Two recent cases, BNP Paribas SA v OJSC Russian Machines (2011) and Star Reefers Pool Inc v JFC Group Co Ltd (2012) have looked at the court’s jurisdiction to grant anti-suit injunctions against a non-party to an arbitration which has used court proceedings to undermine an arbitration agreement.  

This article looks at the decisions in these cases and the differences in fact that provide guidance on when the court may find it appropriate to grant an anti-suit injunction against non-parties to an arbitration.

Star Reefers Pool Inc v JFC Group Co Ltd (2012)

The Court of Appeal overturned the grant of an anti-suit injunction with regard to Russian proceedings on a guarantee. On the facts, it was held that injuncting continuation of foreign proceedings in such a case showed "something of a touch of egotistical paternalism".

Background

JFC Group Co Ltd ("JFC"), a Russian company, charters ships through its nominee companies, in this case, Kalistad Limited ("Kalistad"), a Cypriot company. Kalistad and the Respondent, Star Reefers Pool Inc ("Star Reefers") entered into two charter-party agreements, which Star Reefers contended were supported by two letters purportedly confirming that JFC would act as guarantor to the charter-parties.  Kalistad fell behind with its payments under the agreements and on 23 February 2010, Star Reefers wrote to JFC as guarantors to confirm that JFC would be willing for Star Reefers to extend certain concessions to Kalistad.  JFC failed to respond.  On 12 March 2010, Star Reefers commenced arbitration in respect of the unpaid hire.  On 23 June 2010, JFC brought proceedings in the Russian courts for a declaration that it was not bound by guarantees because they were ineffective.  JFC failed to serve the Claim Form on Star Reefers and on 6 July 2010, the Russian Court stayed JFC's claim in the absence of proof of evidence.  A further hearing took place on 6 September 2010, at which JFC applied for, but was not granted, default judgment.  On 13 September 2010 Star Reefers commenced proceedings in England, seeking payment under JFC's guarantees.

First Instance

On 15 October 2010 Star Reefers obtained a without notice anti-suit injunction which ordered JFC not to pursue or take any further steps in the Russian proceedings.  On 8 November 2010 Star Reefer's English action came before Teare J, this time inter partes. Teare J upheld the injunction on the basis that first, JFC’s conduct with respect of to its proceedings in Russia was vexatious, because the proceedings were commenced with a view to frustrating the determination of the dispute in England; and second, that he considered the point that JFC sought to take in the Russian proceedings to be weak, suggesting that the proceedings were vexatious and oppressive.

Court of Appeal

On appeal, Teare J's order was overturned.  Rix LJ, giving judgment, set out the basic principles applicable to the power to grant an anti-suit injunction.  These are either: (i) that there must be an agreement for exclusive jurisdiction, or an agreement for arbitration in England.  In which case, the court would ordinarily grant an anti-suit injunction in the absence of a strong reason not to do so; or (ii) two conditions must be satisfied, namely England must be the natural forum for the resolution of the dispute and the conduct of the party to be injuncted must be unconscionable. 

In this case, as there was no agreement for English jurisdiction or arbitration in the guarantees, it was the second of the alternatives that was in dispute. 

Teare J’s finding that JFC’s conduct in bringing Russian proceedings was vexatious was held to be unjustified.  There was nothing which JFC could do in commencing proceedings in Russia to frustrate any proceedings in England.  Indeed, at the time that Star Reefers brought proceedings in Russia, no proceedings had been brought in England.  

In respect of Teare J's finding that JFC's case was so weak as to be vexatious, the Court of Appeal found that this would only apply to a special category of case where it is plain that the foreign proceedings are based on a hopeless claim, doomed to failure. 

It was held that overall JFC was entitled to the juridical advantage that was available to it by bringing proceedings in the Russian court, namely the application of Russian law rather than English law to the dispute.  Unless this advantage was hopelessly or cynically invoked then JFC should not be deprived from the legitimate advantage in seeking to litigate in the forum of its domicile and its disputed obligation, in particular because JFC had neither submitted to, nor participated in, the English proceedings.

BNP Paribas SA v OJSC Russian Machines (2011)

This case involved complex issues of law, but on the facts Blair J found that Russian proceedings brought by a non-party to an arbitration should be restrained in order to prevent an ongoing arbitration in London from being undermined.

Background

By a guarantee dated 1 October 2008, OJSC Russian Machines ("Russian Machines") guaranteed certain liabilities of one of its subsidiaries, which arose under a collateralised margin loan made by BNP Paribas SA ("BNPP") to the subsidiary.  The guarantee is governed by English law, and provides for disputes to be referred to arbitration under the LCIA rules, with BNPP having the option to bring proceedings in the English courts.  A dispute arose under the agreement and BNPP sought to enforce the guarantee.  On 6 August 2010, it commenced arbitration against Russian Machines in London.  Russian Machines responded that the guarantee was not valid on the basis that it did not receive the fundamental approvals required for it to be effective.

The Second Defendant, Joint Stock Asset Management Company Ingosstrakh-Investments ("Ingosstrakh"), an affiliate company of Russian Machines, then commenced proceedings against BNPP and Russian Machines before the Russian Arbitrazh Court seeking invalidation of the guarantee on the basis that it was an "interested party transaction" and a "major transaction" under the Russian Joint Stock Company Law. These proceedings were served on 13 January 2011.  There were therefore two sets of proceedings on foot regarding the validity of the guarantee. On 27 May 2011, BNPP applied to the English Court for permission to serve an anti-suit injunction against Ingosstrakh and Russian Machines to restrain the continuation of the Russian proceedings.

Anti-suit injunction against Russian Machines

As a party to the arbitration agreement, the position as regards Russian Machines was seen by Blair J to be clear.  The English courts would have jurisdiction under CPR 62.5(1)(b) (application for an interim order under section 44 of the Arbitration Act 1996) over the claim and to grant the injunction sought by BNPP.

Anti-suit injunction against Ingosstrakh

The position in regards to Ingosstrakh was more complicated.  BNPP advanced the case that Russian Machines acted vexatiously, oppressively or unconscionably by supporting, procuring or encouraging Ingosstrakh in its commencement and pursuit of the Russian proceedings with a view to frustrating the arbitration and hindering enforcement of any award in Russia.  Blair J looked at the timing of Ingosstrakh's decision to bring the Russian proceedings, which was 7 days after the commencement of the arbitral proceedings in London and noted that although it may be coincidental, it also raised questions. 

Blair J was satisfied that there was at least a good arguable case for drawing the inference that the Russian proceedings were brought with a view to impeding the outcome of the arbitration.

Comment

Both cases show that where an application for an anti-suit injunction in respect of proceedings brought by a non-party is made, the court will look in detail at the facts of the case before granting the injunction.  As Rix LJ set out in Star Reefers, the key issues for consideration are first, whether the parties have agreed to exclusive jurisdiction, or an agreement for arbitration in England; and second that two conditions are satisfied, namely England must be the natural forum for the resolution of the dispute and the conduct of the party to be injuncted must be unconscionable.