The power to restrain arbitral proceedings will be exercised only in exceptional circumstances

AmTrust Europe Ltd v Trust Risk Group SpA1

Commercial Court, 8 July 2015

The Commercial Court refused to grant an injunction to restrain arbitral proceedings commenced in Italy where the parties had entered into two separate business agreements with conflicting jurisdiction clauses. The court held that any challenge to the Italian tribunal’s jurisdiction should be dealt with by that tribunal in the first instance and by the Italian courts as the supervisory courts. Injunctions to restrain arbitral proceedings will only be granted in exceptional circumstances.

Background

Section 37 of the Senior Courts Act 1981 (the “Act“) gives the English court power to make an anti-arbitration injunction which restrains the commencement or pursuit of arbitral proceedings. The power can be exercised, at the court’s discretion, where the arbitral proceedings breach the claimant’s rights, or are vexatious, oppressive or unconscionable. Jurisdiction to halt arbitral proceedings under section 37 of the Act extends to foreign arbitrations, but the power will be exercised only in exceptional circumstances.

The claimant, AmTrust, is an English insurance company and the defendant, Trust Risk Group, is an Italian insurance broker through which AmTrust placed policies mostly with Italian hospitals, in the Italian market. The two companies entered into a Terms of Business Agreement (“ToBA“) which included a jurisdiction clause providing that disputes should be determined in the English courts. The parties later entered into a framework agreement which provided for any disputes under that agreement to be finally settled by arbitration with the seat of arbitration in Milan. A dispute did in fact arise and the defendant initiated arbitral proceedings.

While arbitral proceedings in Milan were ongoing, the claimant obtained an order in the English courts requiring payment of withheld funds (which were the subject of the dispute) into a designated account. In those English proceedings it was held that the claimant had shown a good arguable case that its claim was governed by the ToBA jurisdiction clause and was not covered by the arbitration clause in the framework agreement. A subsequent appeal by the defendant was dismissed.

It was common ground between the parties that the framework agreement (containing the Italian jurisdiction clause) was a valid contract and that it included a valid arbitration agreement.

Judgment

The claimant applied for an anti-arbitration injunction restraining the Italian proceedings. It argued that the dispute being heard in Milan was subject to the exclusive jurisdiction of the English court.

It argued that the issues in question – whether the ToBA continued as an agreement after entry into the framework agreement, and whether the dispute about withheld funds was covered by the framework agreement or the ToBA – had already been determined by the English courts. Smith J ruled the Court of Appeal had done no more than decide that there was a “good arguable case” for the claimant on those points. The court had not made any final decision on which contract governed the dispute in question.

The argument that the Italian tribunal might ultimately decide that the dispute arose out of the ToBA (and thus be governed by English law) was not a sufficient basis on which to restrain the Italian proceedings. Even if claims under the framework agreement were unarguable, the English court would not have jurisdiction to dismiss unarguable claims brought in a foreign arbitration.

As a general rule, the English courts have recognised that it is not usually just and convenient to restrain pursuit of foreign arbitral proceedings, particularly where there is no dispute that the relevant arbitration agreement appointing the foreign tribunal exists. That was the case inAmTrust: the parties agreed that the framework agreement containing the Italian arbitration clause was valid and that the arbitration clause contained in it was valid.

The parties accepted, therefore, that the Italian tribunal appointed under the framework agreement should determine in the first instance whether it had jurisdiction to hear the claims before it, and that the supervisory court for those proceedings should be the court of the seat of the arbitration, namely the Italian court. That court had the ultimate authority to determine the Italian tribunal’s jurisdiction. The claimant was able to challenge the arbitrators’ jurisdiction within the framework of the Italian arbitration: first by making submissions to the tribunal and thereafter by making the relevant application to the Italian court.

Comment

The power to restrain foreign proceedings is only exercised in exceptional circumstances and with great caution. While there is no absolute or inflexible rule governing that exercise, the decisive question is always whether it would be just and convenient to make an injunction under section 37 of the Act. Smith J found no proper reason to exercise that power in AmTrust. It is also a well-established principle of English law that the courts of the seat of an arbitration should have supervisory jurisdiction. As such the Italian tribunal would determine the question of its own jurisdiction in the first instance, and the English courts would not restrain the Italian proceedings.