In Excalibur v Texas Keystone Inc & Others, the claimant had simultaneously commenced an International Chamber of Commerce (ICC) arbitration in New York and substantive Commercial Court proceedings in London over very similar claims, against the same defendants. Mrs Justice Gloster ruled that the Commercial Court had jurisdiction to determine whether the arbitration agreement between the claimant and those parties was valid. The Commercial Court issued an injunction preventing the claimant from pursuing the arbitration in New York against those parties, on the basis that there was a strong arguable case that they never agreed to the arbitration agreement.
Excalibur v Texas Keystone Inc & Others provides an interesting example of a claimant commencing parallel court and arbitration proceedings and casts serious doubts as to the merit of such a procedural tactic in some circumstances. It is also a rare example of the Commercial Court intervening in an arbitration that was subject to the oversight by the New York, not English, courts.
The oil industry is a regular target for claims. These claims are commonly made by commercial counterparties, governments, regulators and, as in the present example, industry facilitators (or agents) seeking payment of a “finders fee” (a fee payable upon introduction to a new market, or exploration opportunity, for provision of local contacts and know-how). Frequently, claims made against oil companies give rise to decisions that add to the development of the general law. The initial rebuttal of certain claims made against companies associated with the oil exploration company Gulf Keystone is one such example.
Oil industry observers will be well aware of Gulf Keystone. It has recently struck significant quantities of commercially recoverable oil reserves in the Shaikhan Block in oil-rich Kurdistan (the semi-autonomous region in Northern Iraq), following a USD500 million investment programme. Gulf Keystone is registered in Bermuda.
Gulf Keystone's chairman and CEO was also a director of other (essentially family) companies, including one called Texas Keystone. There were no other connections between Gulf Keystone and Texas Keystone. Texas Keystone is a smaller company of around 50 staff and has interests in a number of licences in the US. It is based in Pittsburg.
The claimant was a Delaware-based company called Excalibur Ventures (“Excalibur”), a small enterprise managed by a US citizen and his family. The background to the deal was that Excalibur signed an agreement to collaborate with Texas Keystone to bid for licences in Kurdistan, where Excalibur claimed to have commercial and political connections. If successful, Excalibur was to have a 30% participating interest in any eventually awarded licence. Although there were provisions allowing it to become a party at a later date, Gulf Keystone was not a party to the collaboration agreement between Excalibur and Texas Keystone. The collaboration agreement contained an arbitration agreement for ICC arbitration in New York.
In December 2010, Excalibur commenced an action in the Commercial Court in London, against Texas Keystone as well as against Gulf Keystone and three other subsidiaries of its group (together “the Gulf Defendants”) alleging that it had been wrongly prevented from contributing to the oil production sharing contract that had been awarded to Gulf Keystone. Excalibur had further applied to the English courts for a worldwide freezing injunction, in a sum exceeding half a billion dollars, which was rejected by Mrs Justice Gloster, who described the injunction as “opportunistic”. Excalibur’s claim was being funded by an unidentified third party.
On the same day Excalibur also filed a request for ICC arbitration in New York against Texas Keystone and the Gulf Defendants seeking similar, but not identical, relief. Excalibur argued that the Gulf Defendants should be bound to the arbitration agreement as – although they were not signatories to it - they were nonetheless parties to it as the “alter ego” of Texas Keystone when it entered the collaboration agreement. Following the ICC Court’s confirmation that the arbitration could proceed, Excalibur applied for a stay of the English proceedings while the Gulf Defendants asked the judge to issue an anti-arbitration injunction claiming that they were not a party to the arbitration agreement.
The questions for the judge were:
- whether the court had jurisdiction to grant an injunction restraining arbitration under section 37 of the Senior Courts Act 1981 when the seat of the arbitration is in a foreign jurisdiction;
- depending on the outcome above, whether the court had jurisdiction to determine the issue of whether the Gulf Defendants can be compelled to arbitrate; and
- whether an anti-arbitration injunction for the Gulf Defendants or a stay of the Commercial Court action for Excalibur should be granted.
Although it is rare for the English courts under the Arbitration Act 1996 to interfere with any type of arbitration, especially one commenced in a different jurisdiction, Mrs Justice Gloster decided that the court had jurisdiction to grant an anti-arbitration injunction and decided to grant it in this case as there were exceptional circumstances justifying it.
Taking the first two questions together, she decided that the Commercial Court was best placed to rule on the scope and extent of the arbitration agreement. In doing so, the judge referred to last year’s Supreme Court decision in Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan where, in an action against the enforcement of a foreign award in England, the UK’s highest court decided that the English courts have jurisdiction, after the arbitration took place in Paris, to decide on the issue of whether the parties were bound by an arbitration agreement, despite the doctrine of competence-competence, which permits an arbitral tribunal to decide on its own jurisdiction. (See our earlier Law-Now)
Considering that the Gulf Defendants had not been proper parties to the collaboration agreement containing the ICC arbitration clause, Mrs Justice Gloster accepted the argument that there was no arbitral jurisdiction over them, and that, for reasons including the chronology of the litigation, the conduct of the claimant, “cost and case management concerns” and the lack of a connection between the defendants and New York and the ICC, it was justifiable to hold that “England is clearly the more appropriate forum for the determination of Excalibur’s claims”. Two key factors in this decision are worth examining.
The first key factor was whether the arbitrators ought to decide the scope of the arbitration agreement themselves, and be left alone by the courts to do this.
Whilst the English courts will not restrain arbitral proceedings with a seat in a foreign jurisdiction where the parties have “unquestionably agreed” to arbitration, things are very different where, as here, the claimant accepted that it may not have had “good contractual claims against all of the respondent[s]”. Recent decisions, including the Supreme Court in Dallah, confirm that the English courts can and will intervene in such circumstances, notwithstanding the doctrine of competence-competence and Article 6.2 of the ICC rules, which provides that after a prima facie decision of the ICC Court it is for the arbitrators to decide on the scope of their jurisdiction.
The second key factor was whether the New York courts ought to decide the scope of the arbitration agreement, not the English courts.
Whilst accepting that questions of arbitrability or jurisdiction may in appropriate circumstances have been better left to the New York courts, Mrs Justice Gloster relied heavily on the fact that Excalibur had accepted the jurisdiction of the English courts in bringing its simultaneous Commercial Court claim (and its application to the Commercial Court for a freezing injunction, a remedy that would not have been granted had this application been brought instead before the New York courts). To refuse the anti-arbitration injunction would force the Gulf Defendants to submit to the jurisdiction of the New York courts, with which they had no connection, and to fight two sets of proceedings at the same time, wasting time and costs. As set out in Dallah, a party should not be compelled to go before a court or arbitral tribunal against whose jurisdiction it vigorously protests. It followed from the reasoning above that an anti-arbitration injunction was granted to the Gulf Defendants, and Excalibur’s requested stay of the Commercial Court action was refused, largely on the basis that if it was stayed, the arbitration would not necessarily finally resolve all the issues currently before the Commercial Court.
This case provides an interesting example of when the English courts will determine that the circumstances are sufficiently “exceptional” to justify their intervention in arbitration with a foreign seat. Previous authority supported intervention of the English courts in an English arbitration either at the enforcement stage, or earlier, on the basis that “sooner or later, the question of substantive jurisdiction is likely to come before the court”. In Dallah, the Supreme Court explained the limits of the doctrine of competence-competence in the context of enforcement proceedings. The novelty in Excalibur was that Mrs Justice Gloster decided that these limits were also applicable at the outset of the arbitration proceedings without fearing that this will create a conflict of jurisdictions between a national court and the arbitral tribunal. Although seen by some as an unwarranted infringement into the independence of the arbitral process, the decision by Mrs Justice Gloster seems to prevent defendants from incurring the expense of defending separate, but similar, claims in parallel arbitration and court proceedings.
In terms of lessons to be learned, it is worth noting that in both Dallah and Excalibur, the claimant had accepted a transaction structure that made it hard to claim damages. This case reinforces the approach of the English courts to privity of contract in the arbitration context, in contrast, for example, to the approach of the French court in Dallah. The judge also made clear that she was not impressed with the procedural conduct of Excalibur. If proceedings are "protective proceedings" for the purposes of the Limitation Act, this should be made apparent to the court and the other side at the outset.
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