English courts can protect agreements to arbitrate even where arbitration not commenced or contemplated

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In Ust-Kamenogorsk Hydropower Plant JSC -v- AES Ust-Kamenogorsk Hydropower Plant LLP the UK Supreme Court confirmed that the English courts have the power to restrain non-European proceedings brought in violation of an arbitration agreement, even where no arbitration has been commenced or is contemplated. The decision is another example of the English courts' support of the arbitration process.

Full article

Background

In Ust-Kamenogorsk Hydropower Plant JSC -v- AES Ust-Kamenogorsk Hydropower Plant LLP(1) the UK Supreme Court confirmed that the English courts have the power to restrain non-European proceedings brought in violation of an arbitration agreement, even where no arbitration has been commenced or is contemplated. The decision is another example of the English courts' support of the arbitration process.

Facts

JSC and AES were parties to a concession agreement that provided for disputes to be resolved in London arbitration under the ICC Rules. Although the concession agreement was governed by Kazakh law, it was agreed that the arbitration clause was governed by English law.

Relations between JSC and AES deteriorated. In 2004 the Kazakh Supreme Court declared the arbitration clause invalid. In 2009 JSC brought court proceedings against AES in Kazakhstan. AES' application to stay those proceedings by reference to the contractual arbitration clause was dismissed.

AES then issued proceedings in England, seeking: (a) a declaration that the arbitration clause was valid and enforceable, and (b) an anti-suit injunction restraining JSC from continuing with the Kazakh proceedings. The English Commercial Court found that they were not bound to follow the Kazakh court's conclusions in relation to an arbitration clause governed by English law and refused to do so. The Commercial Court granted both the declaratory and final injunctive relief sought. That decision was upheld in the Court of Appeal. JSC appealed to the Supreme Court.

Issue before the Supreme Court

JSC challenged the decision of the lower courts on the basis that, as no arbitration proceedings had been commenced and AES had shown no intention of doing so, the English courts did not have jurisdiction to grant the injunction. A party could only obtain injunctive relief under the Arbitration Act 1996 where there was an actual or intended arbitration. Further, to the extent that the English courts did have a general power to grant injunctive relief under section 37 of the Senior Courts Act 1981, its use was similarly limited.

Decision

The Supreme Court unanimously dismissed the appeal. The English courts have a long-standing and well-recognised jurisdiction to restrain foreign proceedings brought in violation of an arbitration agreement, even where no arbitration is on foot or in contemplation. Reasons given for their decision included the following:

• By agreeing to arbitrate, both parties promised to refrain from commencing proceedings in any forum other than the forum specified in the arbitration agreement. This negative promise not to commence proceedings in another forum is as important as the positive agreement on forum.
• Independently of the 1996 Act, the English courts have a general inherent power to declare rights and a well-recognised power (under section 37) to enforce the negative aspect of an arbitration agreement by injuncting foreign proceedings brought in breach of an arbitration agreement. This is the case even where arbitral proceedings are not on foot or in contemplation.
• An express provision would be required in the 1996 Act to preclude that power; there is nothing in the 1996 Act which removes, limits or qualifies it.

The Court recognised that the power to grant injunctive relief has to be exercised sensitively and with due regard to the scheme and terms of the 1996 Act. That said, there was nothing wrong in principle with it being exercised in this particular case.

Comment

The decision is an important one. It is indicative of the support the English courts give to arbitration and also clarifies the position with regard to the availability of anti-suit injunctions in support of London seated arbitrations where proceedings are commenced in non-European courts(2). The ability to protect your agreement to arbitrate (without having to actually commence arbitration yourself) via the injunctive relief available in the English courts is one of many factors which adds to the attraction of London as a seat for arbitration. For the full judgment see http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKSC/2013/35.html

Please click on the links below for the other articles in the July 2013 Arbflash:

• High Court upholds Australia's international arbitration laws
• Interim relief in support of arbitration in court other than court of seat: drafting implications of the Konkola decision
• Disclosure of overseas assets permitted in the English courts
• The IBA Guidelines on Party Representation in International Arbitration: levelling the playing field?
• New arbitration rules for HKIAC
• New governance structure and revised rules for SIAC
• PwC-and-Queen-Mary-2013-survey-on-industry-perspectives -July-2013
• Paris launches Paris Arbitration Rules
• CIETAC update
• SIAC sets up in Mumbai
• New international arbitration centres in New York, Seoul and Karnataka
• Myanmar accedes to the New York Convention

_Notes:

_{(1) [2013] UKSC 35.
(2) Such relief is not possible inside Europe as a result of the Brussels Regulation/Lugano regime.}