Page 1 - Arbitration

S4 | MONDay, JULy 18, 2016 | Arbitration
| nylj.com
A Common Right to Arbitrate: Anti-Suit Injunctions
In New York and England
tual agreements that reference arbitration in England. According to the court, the basis for granting an anti-suit injunction in those cir- cumstances was “the clear and simple ground that the defendant has promised not to bring [a foreign suit].”6
During roughly the same time period, the U.S. Court of Appeals for the Second Cir- cuit in China Trade & Dev. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir. 1987), articulated a restrained path towards anti-suit injunctions involving arbitration agreements, grounded in considerations of international comity. The court held that since an anti-suit injunction “effectively restricts the jurisdiction of the courts of a foreign sovereign,” it should be granted “sparingly” and “only with care and great restraint.”7 As can be seen, New York courts effectively held the same view as the pre-Angelic Grace English courts.
The divergent approach of the English and New York courts continues today. In form- ing an arbitration agreement, parties should therefore consider whether an arbitral seat in London or New York will better meet a potential need to curtail a recalcitrant coun- terparty from attempting to avoid its obliga- tion to arbitrate in favor of a local courthouse.
Position of the English Courts
If The Angelic Grace represented the high- water mark of English courts’ robust disposi- tion to grant anti-suit injunctions, the water receded slightly with the 2009 case of Allianz SpA and Generali Assicurazioni Generali SpA v. West Tankers8 In West Tankers, the Court of Justice of the European Union (as it is now known) held that courts of EU Member States were not permitted to issue anti-suit injunctions in support of arbitration against a party that had initiated court proceedings in another EU Member State, because this was not compatible with the EU’s Brussels Regula- tion on jurisdiction and the recognition and enforcement of judgments.9 (However, with the U.K.’s June 23, 2016 decision to “Brexit” the EU, the ability of English courts to issue anti-suit injunctions in support of arbitration may well be restored. This change may how- ever take at least two years while the terms of “Brexit” are negotiated.)
Although English courts continue to view anti-suit injunctions as essential to protecting contractual agreements that reference arbitra- tion in England, West Tankers created a signifi- cant geographic impediment on the ability of English courts to issue anti-suit injunctions, leaving the whole of the EU exempt from this protective power. Parties should take this into consideration when selecting London as the seat of a potential arbitration, particularly if they can foresee being hailed into a local court of another EU Member State.
In practice, English courts have issued anti-suit injunctions in a variety of circum- stances. For example, in AES Ust-Kamenogorsk Hydropower Plant LLP v. Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35, the U.K. Supreme Court held that the English courts could enjoin court proceedings in Kazakhstan where the parties’ contract provided that dis- putes would be subject to arbitration seated in London, even though no arbitration had been commenced or was being contemplated. The court based its holding on the “negative
By Christopher ryan, henry WeisBurg
and david earnest
A n important consideration when drafting an enforceable arbitration agreement is the legal “seat,” or juridical location, of
the arbitration. Both London and New York have established themselves as favorable arbitral seats because of their willingness to compel and safeguard the efficacy of parties’ agreements to arbitrate.
In its simplest form, an arbitration agree- ment is a mutual promise to resolve defined disputes through an arbitral process, rath- er than resorting to courts. This promise includes a positive obligation to submit the dispute to an agreed arbitral forum, and a neg-
Christopher ryan and henry Weisburg are part- ners, and DaviD earnest is an associate, at Shearman & Sterling, where they each practice in the interna- tional arbitration group.
ative obligation to refrain from commencing proceedings in a forum other than that speci- fied in the arbitration agreement.1 While the positive obligation is addressed by a court’s power to compel arbitration, the negative obligation may be effected through the grant of an anti-suit injunction in support of the arbitration agreement. The duality of obliga- tions was reflected in Pena Copper Mines Ltd v. Rio Tinto Co Ltd (1911) 105 LT 846, in which the English Court of Appeal recognized “cer- tainly an implied negative” in the arbitration agreement and ordered Rio Tinto to desist from Spanish court proceedings which were “contrary to their contractual duties.”2
Anti-suit injunctions are equitable remedies that courts may grant to prevent a party to an arbitration agreement from avoiding its contractual obligation to arbitrate by pursu- ing claims in a foreign court. Although the injunction applies to a specific party—and, hence, is not an order compelling action by the foreign court—it necessarily raises ques- tions as to whether the foreign court should nevertheless decline to proceed with a case.
This, in turn, highlights the balance between judicial competence and international comi- ty that comes into play in the face of such injunctions.
English and New York courts historically have taken different views on the suitability of an anti-suit injunction in support of arbitra- tion. Indeed, precedent shows that English courts have been more willing to grant anti- suit injunctions in favor of arbitration than New York courts.3 The difference in approach appears to lie in disparate views of the role of international comity in deciding whether an injunction should be issued.
The 1994 decision, The Angelic Grace, arguably represents the high-water mark for English courts with respect to anti-suit injunctions.4 Prior to this decision, English courts generally held the view that anti- suit injunctions should be issued sparingly and with great caution.5 The Angelic Grace court, however, changed course. No longer was the court constrained by vague notions of caution; rather, it took a view that courts should provide robust protection for contrac-
ISTOCK