International arbitration - case law update

Last year, our round-up of developments in international arbitration concentrated on the impact of the European Court of Justice (“ECJ”) decision in the West Tankers case. The case concerned anti-suit injunctions. Just because a contract contains an arbitration clause parties will on occasion try to take disputes to court. In some jurisdictions, courts are prepared to disregard arbitration clauses, particularly if they provide for the dispute to be determined abroad, and try the matter themselves. The anti-suit injunction is a means to try and protect arbitration clauses. The idea is to prevent a party from continuing proceedings commenced in another jurisdiction in breach of an exclusive jurisdiction clause providing for litigation in England or in breach of an arbitration agreement providing for arbitration in England (a right enshrined in section 44 of the 1996 Arbitration Act). The ECJ removed the right – in cases involving the courts of the European Union – in respect of litigation at the start of this century. Unsurprisingly, in 2010, there have been further developments.

AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC1- anti-suit injunctions

JSC were effectively owners and grantors of a 20-year concession to operate hydroelectric plant and equipment and produce hydroelectric energy in Kazakhstan and AESUK were effectively grantees and lessees of that concession. The Concession Agreement contained an arbitration clause (“Clause 32”) which provided for ICC arbitration in London. A number of disputes arose between the parties which were referred to the courts in Kazakhstan. In January 2004 the Supreme Court of the Republic of Kazakhstan ruled clause 32 to be invalid. In June 2009 JSC commenced proceedings against AESUK in the Specialist Inter-District Economic Court of East Kazakhstan Oblast (‘the Economic Court’) due to AESUK’s failure to comply with repeated requests for information by JSC about the value of the concession assets. AESUK challenged the proceedings by reference to clause 32, but were unsuccessful. AESUK then applied, ex parte, to the Commercial Court in London for the grant of an anti-suit injunction, which it obtained. This was not recognised in Kazakhstan and the Economic Court continued with the proceedings, ruling in JSC’s favour. AESUK appealed to the Regional Court, again relying on clause 32. AESUK’s appeal was dismissed. Following the grant of the ex parte injunction, the matter moved to an inter partes hearing in the Commercial Court. AESUK sought two declarations. Firstly, that clause 32 was valid and enforceable and secondly, that the dispute between the parties fell within clause 32. AESUK also sought an injunction against JSC commencing or pursuing legal proceedings before the Economic Court or elsewhere in respect of any matters which AESUK and JSC had agreed to arbitrate.

JSC opposed the declarations and injunction sought on a number of grounds including the ‘Arbitration Claim Issue’ and the ‘Gateway Issue’, which were dealt with together by the judge. Relevant to these issues are CPR Part 62 and s.44 of the Arbitration Act 1996 (‘the 1996 Act’). CPR Part 62 defines arbitration claims in the High Court and provides ‘gateways’ through which relief can be granted for such claim. One such gateway is at Rule 62.5 which sets out rules for service of an arbitration claim form outside of the jurisdiction. Rule 62.5(1)(b) states that the court may give permission for service of an arbitration claim form outside the jurisdiction if the claim is for an order under s.44 of the 1996 Act. Section 44 gives the court the same power to make orders in relation to arbitral proceedings about matters listed in s.44 as it has to make orders about the same matters in legal proceedings. Rule 62.5(1)(c) states that the court may give permission for service of an arbitration claim form outside the jurisdiction if (i) the claimant seeks some other remedy or requires a question to be decided by the court affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award; and (ii) the seat of the arbitration is or will be within the jurisdiction or the conditions in s.2(4) of the 1996 Act are satisfied.

JSC argued that AESUK’s claim, the injunction and the gateways for relief relied upon in the CPR through Part 62 were based in part upon s.44 of the 1996 Act. JSC went on to argue that it was clear from the wording of s.44 and Part 62 that there had to be an arbitration in existence or intended or proposed arbitration proceedings. JSC contended that as there was no arbitration in existence and it was clear that AESUK did not propose or intend to commence such proceedings then relief could not be granted.

The issue before the Court was this. Where arbitral proceedings are neither commenced nor proposed, can an anti-suit injunction be obtained by reference to s.44 of the 1996 Act? The answer was no. However, where arbitral proceedings are neither commenced nor proposed, in England and Wales, an anti-suit injunction can be obtained by reference to s.37 of the Supreme Court Act 1981.

This case was brought by the party against whom claims were being made and who wanted to preserve its right under the contract to have those claims heard in arbitration. The High Court determined that an anti-suit injunction can be granted in these circumstances and used s.37 of the Senior Courts Act 1981 to assist in establishing the necessary “gateways” for the purposes of CPR Part 62. Burton J was keen to stress that there should not be an usurpation or ouster of the very arbitration jurisdiction that AESUK were seeking to enforce and engage. He went on to agree with the general principle set out by Thomas J in Vale de Rio that a party should commence arbitration proceedings before seeking declaratory relief, but stated that in the case of a party seeking to demonstrate that it wishes to be sued in arbitration then that party does not need to commence arbitration proceedings. This case also demonstrates that the English courts will still grant anti-suit injunctions in relation to decisions of courts, provided they are decisions outside of the EU. Remember that following, the West Tankers decision, if a party issues court proceedings in an EU state then, pursuant to Council Regulation 44/2001 (on the recognition and enforcement of judgments), the EU court cannot be restrained by an anti-suit injunction obtained from an English court.

Jivraj v Hashwani2- appointment of arbitrators

The parties here entered into a joint venture agreement to invest in real estate property in various parts of the world including Canada. The agreement included an arbitration clause. The parties terminated their venture and the matter was referred to arbitration. Mr Hashwani appointed Sir Anthony Coleman as arbitrator and asked Mr Jivraj to appoint an arbitrator. There would then have been a third appointment as chairman of the arbitration panel. However, Mr Jivraj said that Sir Anthony Coleman’s appointment was invalid because of the terms of the arbitration agreement. The arbitration agreement required that the dispute would be referred to three arbitrators, one to be appointed by each party and the third to be the president of the H.H. Aga Khan National Counsel for the United Kingdom. However, the clause also declared:

“All arbitrators shall be respected members of the Ismaili community and holders of high office within the community.”

Mr Jivraj sought a declaration that the appointment of Sir Anthony Coleman was not valid because he was not a member of the Ismaili community. The key issue before the CA was whether the agreement (although lawful when it was made) had become unlawful and void because it contravened the Employment Equality (Religion and Belief ) Regulations 2003 and the Human Rights Act 1998. The Regulation arose from an EU Directive concerning discrimination on the grounds of religion or belief, disability, age or sexual orientation. The Regulation was aimed at making void agreements which sought to refuse or deliberately omit to offer employment on the grounds of religion or belief. The Court of Appeal considered that the arbitration clause restricted the offer of employment as arbitrator purely on religious grounds. It was therefore void. The second question was whether that final sentence in the arbitration clause could be severed, so leaving the rest of the arbitration clause intact. The Court of Appeal considered that if they simply deleted the final sentence then the agreement would be substantially different from that which had been originally intended. As a result, the arbitration clause was void in its entirety.

Chalbury McCouat International Ltd v PG Foils Ltd3 - failure to identify the seat of the arbitration

Here Chalbury McCouat, an English company with its principal place of business in England, entered into a contract on 8 February 2008 (“the contract”) with PG Foils Ltd to dismantle its manufacturing plant in Vaassen in the Netherlands. PG Foils Ltd is an Indian company operating in Rajasthan and the parties had entered into a further, separate agreement by which the plant would then be reassembled in India. A dispute arose in relation to the payment under the contract. Chalbury McCouat attempted to invoke the arbitration clause in the contract which stated that the dispute was to be referred to “arbitration as per prevailing laws of European Union in the Europe”. However, PG Foils Ltd withheld its consent to appoint the arbitral tribunal, alleging that since the performance of the contract was to be completed in India and that the contract was signed and executed in India, either an “Arbitral Tribunal in India” should be appointed, or the provisions of the Indian Arbitration and Conciliation Act 1996 should apply. Chalbury McCouat subsequently issued an arbitration claim form, obtained permission to serve the claim outside the jurisdiction and then applied to the court to exercise its powers under section 18 of the 1996 Act to appoint the arbitral tribunal.

The dispute resolution clause within the parties’ agreement was clear that, failing resolution by discussion, the dispute should be referred to arbitration. However, the arbitration clause was silent as to the seat of the arbitration. Accordingly, in order for Mr Justice Ramsey to appoint the arbitral tribunal by virtue of section 18 of the 1996 Act, he first had to consider whether or not there was a connection with England and Wales, in accordance with section 2(4) of the 1996 Act. Mr Justice Ramsey referred to the Departmental Advisory Committee’s Report of January 1997 and the Court of Appeal’s decision in International Tank & Pipe SAK v Kuwait Aviation Fuelling Co KSC (1975) and found there would be a sufficient connection with England and Wales if the proper law of the contract were English law. However, in this case, there was no express choice of law stating what law (lex causae) was to be applied to the substance of the dispute.

As the law to be applied to the procedure of the arbitration (lex fori) was the law of the European Union, the judge found that this suggested that the proper law to be applied to the dispute should be determined under the law of the European Union, as set out in the Rome Convention. In accordance with Article 4 of the Rome Convention, the performance of the work of dismantling the plant was to be carried out by Chalbury McCouat, an English company with its principal place of business in England. Mr Justice Ramsey therefore considered that the contract was most closely connected with England and the arbitral tribunal were likely to find that the proper law was English law. So far as the seat of the arbitration is concerned, he found that the reference to “arbitration as per prevailing laws of European Union in the Europe” meant that the seat of arbitration was likely to be Europe, possibly England, and unlikely to be India. Further, the fact that payment under the contract was made in England was further evidence of a connection with England.

Accordingly, Mr Justice Ramsey held that because of the connection with England, it was appropriate for the court to exercise its powers under section 18 of the 1996 Act. He ordered that the President (or in his absence the Vice-President) of the London Court of International Arbitration (LCIA) make the necessary appointment of a sole arbitrator. In this case, the parties’ resolution of their dispute was ultimately prolonged by the fact that their contract had failed to identify the choice of law to be applied to the substance of the dispute, as well as failed to identify the seat of arbitration. This resulted in further disagreements regarding the appointment of the arbitral tribunal and potentially further costs. This exemplifies the importance of discussing and agreeing your dispute resolution clause at the outset of any project. In addition, this case is a further demonstration of the English court’s support of the arbitral process. Though there had been some difficulty in the interpretation of the parties’ contract, Mr Justice Ramsey nevertheless stated:

“When parties have agreed to arbitrate then I consider that the court should strive to give effect to that intention and should seek to support the arbitral process.”

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  • 1. [2010] EWHC 772 (Comm).
  • 2. [2010] EWCA Civ 712.
  • 3. [2010] EWHC 2050 (TCC).