Delay causes English Court to deny anti-suit injunction in respect of foreign proceedings brought in breach of an arbitration agreement

A recent case in the English High Court (the Court) demonstrates the need to act promptly when seeking an anti-suit injunction in relation to proceedings in a foreign court. The claimant, Essar Shipping Ltd (ESL) sought an anti-suit injunction in respect of proceedings brought by the respondent, Bank of China Ltd (the Bank) in the Qingdao court in China (the Qingdao Proceedings) on the basis that the subject matter of the dispute was subject to a London-seated arbitration agreement.  ESL also sought a declaration that the arbitration agreement was valid and damages for breach of the arbitration agreement. 

The Court granted the declaration sought on the basis that, on the Bank’s case, the dispute was subject to the arbitration agreement. ESL was also allowed to proceed with its claim for damages.  However, the Court refused to grant the anti-suit injunction.  ESL had objected to the jurisdiction of the court in the Qingdao Proceedings but had not brought the application for an anti-suit injunction promptly. 

Parties intending to seek interim relief should take note of the Court’s emphasis on the requirement of promptness. This is the key factor, not whether it is reasonable to apply to the foreign court first to object to jurisdiction, or whether there will be a long delay in the foreign court.

Notably, whilst the point was not relevant in this case, the Court suggested that anti-suit injunctions cannot be granted in respect of proceedings in another EU Member State Court under the Recast Brussels Regulation.

Background

It was common ground that, if the Bank were correct in relation to its security interest arising under a bill of lading, the dispute between the Bank and ESL was subject to an LMAA arbitration clause providing for arbitration seated in London.

The contract required proceedings to be brought by 11 January 2015. The Bank brought the Qingdao Proceedings on 24 Sept 2014.  ESL objected to the jurisdiction of the Qingdao court on 24 November 2014 but did not issue the proceedings in the English court until 31 July 2015. 

The Court’s analysis

Whilst the dispute was subject to an arbitration agreement, it did not follow that ESL was entitled to an injunction under s37 of the Senior Courts Act 1981. An injunction is a discretionary remedy which can be granted in all cases in which the court finds that it is “just and convenient to do so”. Exercise of this discretion is confined by a number of principles. One such principle is that a court should enforce a party’s obligation to proceed in the agreed forum, absent strong reasons to the contrary. This was clearly established in relation to exclusive jurisdiction clauses by the decision in Donahue v Armco and its application to arbitration clauses was confirmed in AES Ust-Kamenogorsk Hydropower Plant v Ust-Kamenogorsk Hydropower Plant JSC.

Following closely the reasoning in The Angelic Grace, when an injunction is sought in the English court in respect of foreign proceedings brought in breach of an arbitration agreement governed by English law, English court need show no diffidence, providing that (i) the relief is sought promptly, and (ii) the foreign proceedings are not too far advanced.  The justification for the grant of the injunction is that a party would otherwise be deprived of a contractual right in circumstances where damages would be an inadequate remedy. The Court made clear that these provisos are cumulative – i.e. even if the proceedings were brought promptly, the foreign proceedings must not be too far advanced. If the proceedings were not brought promptly that would be sufficient to deny the injunction sought (Ecobank Transnational Incorporated v Tanoh). Detrimental reliance on the delay may be a factor taken into consideration but it is not a necessary element.

As ESL did not bring proceedings in English court promptly, the grant of an injunction would not be just and convenient and the application for an injunction was denied.  It was not the proper approach to let the foreign court reach a decision on jurisdiction first – indeed, this was expressly rejected in The Angelic Grace.  Notably, the Court found that, in the absence of good reason to the contrary, the proceedings should have been brought by ESL no later than the end of November 2014.

Given the conclusion above, it was unnecessary for the Court to determine the Bank’s complaint that it was prejudiced because an arbitration was contractually time-barred.  However, the Court found that the Bank had not shown that its omission to start arbitration proceedings within time was not unreasonable.  

COMMENT

This case demonstrates that, even when it is agreed that the dispute falls within the scope of a valid arbitration agreement, a claimant who delays in applying for an anti-suit injunction may find that its application is denied.  Without anti-suit relief, the claimant will have to rely on the foreign court to decline jurisdiction. In ESL’s case, the Court’s examination of expert evidence on the likely outcome of the jurisdiction challenge suggests that Qingdao court will assume jurisdiction.  The delay in seeking injunctive relief in England may therefore result in the substantive claim being resolved by Qingdao courts, in breach of the parties’ arbitration agreement. 

In some circumstances, the claimant facing foreign court proceedings brought in breach of an arbitration agreement could also initiate parallel arbitration proceedings in the hope that the tribunal reached an award on the merits before a foreign court did so.  This approach would not benefit ESL: in ESL’s case, its interest is in the Bank being unable to bring arbitration proceedings because of the contractual time bar.  In any case, the question of whether an arbitral award on the merits would assist a claimant who has not been able to injunct foreign proceedings would depend on where that award could be enforced.  If the relevant jurisdiction for enforcement is the country in which the foreign court had determined it has jurisdiction and/or reached a decision on the merits inconsistent with the award, the award may not be enforced anyway.

For further information, please contact Craig Tevendale, Partner, Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.