Out-Law News 2 min. read
13 Jun 2013, 4:05 pm
In its judgment, the UK's highest court said that the 1996 Arbitration Act did not restrict courts' broad powers to issue injunctions in support of arbitration agreements, where neither of the parties had decided to arbitrate yet.
"An agreement to arbitrate disputes has positive and negative aspects," said Lord Mance in his leading judgment. "A party seeking relief within the scope of the arbitration agreement undertakes to do so in arbitration in whatever forum is prescribed. The (often silent) concomitant is that neither party will seek such relief in any other form."
"It is inconceivable that the 1996 Act intended or should be treated sub silentio as effectively abrogating the protection enjoyed under [the Senior Courts Act] in respect of their negative rights under an arbitration agreement by those who stipulate for an arbitration with an English seat," he said.
The case involved a dispute between JSC, the state-owned owner of a hydroelectric power plant in Kazakhstan, and AESUK, the operator of the plant. The concession agreement between the two contained an arbitration clause, governed by English law, stating that any disputes connected with the agreement should be arbitrated in London under International Chamber of Commerce (ICC) rules. The rest of the agreement was governed by Kazakh law.
In 2004 the Republic of Kazakhstan, as previous owner and grantor of the concession agreement, obtained a ruling from the Kazakh Supreme Court that the arbitration clause was invalid. In 2009 JSC, as current owner, began legal proceedings against AESUK in Kazakhstan. AESUK tried to rely on the arbitration clause to dismiss those proceedings, but was told that the clause had been annulled as a result of the 2004 decision/
The general power of the UK courts to grant an injunction "in all cases in which it appears to the court to be just and convenient to do so" is set out in the Senior Courts Act. Although that power is qualified, one of the situations in which it applies is where, as in this case, one party invades or threatens to invade another's legal rights.
JSC, argued that it would be "contrary to the terms, scheme, philosophy and parliamentary intention of the Arbitration Act" to allow an English court to decide whether it had breached that act by beginning legal action in Khazakstan. The general rule under the Arbitration Act is that only the arbitral tribunal can rule on jurisdiction, with courts only given the power to intervene in specified circumstances. However, Lord Mance said that this did not apply "where no arbitration is on foot or contemplated".
"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 section 37 [of the Senior Courts Act]," he said. "To do so cannot be regarded ... as 'intervene[ing] 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 disputes'. On the contrary, JSC has complete freedom of choice in relation to the arbitration agreement."
"In denying that the court has any relevant jurisdiction, JSC is seeking to benefit by AESUK's reliance on an arbitration agreement, while itself denying its existence. A party is entitled to benefit by the existence of an arbitration agreement, but normally only by asserting it," he said.
The circumstances in which national courts can prevent legal proceedings in countries that are parties to the Brussels Regulation or Lugano Convention are more limited following a recent decision by the Court of Justice of the European Union (CJEU), Lord Mance said.
