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Arbitration-related injunctions: an update from England

Posted on 13 July 2018 by Ben Giaretta

Arbitration-related injunctions: an update from England

There were three important judgments from the English courts in June 2018 concerning arbitration-related injunctions, showing the different approaches to anti-suit injunctions and to worldwide freezing injunctions, and indicating what English arbitration will look like after Brexit.

Anti-suit injunctions against court proceedings inside and outside the EU

The first judgment, issued on 6 June 2018, was Nori Holdings Limited and others v Public Joint-Stock Company Bank Otkritie Financial Corporation [2018] EWHC 1343. This concerned an injunction to restrain a party from pursuing court proceedings in Cyprus and Russia, in breach of a London arbitration clause.

Cyprus is in the EU, and where anti-suit injunctions involving EU countries are concerned, the leading case is West Tankers Inc v Allianz SpA (Case C-185/07) [2009] AC 1138. There, the Court of Justice of the European Union ruled that an order which sought to prevent a court in another EU country from deciding whether it had jurisdiction was incompatible with EU Regulation No. 44/2001 and therefore contrary to EU law. However, the claimant in Nori argued that West Tankers no longer stopped an English court issuing an anti-suit injunction because Regulation No. 44/2001 had been revised in 2012, and the EU Advocate General had opined in the Gazprom case (Case C-536/13) [2015] 1 WLR 4937 that this revision overturned West Tankers. The judge reviewed the changes to the Regulation and concluded that they did not invalidate West Tankers. As a result, he had to leave it to the courts in Cyprus to decide what to do about the proceedings there.

The position was different, however, in relation to the Russian proceedings. Russia is outside the EU so West Tankers did not apply. The judge observed that the English courts can grant an injunction ordering a party not to pursue court proceedings started in a country outside the EU, in breach of an English-seated arbitration agreement, and would ordinarily do so unless there were "strong reasons" not to. Since there were no such reasons here, he granted an injunction restraining the defendant from pursuing the Russian proceedings.

Burden of proof for anti-suit injunctions

Another judgment about an anti-suit injunction was issued just two days later: Perkins Engine Company Limited v Mohammed Ghaddar and another [2018] EWHC 100. This also concerned an application for an injunction to restrain court proceedings in a non-EU country (Lebanon), in support of a London-seated arbitration. The judge repeated that the English courts would ordinarily grant such an injunction unless the party suing in the other forum can show strong reasons why it should be permitted to continue. There were no such reasons here.

The complication, however, was that the arbitration clause was unclear. It stated that a dispute would be referred to arbitration only if there were "no reciprocal enforcement procedures between the UK and the country where [the defendant] is located", i.e. between the UK and Lebanon. The claimant argued that the dispute must be referred to arbitration because there were no "reciprocal enforcement procedures" between the UK and Lebanon, there being no treaty between them relating to enforcement of judgments. The defendant, on the other hand, argued that there were such procedures because Lebanese court judgments can be enforced in England via the common law, while English judgments can be enforced in Lebanon using the exequatur procedures there.

The judge said that a party applying for an anti-suit injunction has to demonstrate "to a high degree of probability" that there had been a breach of the arbitration clause and that the dispute must be referred to arbitration. He preferred the claimant's arguments, however, particularly because the clause referred to reciprocal enforcement between Lebanon and the UK as a whole, and not just Lebanon and England, which suggested that the clause was referring to a treaty between the two states. Since there was no such treaty, the clause required a reference to arbitration, and the defendant had breached that clause by starting proceedings in Lebanon. The judge therefore granted the injunction.

Worldwide freezing injunctions

The final judgment, Eastern European Engineering Ltd v Vijay Construction (Proprietary) Limited [2018] EWHC 1539 was issued on 20 June 2018. It concerned an application for a worldwide injunction preventing the movement of assets, as part of efforts to enforce an ICC arbitration award which had been made in Paris. The underlying dispute related to the construction of a hotel in Seychelles, and the claimant was trying in particular to prevent the defendant from moving assets out of Seychelles.

The judge observed that, while the English courts had jurisdiction to grant such an order, they would only do so in exceptional cases. There would have to be a strong link between the defendant and England or between the dispute and England, or there would have to be some other strong factor such as international fraud. The judge decided not to grant a freezing order because there was only a limited link with England here (and there was no international fraud). He also said that the Seychellois courts could freeze assets in Seychelles, if they considered it appropriate to do so; and if the English courts issued a freeing injunction that affected assets in Seychelles, there was the risk of conflicting orders in England and Seychelles, contrary to the principle of comity between nations.  

Comment

Two main observations can be made about these judgments. Firstly, there is an apparently inconsistent approach to anti-suit injunctions and worldwide freezing injunctions in support of arbitration. The English courts will ordinarily grant an anti-suit injunction against court proceedings outside the EU, unless there are strong reasons not to, without waiting for a decision on jurisdiction from the court in the other country; but they will not grant a worldwide freezing injunction, save in exceptional circumstances, because of the risk of conflicting decisions.

This apparent contradiction might be resolved by noting that the English courts exercise control over arbitration in England just as the courts in (for example) Seychelles exercise control over physical assets there. The English courts will issue anti-suit injunctions to protect the former, but will defer to the Seychelles courts in relation to the latter. The judge in Nori also highlighted that an anti-suit injunction against foreign proceedings is linked to a decision to stay or suspend domestic English proceedings when there was a valid arbitration clause: they are "opposite and complementary sides of a coin". Thus, just as the English courts will stay domestic court proceedings and refer disputes to arbitration in all but certain limited circumstances (such as when the arbitration clause is invalid or inoperative), so they will issue orders to restrain foreign proceedings in all but certain limited circumstances.

The second observation is that these cases indicate the protection available to English arbitration post-Brexit. After the UK leaves the EU, unless a regime is put in place that is similar to EU Regulation 44/2001, West Tankers will no longer apply to the English courts. That means an application to restrain court proceedings in an EU country will be treated in the same manner as an application to restrain court proceedings outside the EU is treated now: if the claimant shows that an arbitration clause has been breached, the English courts will grant an anti-suit injunction unless the respondent shows that there are strong reasons not to do so.

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