Restrain foreign claims

English arbitration clause gives power to restrain foreign claim

Supreme Court

AES LLP v Ust-Kamenogorsk JSCT

Judgment June 12, 2013

The English courts had a long standing and well recognised jurisdiction to restrain foreign proceedings which were brought in violation of a clause in an agreement which provided for arbitration in England under English law even when neither of the parties to the agreement had commenced or intended commencing arbitration proceedings.

The Supreme Court so held, dismissing an appeal by the defendant, and granting the claimant:

1 a declaration that the defendant was bound to submit disputes, including disputes as to the effectiveness of an arbitration clause, to arbitration in London; and

2 an anti-suit injunction to prevent the defendant from litigating disputes falling within the arbitration clause in the courts of Kazakhstan.

The judges said that an agreement to arbitrate disputes had positive and negative aspects. A party seeking relief within the scope of the arbitration agreement undertook to do so in arbitration in whatever forum was prescribed. The (often silent) concomitant was that neither party would seek such relief in any other forum. If the other forum was the English court, the remedy for the party aggrieved was to apply for a stay under section 9 of the Arbitration Act 1996.

The issue on the present appeal was whether, if the other forum was a foreign jurisdiction outside the European regime of the Brussels Regulation and the Lugano Convention, the English court had any, and if so what, power to declare that the claim could only be brought in arbitration and/or to injunct the continuation or commencement of the foreign proceedings. It was clear that injunctive relief in relation to foreign proceedings within the Brussels/Lugano space was impermissible under the Regulation and Convention.

The unusual feature of the present appeal was that the claimant had not commenced, and had no intention or wish to commence, any arbitration proceedings. Its contention was simply that the defendant should not pursue or be free to pursue court proceedings against it. If the defendant commenced arbitration proceedings, then no doubt the claimant would defend them.

The rival submissions on the court’s power to order injunctive relief turned primarily on the scope and effect of the Arbitration Act 1996. The claimant submitted that independently of that Act the court had a general inherent power to declare rights under section 37 of the Senior Courts Act 1981 (formerly named the Supreme Court Act 1981) which gave the High Court power to “grant injunctive relief . . . in all cases where it appears to the court to be just and convenient to do so”.

The defendant opposed the deployment of such powers and submitted that any negative obligation inherent in an arbitration agreement was a mere ancillary to current or intended arbitral proceedings, and that the negative aspect of an arbitration agreement was enforceable only when arbitration was on foot.

The judges said that there was no basis for any such limitation. The negative aspect of an arbitration agreement was a feature shared with an exclusive choice of court clause. In each case the negative aspect was as fundamental as the positive. There was no reason why a party to either should be free to engage the other party in a different forum merely because neither party wished to bring proceedings in the agreed forum.

The power to stay domestic proceedings under section 9 of the 1996 Act and the power to determine that foreign proceedings were in breach of an arbitration agreement and to injunct their commencement or continuation were in truth opposite and complementary sides of a