The High Court’s analysis does not come as a surprise as it endeavoured to look at the substance of the interim order rather than “the label given by the tribunal.” After determining that the interim order was in effect an anti-suit injunction, the High Court highlighted its interim effect. The purpose of the interim order was to “maintain the status quo” until the hearing on the merits. The order’s own content, which indicated that the injunction was granted “until further order by this Tribunal” and provided that “costs of the application for interim relief be reserved to the Final Award”, was a significant proof of its interim nature. The High Court added that it would do “great service” to the parties if the arbitral tribunal were to cite under which provision of the IAA they were issuing this order. This is because section 2 of the IAA defines the term “award” and specifically excludes the procedural orders and directions made under section 12(1) (interim injunctions are included in this list). Regardless of this omission, the High Court held that it had no jurisdiction to consider the setting aside application, as the interim order was not an award.

Taking into account that the interim and procedural nature of the tribunal’s order was established, the High Court’s judgment could have ended there. Interestingly enough, the High Court decided to make some clarifications on the policy of the IAA with respect to judicial enforcement and challenge of interlocutory orders. The High Court explained the reason behind the inception of section 12(6) of the IAA, which provides a “sui generis enforcement mechanism” to arbitral interim orders. This judicial assistance mechanism allows the conversion of arbitral interim orders into court orders so that the first ones are not mere paper decisions. It is therefore the judge’s decision that will be enforced. However, other jurisdictions have opted for the immediate enforcement mechanism through which courts can apply the same enforcement and annulment principles as if the arbitral interim orders were final awards.

The Singapore High Court saw this tension between these two mechanisms as a tension between independence and interventionism. And it clearly stated that the IAA’s overarching aim is to guarantee an independent and efficient arbitration process. As far as orders on procedural matters are concerned, the supervisory powers of the courts of the arbitral seat should be respectful of the arbitral tribunal’s procedural integrity. The High Court rightly pointed out that by limiting challenges only to awards that decide the substantive merits of the case, the risk of delay and of tactical attempts to obstruct the arbitration process is reduced. Opening the door to setting aside applications would defy the urgent purpose of an interim measure – whether this last one deals with procedural or substantive issues. The priority for recourse against such decisions should be given to the arbitral tribunals instead of the courts. On the other hand, the rights of the opposing parties can still be defended at the enforcement stage where it is possible to raise objections to the grant of the court’s leave for the enforcement of the interim order.

This judgment is a great example of how domestic courts should exercise their supervisory powers with respect to pending international arbitration proceedings. It also shows that the problem of enforceability of arbitral interim measures can be overcome with the help of sophisticated arbitration statutes and knowledgeable courts.

Link to the decision.

Arbitrators Enjoy Exclusive Jurisdiction to Grant Interim Measures in Brazil: Superior Court of Justice

In this Guest Post, FELIPE SPERANDIO updates us on Brazilian Superior Court’s interesting decision holding that once an arbitral tribunal is in place, it shall have the exclusive jurisdiction to grant any interim measures.

A recent decision of the Brazilian Superior Court of Justice (“STJ”) has ruled, for the first time, on the issue of the concurrent jurisdiction of national courts and arbitral tribunals with respect to the making of interim measures (Itarumã Participações S.A. v Participações em Complexos Bioenergéticos S.A. – PCBIOS, Resp no. 1,297,974-RJ). The decision is significant in shedding light on a topic not addressed by the Brazilian Arbitration Act. It also reassures the view that, where there is an arbitration agreement, the national courts may only intervene – in exceptional circumstances – to support arbitration. Read the rest of this entry

INDIAN SUPREME COURT OVERRULES BHATIA INTERNATIONAL – OR DOES IT?

In this post, SUMIT RAI updates us on the constitutional bench decision of the Supreme Court of India which held that Indian courts would have no jurisdiction over arbitration held outside India.

The good news is that the Supreme Court of India has overruled the severely criticized decisions in Bhatia International vs. Bulk Trading and Venture Global vs. Satyam Computers. In short, the Supreme Court held that the intention of legislature was clear that the territoriality principle was adopted in India as recommended under the UNCITRAL Model Law. Indian courts would, therefore, have no juisdiction over international commercial arbitration held outside India. Read the rest of this entry

Brazilian Court Reverses Compulsory Submission Agreement Requirement

In this Guest Post, FELIPE SPERANDIO from Brazil updates us on a recent decision of the Court of Appeal that has done away with an otherwise troubling requirement of a compulsory submission agreement.

In a recent decision, a Court of Appeal in Brazil has corrected an arbitration-related decision, on the validity of arbitration clauses, which had raised a red flag among practitioners and scholars. The revised national court’s position places Brazil back on the pro-arbitration track.

Facts

Inepar S.A. Indústria e Construções (Inepar), the contractor, entered into an agreement with Itiquira Energética S.A. (Itiquira), the employer, for the construction of a hydroelectric power plant in the State of Mato Grosso, Brazil. The dispute resolution clause provided for ICC arbitration, with Brazil as the seat and Brazilian law as the governing law.

Disagreements between the parties started in 2001. Inepar sought to revise the amount owed to it under the contract given unexpected conditions that had results in extra costs and delays. Itiquira responded by terminating the agreement on account of Inepar’s delays. Read the rest of this entry

NEWSFLASH: WHITE INDUSTRIES’ INVESTMENT CLAIM PREVAILS AGAINST INDIA

There is no official confirmation or announcement. However, IA Reporter has – true to its reputation – broken the news. It seems White Industries’ claim for violation of India-Australia BIT due to protracted delays in the Indian judiciary (which has kept a 2002 ICC award against Coal India of around Aus. $ 4 million in the limbo till date) have been accepted. This case is extremely interesting as the cause of action arises from the delay in enforcement of an international commercial arbitration award. Investment arbitration becoming the final ‘court of appeal’ for international commercial arbitration is something that has been on the radar of academicians for sometime – and this award will give some food for thought. We will report in more detail on the case once it is available in the public domain.

In the meantime, you may be interested in some background to the dispute – we refer you to this post at Practical Academic blog. Probably, there is no other more comprehensive source of information on the background available on the internet.

Readers may be interested to know that the White Industries appeal against Coal India is one of the cases pending at the Indian Supreme Court and tagged in the Bhatia International review which is considering whether Indian courts have jurisdiction to entertain challenge of foreign awards.

BHATIA INTERNATIONAL RATIO UNDER THE SCANNER AT INDIAN SUPREME COURT

In this post, SUMIT RAI briefly addresses some of the most important submissions made by the parties arguing in favour of confirming the Bhatia International ratio during the widely followed five-member constitutional bench review by the Indian Supreme Court.

As reported earlier, a five judge constitutional bench of the Indian Supreme Court has started hearing arguments in the widely followed review of the Bhatia International ratio. I review here, some of the most important arguments made in favour of confirming the ratio.

This decision of a three member bench of the Supreme Court had allowed for application of Part I of the Arbitration & Conciliation Act, 1996 (“Indian Act”) to arbitration seated outside India. Before moving on with the post, let me lay some background for those not initiated with the controversy, so that you follow the issues in contention in the present review: Read the rest of this entry

DOES THE 2G LICENSE CANCELLATION AMOUNT TO EXPROPRIATION BY INDIA?

In this post, SUMIT RAI speculates on a possible investment treaty claim against India for the cancellation of 2G licenses following the Supreme Court decision of 2nd February 2012.

In 2011, the issue of corruption at the highest levels of governance dominated political and social debates in India. Allegations of loss to the exchequer to the tune of 300 billion rupees in the 2008 allotment of 2G spectrum for mobile telephony, shocked the nation. This probably also came as a shock to a large number of foreign investors – by then having infused huge capital in telecom companies. The telecom minister was made to resign and since has been in jail. Many corporate heads of Indian telecom companies also visited prison for a brief time and are now out on bail pending final investigation and prosecution.

Some citizens and NGOs filed a writ petition in the Indian Supreme Court under Art. 32 of the Constitution alleging that the grant of 122 2G spectrum licenses in 2008, following a first-cum-first-serve policy and at 2001 prices was in violation of citizens’ fundamental rights of the Constitution. On 2nd February 2012, the Indian Supreme Court upheld the petitioners’ contentions and cancelled all 122 licenses (the judgment in Centre for Public Interest Litigation v. Union of India is available here). The Court held that 2G spectrum is a natural resource and that “the State is the legal owner of the natural resources as a trustee of the people and although it is empowered to distribute the same, the process of distribution must be guided by the constitutional principles including the doctrine of equality and larger public good”. Read the rest of this entry

EMERGENCY ARBITRATOR: A MERE ‘À LA MODE’ FEATURE OF MODERN ARBITRATION RULES?

In this post, PANAGIOTIS CHALKIAS discusses the new trend of institutional rules providing for emergency arbitrator prior to the appointment of the arbitral tribunal.

After the recent amendments to the Rules of Arbitration of the International Chamber of Commerce, it has become clear that a new trend has been established with respect to interim measures requested prior to the constitution of the arbitral tribunal. This trend has already been espoused by a number of arbitral institutions, including AAA (ICDR), CPR, SCC, SIAC, ACICA, and P.R.I.M.E. Finance . The revised version of the Swiss Rules of International Arbitration will also include new provisions on Emergency Relief. These recent developments beg the question of the utility of such mechanism, whether demonstrated in the course or in the end of international arbitration proceedings.

Starting first with the number of emergency arbitrator requests – the arbitral institutions receive only modest numbers of such requests (see reports of SIAC, SCC , and AAA). And when such requests have been made, they have been seldom granted. One possible reason behind this rare use is the overcoming burden of proving not only the urgency of the application (as defined in article 26.2 of the UNCITRAL Arbitration Rules) in the sense of conventional interim measures requests. There needs also to be an “emergency” in the sense that the requested interim measures cannot await until the constitution of the arbitral tribunal. Thus, the period has been shortened from the time needed to deliver a final award to the time it takes to empanel the arbitrator(s). Read the rest of this entry

ALLOCATION OF COSTS IN SUMMARY PROCEEDINGS UNDER R. 41(5), ICSID RULES

In this post, MARIJA SOBAT, questions the principle of ‘pay-your-own-way’ applied to allocation of costs in summary proceedings under ICSID Rules.

Rule 41 (5) came to life with the 2006 amendments to the ICSID Arbitration Rules. It is beyond the scope of this post to delve in great detail into the Rule itself. It suffices here to say that the provision was introduced to allow a party to raise an objection in limine litis that a claim is “manifestly without legal merit” and to ask a tribunal to summarily dismiss such patently frivolous claim by a reasoned award. The rationale behind this Rule was, among other things, to shorten duration of the proceedings and reduce the costs where a party is bringing a patently frivolous claim. It is interesting to see how ICSID tribunals, which confirmed frivolity of the claim, had decided on allocation of costs (Trans-Global v Jordan, Global Trading v Ukraine, RSM Production v Grenada) and what impact these decisions may have on the future application of the Rule. In this post I will explain how the proper allocation of costs in summary proceedings could influence on reducing the number of manifestly frivolous claims brought before the ICSID tribunals.

According to Article 61 (2) of the ICSID Convention and Rule 28 of the ICSID Arbitration Rules, in the absence of the parties’ prior agreement, ICSID tribunals have discretion to decide about allocation of costs of the proceedings between parties. In the vast majority of cases, the ICSID tribunals followed “pay-your-own-way” approach. The exception to the rule, ie, allocation of the costs to the loser of the proceedings, occurred in those cases where the tribunals established that a claim was manifestly without legal merit or observed bad faith from a party. Read the rest of this entry

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