KAZAKHSTAN COURT: THE VALIDITY OF THE ARBITRATION CLAUSE AND ANTI-SUIT INJUNCTION

Source: Caroline University

 

ABSTRACT

This work critically examines the impact of the Supreme Court decision as to the legality of the arbitral agreement after the Kazakhstan Supreme Court had declared the agreement to be invalid. It also explores the implication of the verdict and how the Supreme Court arrived at such a determination.

This work further scrutinises the impact of the anti-suit injunction and the reasons given by the Supreme Court to intervene in a matter relating to court proceedings in a foreign jurisdiction. The work has recourse to secondary data approach- cases, journals, articles, newspapers and websites and the conclusion justifies the stance of the apex court in her decision not to be held captive by the 1996 English Arbitration Act.

 

 

Keywords: Alternative Dispute Resolution, Arbitration, Asia Judiciary, Legal Practice & Procedure

 

 

INTRODUCTION                                                                                                                            

This case review examines the recent decision of the House of Lords in the case of UstKamenogorsk Hydropower, which was declared invalid by Kazakhstan Court irrespective of its validity and enforceability.[1] The preceding judge was of the view that it was time to take issues on a case by case basis rather than relying on the old legal decision, in which the lead judgement was given by Lord Mance JSC with whom the other four law Lords; agreed demonstrating that the House would not flinch from difficult decisions as long as there are substantial legal reasons for doing so.[2] It is however surprising that this power demonstrated by the House here is limited by the Brussels Regulation by the Court of Justice in the West Tankers case, it now means that an English court can no longer enforce contractual rights by injuncting a party within its jurisdiction from continuing proceedings in a foreign court in Brussels.’ [3] This distinction is crucial because when we refer to the courts in future following the decision, in this case, the difference must be borne in mind.[4] This decision is significant for the simple reason that the judges were willing to take a very definite stand against what they thought was the right thing to do on this individual case. They had pointed out that issues of this nature must be treated on a case by case basis.[5] But having removed the hoodoo surrounding the reluctance of the English courts to intervene in injunctive reliefs concerning actions taken in the foreign Court.

THE LEGALITY OF THE ARBITRATION CLAUSE

The issue here was whether the High Court in England was right to entertain or look into a concession agreement entered by the owners against the operators AES. [6]The agreement was governed by Kazakh law but contained an arbitration clause providing for arbitration in London under English law. [7]In proceedings relating to the concession, the Supreme Court in Kazakhstan held that the arbitration clause was contrary to Kazakh public policy and thus invalid.’ [8] Therefore the claimant who had not commenced arbitration proceedings and had no intention or wish to do so commenced proceedings in England for a declaration as to the validity of the arbitration clause and obtained without notice an interlocutory anti-suit injunction in respect of the Kazakh court.’ [9]In challenging the decision of the English Court, the defendant relied on the section. 44 of the Arbitration Act 1996 that in as much as there was no actual or intended arbitration, there was no jurisdiction to grant an injunction under sec.37 of the Senior Courts Act 1981.[10] This case is compelling for the reasons advanced by the Court of the first instance for reaching its conclusions. First, the Court relied on s.32 (3) showing that the Kazakh Supreme Court decision did not bind it, that it would not recognise the decision nor enforce it.[11] Secondly, it proffered the idea that English public policy favoured the enforcement of arbitration clauses and thirdly, that the agreement adequately construed did not offend Kazakh public policy.[12] Fourthly, there was a good case that the claimant had not submitted to the Kazakh economic court for the purposes of s.33 of 1982.[13] This decision was appealed by the defendant, and the Court of Appeal dismissed the appeal.[14]

This case review seeks to explore the rationale of the decision taken by the House and why this may have changed the legal climate as it affects declarative relief and an anti-suit injunction against foreign proceedings, where there had been an undertaking not to bring those actions.[15] About the arbitral agreement, the Kazakh Supreme court held that one of the key provisions in the arbitral agreement in clauses 17.8 and 17.9 which dealt with tariff was outside the arbitral agreement, and was meant to be dealt with by an expert.[16] The Court argued that the disputes which related to tariff were against Kazakh public policy as it puts it beyond its control. [17]The English court equally accepted that this was outside the arbitral agreement but argued that if adequately construed, it was not against the Kazakh public policy.[18]

But the second point on which the Kazakh Court dismissed the arbitration clause was even more controversial.[19] In their view, the Kazakh court thought that the reference in clause 32 to the Rules of the ICC did not refer to ICC and left the arbitrary body unspecified.[20] This is a strange summation by the Court as there is in their opinion only one ICC, and to discard the arbitration agreement on that basis leaves much to be desired.[21] It was therefore not surprising that Burton J concluded that neither the ground espoused by the Kazakh court was sustainable.[22]

The focal point here is that AESUK had been frustrated through consecutive rulings by Kazakh courts and was left with no alternative but to seek relief from the English courts, as attempts to stay proceedings under the Arbitration agreement was rejected by the Kaz”h “Economic Co” t.’’[23] JSC, on its part, refused to give any undertaking that it would cease from asking for further information, nor from taking further proceedings in Kazakhstan.[24] These were, therefore, the reasons for the hearing in the Court of the first instance and the Court of Appeal.[25] JSC was unsuccessful on both appeals, and the matter proceeded to the House of Lords, which is now the subject of this analysis.[26]

The process through which the House reached its decision was based on pragmatism and real review of what was available to the disputant according to precedent.[27] Thus, it will form the basis of this analysis. Before proceeding to how the House reached its decision, it is pertinent to point out that an arbitral tribunal, could rule on their jurisdiction under s. 30, their ruling could be tested under sec.32, 67, and or 72 and the Court could in the meantime be asked to give interim relief under sec’ 44.’[28] This case note does not accept that JSC had adequately put its case before the Court, in that neither ASEUK nor JSC either intended or anticipated an arbitral proceeding.

However, the logic of their argument is such that they had argued about the effect of s.30 which primarily deals with the situation where a tribunal would rule in its substantive jurisdiction whether there is a valid arbitration agreement, whether the tribunal is adequately constituted or whether the matter has been submitted in accordance with the arbitral agreement.[29] It certainly reflects the ration of the case of KompetenzKompetenz, lending credence to the above claim is the case of Dallah,[30] in which it was held that a tribunal might rule whether the question was within its jurisdiction. It, however, does not prevent the Court from reviewing the tribunal decision based on s. 32, 67 or 72 of the 1996 Act.[31]

In the present matter, it would appear that there is a difference between the examples relied upon by JCS and the cited authorities as they contemplate a situation where a tribunal hearing is anticipated, but in the present case, none is anticipated.[32] After extensive examinations of the above-listed sections, together with the case such as ABB Lummus case, concluded that it has no bearing on the present matter.[33] In fact, in paragraph 40 states t”t “these cases have no direct bearing on the present situation.[34] Here, no arbitration proceedings are on foot, and ASEUK does not intend or wish to institute any. S. 30, 32, 44, and 72 of the Act are all in terms of inapplicable. No arbitration tribunal exists to determine its competence under s’ 30.’[35] This summation in the view of this paper was inescapable as it is clear that a tribunal cannot be asked to rule on its jurisdiction where no arbitral proceeding was anticipated. In the final analysis, the House held and in our view rightly so, t” “ In these circumstances, there is, in my opinion, every reason why the Court should be able to intervene directly, by an order enforceable by contempt, under s. 37.[36] To do so cannot be regarded, in DAC’sAC’s words, as intervening in the arbitral process, thereby tending to frustrate the choice the parties have made to use arbitration rather than litigation as the means for resolving their dispu” s.’’[37]

 

THE POWERS OF ENGLISH COURT TO GRANT INJUNCTIVE RELIEF AGAINST FORECOURT’SRT’S DECISION.

The power of the EnglCourt’srt’s to decide about the jurisdiction of a tribunal whose seat is London is one thing, but to make an injunctive order to a party to a dispute from pursuing their claim in a foreign court is the subject of our next inquiry. Before going further, it is vital at the outset to lay a brief foundation. First BurJ’s J’s order needs to be revisited” “ The claim, the subject matter of the [ Kazakhstan proceedings] or any other claim arising out of or in connection with any matter or thing concerning the provisions of the Concession Agreementsave only for excepted matters, arbitration proceedings in the International Chamber of Commerce in London and under its Ru’ es.’[38] The second point is that the ruling above was accepted by both the appellant and respondent as being the final order. [39]This issue was not challenged throughout the appeal, thus demonstrating that specific claims could only be adequately pursued in arbitration, and restraining their pursuit in any other forum. So future claim can only proceed in line with BurJ’s J’s order and injunction, it appeared that the Supreme Court had proceeded on that basis.[40] Hence, the principle brings out a peculiar feature which compares the power to apply for a stay under s. 9 of the arbitration, with the power to injunct on foreign proceedings.[41] Why this is crucial to this case note is the fact that it demonstrates that the English Court has not done anything strange. It could be considered from this perspective to be something within the remit of the courts. What was, however, interesting was the remark made by the House that the previous caution must be re-examined and a more robust approach adopted in this case.[42] Therefore, the House was not impressed with the view expressed by JSC that for the Court to injunct the commencement or anticipated foreign court proceedings.[43] In the sub-heading below, we would now examine how the Supreme Court relied on its characteristics boldness to use the powers conferred on it by s. 37 to injunct against the commencement or continuation of foreign proceedings.

AUTHORITIES ANALYSED

The authorities for the formulation of the decision to rule on the need for the English Court to intervene in the matter of whether the arbitration clause was enforceable had been dealt with above. But having said that there was no dispute as to BurJ’s J’s decision in the course of the appeal from both sides, we are now left with pointing out the reason for the protracted appeals. However, it is crucial to explore the authorities on how the House of Lords examined the various options available to them and why they choose to take the path they took.

First, they examined the ratio of the case of Pena Copper Mines Ltd v Rio Tinto Ltd, Moulton LJ said that words in the arbitration clause were that they would not sue in foreign c’urt’, was certainly contrary to their contractual duties.[44] This was the point reached over a hundred years ago, so the House of Lords proceeded to a more recent case in the 1990s. In it they looked at the decision in the case of   Aggeliki Charis Cia Marittima SA v Pagnan Spa [45]In this case parties had agreed to arbitrate in London and then the Charterers took proceedings in Venice. The Court of Appeal held citing Pena Copper and other authorities, that the courts ought not to feel different about granting an anti-suit injunction if sought promptly.[46] But the ideas of the Court in the 1990s were such that the courts were willing to injunct foreign proceedings brought in breach of not having a right to interfere with the conduct of proceedings in a foreign co”t.’’ This showed that the English courts approach to foreign proceedings was cautious and non- interventionist; therefore, for the Lordships to proceed from this approach to the present is a demonstration of a massive shift in outlook. Hence, Millet LJ words highlighted the new strategy, which this case note considers to be the pointer and essence of this paper.[“7] “He said that the time has come, the question must be the present and in essence showing the shift in intent and purpose of the courts) for the cou” “ to lay aside the ritual incantation that this is a jurisdiction which should only be exercised sparingly and with great caut” n.’’[48] An injunction should be granted to restrain foreign proceedings in breach of an arbitration agreem” “ on a simple and clear ground that the defendant has promised not to bring t” m.’’[49] The reasons for the appeals through to the House of Lords could now be appreciated, that there was an apparent controversy between the position held by ASEUK and JSC. While itJSC’sSC’s position that the injunction was a violation of the lawful right chosen by the parties to settle their dispute and that the EnglCourt’srt’s proceeding was neither needed nor required, as parties have chosen to arbitrate.

Mostly this paper was not able to extensively embark on a round trip through the arbitration Act as anticipated, nor a critical examination of s. 9, 44, of the 1996 Act and s. 37 of the Senior Courts Act 1981.[50] The reason this paper did not go into these collective sections is that arbitration was never initiated nor anticipated.[51]

 

CONCLUSION

Against the backdrop, it would appear that the approach for or by the English courts to abandon its conservative approach to a declarative and injunctive order against foreign proceedings has to be abandoned. This case signals a new approach by English courts to become pro-active in their quest to granting injunctions against the backdrop of acting within their lawful authority. Nothing makes this position more salient than the statement made by His Lords”Where an order is sought to restrain foreign proceedings in breach of an arbitration agreement; whether on an interim or final basis and whether at a time when arbitral proceedings are or are not on foot or proposed. The source of the power to grant such an injunction is to be found not in sec.44 of the 1996 Act but in sec.37 of the 1981 Act.

This, therefore, justifies the stance of the apex court in her decision not to be held captive by the 1996 Act, which further noted that sec. 37 of the 1981 Act gives the Court and all-encompassing power to endorse the decision of Burton J. Hence, the appeal of JSC was accordingly dismissed. This case, therefore, opens in this writers view the flood gate of new cases that would jump on the bandwagon of this landmark case.

 

 

Bibliography

Primary Sources

Cases

  • Ace Capital Ltd v CMS Energy Corporation [2008] EWHC 1843.
  • Arsanovia Ltd v Cruz City 1 Mauritius Holdings [2012] EWHC 3702(Comm).
  • ABB Lummus Global Ltd v Keppel Fels Ltd [1999Lloyd’syd’s Rep 24.
  • Aggeliki Charis Cia Maritime SA v Pagnan SpA (“he “Angelic G”ace”) [199Lloyd’syd’s Rep 87.
  • C v D [2007] EWCA Civ 1282.
  • Cetelem SA v Roust Holdings Ltd   [2005] EWCA Civ 618.
  • Channel Tunnel Group Ltd v Balfour Construction Ltd [1993] AC 334.
  • Donohue v Armco Inc [2001] UKHL 64.
  • Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010]UKSC 46.
  • Fiona Trust and Holding Corp v Privalov [2007] EWCA Civ 20.
  • Hiscox Underwriting Ltd v Dickson Manchester & Co Ltd [200Lloyd’syd’s Rep 438.
  • Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43.
  • Pena Copper Mines Ltd v Rio Tinto Co Ltd [1911]105 LT 846.
  • Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638.
  • Sokana Industries Inc v Freyre &Co Inc [199Lloyd’syd’s Rep 57.
  • South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien”NV [1987] AC 24.
  • Sonatrach Petroleum Corporation v Ferrel International Ltd[2002]1 ALL ER(COMM)627.
  • Turner v Grovit [2001] UKHL 65.
  • Vale do Rio Doce Navagaceo SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000]2 All ER (Comm) 7.
  • West Tankers Inc v Allianz SpA [2009]1 AC 1138.

 

 

 

 

Legislation

  • Arbitration Act of 1996
  • Arbitration 1950
  • Brussels Regulation 2001
  • Civil Procedure Rule 1998
  • Geneva Conventions 1949
  • New York Convention on the Recognition & Enforcement Awards 1958
  • Chartered Institute of Arbitrators Rule 2000
  • Senior Courts Act 1981
  • Supreme Court Act 1981
  • UNICTRAL Model Law on International Commercial Arbitration 1985

Secondary Sources

Books

  • Gary B, International Arbitration Cases and Materials (Walters Kluwer Law 2011).
  • Moses M, The Principles and Practice of International Commercial Arbitration (2nd edn, Cambridge University Press, U.S.A 2012).
  • Marshall E, Gill: The Law of Arbitration (4th edn, Sweet& Maxwell 2009).
  • Redfern A, Hunter M, on International Arbitration Student Version (5th edn, Oxford University Press 2009).

 

 

Journals and Articles

  • Herbert S, Aes Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35; [2013]WLR (D)232(ICLR, The Incorporated Council of Law Reporting for England & Wales.).
  • Knill N, Hogan B, Anti-Suit injunctions: the tailored approach (Clyde& Co 2013).
  • http://clydeco.com accessed on 6th April 2014.
  • Lee S, English Court has the power to issue an anti-suit injunction in support of non-existent arbitration< https://singaporeinternationalarbitration.com>accessed on 6th April 2014
  • Ust- Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35 (2013 All ER (D)89(Jun)
  • <https://www.lexisweb.co.uk >accessed on 6th April 2014.
  • Umegbolu Chinwe, Case Note on AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35 (Case Note submitted to Kingston University London 2014)

 

 

Websites

  • Supreme Court Confirms Power to Grant Declaratory and Anti-Suit Injunctive Relief Even Where No Arbitration is Commenced or Proposed (Allen & Overy LLP 2013)
  • <http://allenovery.com> accessed on 6th April 2014.
  • Tench D, Coogan L, Hopkins C, New Judgement: Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35 (UK Supreme Court Blog 2012)
  • (OLSWANG, Singapore International Arbitration Academy 2013).

[1] Ust-Kamenogorsk Hydropower Plant v Ust-Kamenogorsk Hydropower Plant JSC Supreme Court [2013] UKSC 35. 1

 

[2] Ust-Kamenogorsk Hydropower Plant(n1)

[3]West Tankers Inc v Ras Riunione Adriatica di Sicurta Spa [2005]2 All ER(COMM)240.

[4]Turner v Grovit [2001] UKHL 65: [2002]1WLR 107

[5] Philip Clifford, English Supreme Court Confirms Power To Issue an Anti-Suit Injunction, Even if no Arbitration is Contemplated (Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant LLP)[2013]UKSC 35.Latham&Watkins LLP 1-2

[6] Ibid 1-2

[7] Smith Herbert, Aes Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35[2013] WLR (D) 232 (The Incorporated Council of Law Reporting for England &Wales) 2-3.

[8] Ibid (n4) 1.

[9] Ust-Kamenogorsk (n4)1-3.

[10] Ibid 1.

[11] Civil Jurisdiction &Judgement Act 1982 Section 32(3).

[12] Dan Tench, Laura Coogan, Sophie Harbord, Luke Pardey, Case Preview: Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP (UKSC blog 2013)1-2< http://www.ukscblog.com>accessed on 6th April 2014.

[13] Civil Jurisdiction (n12).

[14] ibid

[15] Ust-Kamenogorsk (n4)1-3.

[16] Ust -Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35.

[17] Ibid.

[18] Ibid.

[19] Ibid.

[20] Ibid.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24]Ibid.

[25] Ibid.

[26] Ibid.

[27] Ibid (n17).

[28] Arbitration Act 1996, Section 32, 67,72.

[29] Ibid.

[30] Dallah Real Estate& Tourism Holding Co v Ministry of Religious Affair of the Government of Pakistan [2010]UKSC 46.

[31]Ibid (n30).

[32]Ibid.

[33] ABB Lummus Global Ltd v Keppel Fels Ltd [1999Lloyd’syd’s Rep 24.

[34] Ibid.

[35]Ibid (n32).

[36] Ibid (n34).

[37] Ibid 12.

[38] Ust-KamenogorskHydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35.

[39] Ibid 7.

[40] Ibid 7.

[41] Arbitration Act 1996, Section 9.

[42] Ibid (n38).

[43] Ibid 8.

[44] [1911] 105 LT 846.

[45] [1995] 1 Lloyd’s Rep 87.

[46] Ibid (n42) 8.

[47] Ust-Kamenogorsk Hydropower Plant JSC v AES Ust-Kamenogorsk Hydropower Plant LLP [2013]UKSC 35.7-8

[48] Ibid 7-8.

[49] Ibid 8.

[50] Ibid.

[51]Ibid.

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