Your agreement has an arbitration clause providing for arbitration in London. All well and good if the parties invoke the clause when a dispute arises. But what is the position where, in breach of that clause, your opponent issues proceedings in its home court? Is it a case of first come, first served or will the arbitration clause be upheld?
In this, the third part of our mini series on international arbitration, we look at when parties might issue proceedings in their home courts, and what the options are if they do.
For a long time, the English court has had the power to restrain, by means of an injunction, proceedings in foreign courts brought in breach of an English jurisdiction clause or an arbitration clause where the seat of arbitration is England.
However, this right has come under attack. Under the Brussels Regulation (the Council Regulation 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters) any EU court before which proceedings are first started, has the right to determine its own jurisdiction. All other courts in the EU must wait until that court has decided the question of jurisdiction. That is the position even if the proceedings in that first court were clearly started in breach of the jurisdiction clause agreed by the parties.
To get round this, parties have sought anti-suit injunctions from the English court, preventing continuation of these foreign proceedings. But such injunctions have also been held to contravene the rule that the court first seised can decide its jurisdiction and other courts must hold back until they have done so.
No arbitration exception
It was always thought that the bar on anti-suit injunctions did not apply to proceedings brought in breach of an arbitration clause, arbitration matters being excluded from the Brussels Regulation regime. Not so. In Allianz SpA -v- West Tankers, the European Court of Justice held that despite the "arbitration exception", the English court cannot restrain a party from bringing proceedings in EU courts in breach of an arbitration clause. There is no such restriction on the English court in relation to proceedings brought in non-EU courts.
Restraining proceedings in a non-EU court
To obtain a permanent injunction (and probably a temporary one too), a party must show at trial, that it is entitled to the injunction, having satisfied the various conditions below:
- The foreign proceedings are in breach of the relevant arbitration agreement. This requires carefully construing the agreement to identify whether the foreign proceedings fall within the scope of that clause, and the nature of those proceedings.
- The party bringing the foreign proceedings is bound by the arbitration agreement, i.e. it is a contracting party or subsequently became a party by means of novation, assignment or some other rule of law.
- The relevant arbitration rules do not impose any constraints on the court granting an injunction. Most of the commonly used arbitral rules, for example, the International Chamber of Commerce, the London Court of International Arbitration and the United Nations Commission on International Trade Law permit parties to apply for interim measures from a competent court.
The granting of an injunction is discretionary. It will generally be ordered if the claimant can demonstrate the existence of the arbitration clause and there are no exceptional circumstances amounting to a strong reason to refuse it. That said, the application should be brought promptly before the foreign proceedings are too far advanced. One factor that may weigh against an injunction is if the claimant in the foreign proceedings has obtained security (through some form of freezing injunction) which will be lost if the anti-suit injunction is granted.
What other remedies exist to prevent such proceedings in EU courts?
Where the parties have agreed an arbitration clause with the seat in London, there is currently little, if anything, that a party can do to seek an injunction from the English court restraining proceedings brought in another EU court by an opponent. However, there are other remedies that a wronged party can consider:
- A claim for breach of contract. While it may be possible to quantify losses such as wasted costs in fighting the foreign proceedings, the real losses are likely to be concerned with the inability to pursue the arbitration quickly in England. Nevertheless, such a claim could still be a powerful tool.
- A declaration from the English court that the other party is bound by the arbitration agreement. This would mean that the claimant in the foreign proceedings could not enforce a judgment resulting from the foreign proceedings in the English court. However the foreign proceedings may be declaratory in nature and brought, not to enforce in England, but to prevent enforcement of an arbitration award in that country.
- A stay or dismissal of the foreign proceedings. This is the obvious route although it embroils the party in a legal system that it had possibly wished to avoid, hence the arbitration agreement.
An unsatisfactory state of affairs
Although parties may agree to resolve their disputes in one particular way (for example, through arbitration), within Europe at least, that can be abused. The Brussels Regulation is under review and it may be that certain proposed changes will improve matters. However, such modifications are several years away at least and the current position remains unsatisfactory.