What should prevail – an already commenced foreign court proceeding or an unexercised arbitration clause?  The answer, according to the UK Supreme Court, may surprise you.  In a recent ruling of relevance to Canadian practitioners and business, the UK Supreme Court granted an injunction to prevent the continuance of a foreign court proceeding (a so-called “anti-suit injunction”) on the basis of an arbitration clause which had not been invoked.  In other words, a foreign court proceeding was enjoined even though there was no competing domestic arbitral proceeding underway.

The key facts of the decision in Ust-Kamenogorsk Hydropower Plant JSC (Appellant) v AES Ust-Kamenogorsk Hydropower Plant LLP (Respondent) [2013] UKSC 35 are as follows.  JSC is the owner of a hydroelectric power plant in Kazakhstan.  AESUK is the current operator of the plant.  JSC and AESUK entered into an agreement regarding the operation of the plant (the “Agreement”).  The Agreement was generally governed by Kazakh law.  However, the Agreement contained a clause providing for arbitration in London (the “Arbitration Clause”).  The Arbitration Clause, it was agreed, was governed by English law.

The relations between the parties were strained.  JSC brought proceedings against AESUK in Kazakhstan as a result of a dispute pertaining to the Agreement.  AESUK unsuccessfully moved before the Kazakh court to stay the proceeding on the basis of the Arbitration Clause, as the court ruled that it was invalid under Kazakh law.  AESUK then issued a court proceeding in England.  The English court at first instance granted an anti-suit injunction enjoining the Kazakh court proceeding.  The English Court of Appeal affirmed that judgment.

On further appeal, the UK Supreme Court upheld the anti-suit injunction.  Lord Mance, who penned the speech for the Supreme Court, began by noting the dual aspects of an arbitration agreement (at para. 1):

“An agreement to arbitrate disputes has positive and negative aspects. A party seeking relief within the scope of the arbitration agreement undertakes to do so in arbitration in whatever forum is prescribed. The (often silent) concomitant is that neither party will seek such relief in any other forum.”

Lord Mance acknowledged that it was an “unusual feature” of this case that no arbitration proceedings had been commenced or imminent in England (at para. 4).  Nonetheless, Lord Mance ruled that, at common law, “the negative aspect of a London arbitration agreement is…a right enforceable independently of the existence or imminence of any arbitral proceedings” (at para. 28).  Approvingly citing an earlier judgment, Lord Mance affirmed that “an injunction should be granted to restrain foreign proceedings in breach of an arbitration agreement ‘on the simple and clear ground that the defendant has promised not to bring them’” (at para. 25).

Lord Mance then went on to conclude that this general inherent power was not ousted by the terms of the Arbitration Act 1996.  Indeed, Lord Mance ruled that express statutory language would be required to preclude the exercise of such a power by the Court (at para. 56).  Moreover, Lord Mance found that the Arbitration Act 1996 did not provide a “complete code” for the determination of all jurisdictional questions as the statute did not apply when there was no imminent arbitration proceeding.  In other words, AESUK could not look to an arbitrator to address this issue because there was no pending arbitration.  Accordingly, the court could “intervene directly, by an order enforceable by contempt” (at para. 41).

Although acknowledging that in some cases, the appropriate course will be to leave it to the foreign court to recognise and enforce the parties’ arbitration agreement, given that the foreign Court had refused to do so in this case on grounds unsustainable under English law, Lord Mance ruled that it was incumbent on the English Courts to intervene and give effect to the “negative” aspect of the arbitration agreement (at para. 61).

The decision in the Ust-Kamenogorsk mirrors the jurisprudential trend in Canada which favours arbitration over court proceedings and injects additional power into arbitration clauses which are already treated as formidable.  The existing Canadian jurisprudence confirms that an arbitration will generally trump a competing court proceeding.  The Ust-Kamenogorsk decision now suggests that even the shadow of an unexercised arbitration clause can prevail over a foreign court proceeding.  The ascendency of arbitration clauses may thus have reached new heights.