Can the English court injunct court proceedings in a foreign court where no arbitration has commenced? The Supreme Court case of Ust-Kamemogorsk Hydropower Plant JSC (JSC) v AES Ust-Kamemogorsk Hydropower Plant LLP (AES) [2013] UKSC 35 dealt with this. An interesting aspect of the case was the discussion on the interaction of the provisions in the Arbitration Act 1996 concerning the courts' powers in arbitration and the Senior Courts Act 1981.

The Facts

AES was the grantee of a 25 year concession entitling it to operate a hydroelectric plant in Kazakhstan. JSC was the owner and grantor of the Concession. The Concession Agreement was covered by Kazakh law but contained an arbitration clause providing for disputes to be settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) to be conducted in London.

JSC raised a court action against AES in the Economic Court in Kazakhstan. An application to stay this, citing the arbitration clause, was rejected by the Kazakh court.

AES then issued proceedings in the English Commercial Court seeking a declarator that the arbitration clause was valid and enforceable and an interim anti-suit injunction to prevent JSC from pursuing the court action in Kazakhstan. That proceeded on the basis that the arbitration clause was subject to English law. The interim injunction was granted (although rejected by the Kazakh courts). The case then came before the English courts again on the hearing for the full injunction.

The first instance judge granted the injunction stating that JSC could not bring proceedings in the Kazakhstan court and restraining them from bringing the claim other than by commencing ICC arbitration proceedings in London. The Court of Appeal upheld that order. There was an appeal to the Supreme Court.

Could the Court grant an Injunction?

Section 37 of the Senior Courts Act 1981 allows the High Court to grant an injunction in all cases in which it appears to the court to be just and convenient to do so. For Section 37 to apply one party needs to show that the other has invaded or threatens to invade its legal or equitable rights or that it has behaved or threatens to behave in a manner which is unconscionable.

It was argued that JSC had invaded or threatened to invade AES' legal right not to be sued in Kazakhstan. AES therefore argued that there was no reason why the court should not exercise its declaratory powers under the Arbitration Act 1996 but also its powers under section 37 of the Senior Courts Act. It was argued that to do that would support the commitment to arbitration contained in the arbitration clause.

There was discussion in the court as to the case law around whether the court would injunct foreign proceedings brought in breach of either an arbitration agreement or an exclusive choice of court clause. In Aggeliki Charis Cia Maritima SA v Pagnan SpA, 1995 parties had agreed to arbitrate all disputes in London but one party sued in a court in Venice. The Court of Appeal held that courts should be prepared to grant an anti-suit injunction, if sought promptly, on the basis that, without it, the claimant would be deprived of its contractual rights in a situation where damages would be an inadequate remedy. It was said that an injunction should be granted to restrain foreign proceedings in breach of an arbitration agreement "on the simple and clear grounds that the defendant has promised not to bring them". That was endorsed in the context of exclusive choice of court clauses in Donohue v Arnco, 2001, a House of Lords case, where it was said that strong reasons were required to outweigh the prima facia entitlement to an injunction. Further, in Turner v Grovit, 2001, it was said that under English law a person has no right not to be sued in a particular forum unless there is some specific factor giving that right. A contractual arbitration or exclusive jurisdiction clause would be such a factor. Where there is such a clause, then, absent some special circumstance, there is a legitimate interest in enforcing it.

It was concluded that unless the Arbitration Act 1996 requires a different conclusion, the existence of a London Arbitration Agreement, excluding an ability to be sued elsewhere, was an enforceable right.

Impact of Arbitration Act 1996

Was it consistent with the Arbitration Act 1996 for a court to make the order sought? JSC argued that it was not, except where arbitral proceedings had already commenced or were proposed and then only under the provisions of the Act.

It was said that the Arbitration Act contains a complete and workable set of rules for the determination of jurisdiction issues. It was argued that unless and until one or other party commences an arbitration, the court should keep its distance. Any general power contained in section 37 of the Senior Courts Act was superseded by the Arbitration Act or at least should not be exercised.

The issue in this case was that no arbitration proceedings had commenced and AES had no intention or wish to commence any. This meant that the provisions within the Arbitration Act such as section 32 enabling the court to determine any question as to the substantive jurisdiction of a tribunal on the application of a party to arbitral proceedings would not be applicable. There was no arbitral tribunal in existence to provoke such questions.

Section 44 of the Arbitration Act sets out the court's powers exercisable in support of arbitral proceedings. However, the matters listed in section 44 were matters which could require the court's intervention during actual or proposed arbitral proceedings. The court considered that in these circumstances there was every reason why it should be able to intervene directly under section 37 of the Senior Courts Act.

Whilst there was a reference in section 44 of the Arbitration Act to the court granting an interim injunction, that was not intended either to exclude the court's general power under section 37 of the Senior Courts Act in circumstances outside the scope of section 44 or to duplicate part of the general power in the Senior Courts Act.

Where an injunction is sought to restrain foreign proceedings in breach of an Arbitration Agreement, the source of the power to grant such an injunction is section 37 of the Senior Courts Act. The injunction does not relate to arbitral proceedings but to the fact that the arbitration agreement amounts to an agreement not to bring foreign proceedings. That agreement is enforceable, regardless of whether or not arbitral proceedings are commenced or proposed.

Section 37 of the Senior Courts Act, was said to be a general power. The court considered that it would be astonishing if Parliament should "silently and without warning" have precluded its use in respect of foreign proceedings commenced or threatened in breach of an arbitration agreement. That would have been seen as a radical diminution of the protection afforded by English law to parties to an arbitration agreement and it was concluded that the drafters of the Act would not have contemplated that the Arbitration Act could or would undermine this.

The general power in section 37 of the Senior Courts Act requires to be exercised sensitively and with due regard to the scheme and terms of the Arbitration Act when any arbitration has commenced or is proposed. However it was thought to be inconceivable that the Arbitration Act intended, or should be treated, as effectively preventing a party from having recourse under section 37.

Comment

This case makes clear that the English courts will be prepared to intervene to protect a party's rights not to be pursued in a foreign jurisdiction where parties have contracted for arbitration in England. That protection applies whether or not any arbitration has commenced and derives from the court's general powers in the Senior Courts Act as opposed to specific provisions in the Arbitration Act. The practical issue in this case is likely to be enforcing the injunction if the Kazakh courts refuse to recognise it.

For an arbitration seated in Scotland, it is thought that the Courts would reach the same conclusion. There are similar provisions in the Arbitration (Scotland) Act 2010 in relation to the Court's powers to intervene in an arbitration. However, as in England, the Scottish Courts have a general power to grant interdicts to prevent a party's rights being infringed. Also, as in England, it seems unlikely that it would be considered the Arbitration (Scotland) Act was intended to restrict the Court's general powers.