In Sonera Holding B.V. v. Cukurova Holding A.S. BVIHCMAP2015/0005, the Eastern Caribbean Court of Appeal (“CA“) granted an injunction restraining Cukurova Holding A.S. (“CH“), the respondent, from pursuing arbitral proceedings which could have undermined the enforcement of an earlier arbitral award. The judgment provides a detailed analysis of the courts’ power to grant anti-arbitration injunctions following the enactment of the BVI Arbitration Act in 2013 (“Arbitration Act“).

Facts

In 2005, Sonera Holding B.V. (“Sonera“) entered into a letter agreement (“Letter Agreement“) with CH to buy shares owned by CH. The Letter Agreement provided that a Share Purchase Agreement (“SPA“) would be entered into later. Both the Letter Agreement and the SPA provided for ICC arbitration with seat in Geneva. As the SPA was not signed within the period agreed under the Letter Agreement, Sonera started arbitration proceedings against CH, alleging that CH had breached the Letter Agreement to execute the SPA on time. In September 2011, the arbitral tribunal (“First Tribunal“) held that CH had agreed on and breached the terms of the SPA and was liable to pay Sonera damages (“First Award“). Sonera sought enforcement of the First Award in various jurisdictions, including BVI.

In October 2011, the Eastern Caribbean Supreme Court (“Supreme Court“) made an ex parte order allowing Sonera to enforce the First Award (“Enforcement Judgment“). CH subsequently applied to set aside the Enforcement Judgment and challenged the First Tribunal’s jurisdiction on the ground that the arbitral proceedings had been brought under the Letter Agreement but that the relief granted was for breach of the SPA. However, this jurisdictional challenge failed before the First Tribunal, the High Court of the Virgin Islands, the Court of Appeal and the Privy Council.

In April 2012, CH had started arbitration proceedings based on the arbitration clause in the SPA (“SPA Arbitration“) before a second tribunal (“Second Tribunal”) seeking 1) a declaration that CH had never entered into the SPA; and 2) compensation from Sonera in the same amount as the First Award. Despite Sonera’s objections, the Second Tribunal rendered a partial award allowing the SPA Arbitration to continue. While the Second Tribunal held that it was estopped from ruling on whether the parties had agreed on the terms of SPA and CH had breached its duties under the Letter Agreement, it could decide on whether CH had duty to transfer the shares or to pay damages for failure to do so.

Following the partial award, CH filed its statement of claim which made clear that CH was seeking not merely compensation equal to the amount awarded in the First Award, but also an order to restrain Sonera from enforcing the Enforcement Judgment, and to “unwind” the costs order granted under the Enforcement Judgment.

In 2014, Sonera applied to the Supreme Court for an anti-arbitration injunction to prevent CH from continuing the SPA Arbitration. Sonera’s application was dismissed as the Supreme Court held that section 3(2)(b) of the Arbitration Act, which states that the courts should not interfere in arbitral disputes, prevailed over section 24(1) of the West Indies Associated States Supreme Court (Virgin Islands) Act (“Supreme Court Act“), which empowers courts to grant injunctive relief.

Thereafter, Sonera appealed to the CA and the issues were 1) whether the Arbitration Act had taken away the court’s general power to grant injunctions; and 2) even if it had, whether the court still had discretionary power to grant the anti-arbitration injunction.

Holding

The CA allowed the appeal and granted the anti-arbitration injunction in Sonera’s favour. While section 3(2)(b) of the Arbitration Act stated that “the Court shall not interfere in the arbitration of a dispute…“, the CA found that this provision did not abdicate the court’s jurisdiction to grant anti-arbitration injunctions.

The CA stated that the equitable jurisdiction of the court to grant injunctions was well established. Section 3(2)(b) of the Arbitration Act did not remove the court’s jurisdiction to grant injunctive relief pursuant to section 24 of the Supreme Court Act, which empowers the court to grant interim injunctive relief when it is “just or convenient“. According to the CA, “[h]ad it been intended that section 3(2)(b) would oust the court’s jurisdiction to grant injunctions in relation to arbitral proceedings provided under section 24 of the Supreme Court Act, this would have been clearly stated in section 3(2)(b) itself“. As section 3(2)(b) of the Arbitration Act did not contain such wording, the Arbitration Act did not abrogate the court’s general power to grant anti-arbitration injunctions.

In considering whether to exercise its discretion to grant an anti-arbitration injunction, the CA noted that while CH seeking an award “in an amount equal to the Final Award” was not necessarily “subversive of the court’s Enforcement Judgment”, it was a different matter if CH sought relief “directly aimed at unwinding the Court’s Enforcement Judgment and its orders made by way of enforcement thereof”. The CA found that the relief sought by CH did not follow the request for SPA Arbitration commenced in 2012 and these remedies were not only intended to “wash through” the First Award, but also to nullify the Enforcement Judgment and invalidate the costs order under the Enforcement Judgment, “which is in every respect final”. Such relief, if granted under the SPA Arbitration, would be “plainly subversive” of the court’s final judgment, which constituted an interference with the court’s process, and an attack on the court’s enforcement jurisdiction under the New York Convention. Further, the CA considered that the existence of two diametrically opposed arbitral awards concerning the same parties on the same issues ran counter to the promotion of finality of international commercial disputes. Therefore, the SPA Arbitration should not be permitted.

Comments

The CA has reiterated that an enforcing court should ensure that the regime under the New York Convention for enforcing arbitral awards is protected. Consequently, arbitral proceedings in which the relief sought involves seeking to restrain a party from enforcing a valid arbitral award should not be permitted. In addition, the CA found that the “non-intervention” principle in the Arbitration Act does not affect the Court’s long established jurisdiction to grant injunctive relief.